UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-6233
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1st SOURCE CORPORATION
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(Exact name of registrant as specified in its charter)
Indiana 35-1068133
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 N. Michigan Street, South Bend, Indiana 46601
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 574/235-2000
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
9% Cumulative Trust Preferred Securities and related guarantee - $25 par value
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(Title of Class)
Floating Rate Cumulative Trust Preferred Securities and related guarantee -
$25 par value
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(Title of Class)
Common Stock - without par value
--------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 19, 2002. Common Stock, without par value -
$233,705,610.
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The number of shares outstanding of each of the registrant's classes of stock as
of February 19, 2002. Common Stock, without par value - 21,060,283 shares.
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9% Cumulative Trust Preferred Securities and related guarantee, $25 par value -
1,100,000 shares.
- --------------------------------------------------------------------------------
Floating Rate Cumulative Trust Preferred Securities and related guarantee, $25
par value - 690,000 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended December 31, 2001,
are incorporated by reference into Part II. Portions of the annual proxy
statement for the 2002 annual meeting of shareholders are incorporated by
reference into Parts II and III.
1ST SOURCE CORPORATION AND SUBSIDIARIES
FORM 10-K
Index
Part I Page
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Item 1. Business .................................................... 3
Item 2. Properties .................................................. 22
Item 3. Legal Proceedings ........................................... 22
Item 4. Submission of Matters to a Vote of Security Holders ......... 22
Part II
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Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ......................................... 22
Item 6. Selected Financial Data ..................................... 22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 22
Item 7A. Quantitative and Qualitative Disclosures about Market Risk .. 23
Item 8. Financial Statements and Supplementary Data ................. 23
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure .................................... 23
Part III
--------
Item 10. Directors and Executive Officers of the Registrant .......... 23
Item 11. Executive Compensation ...................................... 23
Item 12. Security Ownership of Certain Beneficial
Owners and Management ....................................... 23
Item 13. Certain Relationships and Related Transactions .............. 23
Part IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K ................................................. 24
Signatures ............................................................. 25
2
PART I
ITEM 1. BUSINESS
GENERAL
1st Source Corporation is an Indiana corporation and registered bank
holding company headquartered in South Bend, Indiana which commenced operations
as a bank holding company in 1971. As used herein, unless the context otherwise
requires, the term "1st Source" refers to 1st Source Corporation and its
subsidiaries. At December 31, 2001, 1st Source had assets of $3.56 billion,
deposits of $2.88 billion and total shareholders' equity of $306.2 million.
Pages 14 through 34 of 1st Source's 2001 Management's Discussion and Analysis of
Financial Condition and Consolidated Financial Statements and Notes for the year
ended December 31, 2001 are incorporated herein by reference.
1st Source, through its principal subsidiary 1st Source Bank (the
"Bank"), delivers a comprehensive range of consumer and commercial banking
services to individual and business customers through 64 banking locations in
the northern Indiana/southwestern Michigan market area. The Bank also competes
for business nationwide by offering specialized financing services for used
private and cargo aircraft, automobiles for leasing and rental agencies, heavy
duty trucks, construction and environmental equipment. The Bank, which was
chartered as an Indiana state bank in 1922, is a member of the Federal Reserve
System and its deposits are insured by the Federal Deposit Insurance Corporation
(the "FDIC") to the extent provided by law. The Bank is headquartered in South
Bend, Indiana, which is in northern Indiana, approximately 95 miles east of
Chicago and 140 miles north of Indianapolis. Its principal market area consists
of seventeen counties in northern Indiana and southwestern lower Michigan. South
Bend, in St. Joseph County, is the largest city in its market area, and is a
regional center for educational institutions, health care, financial, accounting
and legal services and retailing.
1st Source's other subsidiaries include 1st Source Leasing, Inc., an
originator and servicer of personal property leases to businesses nationwide,
1st Source Insurance, Inc., a general property and casualty insurance agency in
South Bend, 1st Source Capital Corporation, a licensed small business investment
company, 1st Source Capital Trust I and II, subsidiaries created to issue $44.75
million of Trust Preferred Securities, Michigan Transportation Finance
Corporation, 1st Source Specialty Finance, Inc., SFG Equipment Leasing, Inc. and
1st Source Intermediate Holding, LLC, companies that manage the assets of our
national niche lending businesses, 1st Source Funding, LLC, a special purpose
entity established for purposes of administering securitization activity,
Trustcorp Mortgage Company, a mortgage banking company with eight offices in
Indiana, Ohio, Michigan and North Carolina and 1st Source Corporation Investment
Advisors, Inc., a newly created registered investment advisory subsidiary that
provides investment management services to the 1st Source Monogram Funds, trust
and investment clients of 1st Source Bank. 1st Source's one inactive subsidiary
is FBT Capital Corporation.
The information regarding branch acquisitions on page 32 of Footnote Q
of 1st Source's 2001 Management's Discussion and Analysis of Financial Condition
and Consolidated Financial Statements and Notes is incorporated herein by
reference.
The principal executive office of 1st Source is located at 100 North
Michigan Street, South Bend, Indiana 46601 and its telephone number is (574)
235-2000.
BANKING AND FINANCIAL SERVICES
The organization offers a broad range of consumer and commercial
banking services through its lending operations, retail branches and
fee based businesses.
3
Loans and Leases
- 1st Source's commercial and agriculture loans at December
31, 2001, were approximately $448 million and were 17.7% of
total loans outstanding. The primary focus of this lending
area is with privately-held or closely-controlled firms in
1st Source's regional market area of Northern Indiana and
Southwest Michigan.
- Commercial loans secured by transportation and construction
equipment totaled $1.199 billion, or 47.3% of total loans
outstanding, at December 31, 2001. This loan area
concentrates on specialty finance lending for automobile and
truck leasing and rental companies, privately- owned
aircraft for businesses and individuals, heavy duty trucks,
environmental equipment and other equipment used in the
construction business. Currently, 1st Source has 28
locations nationwide supporting these lending activities.
Loan sale and servicing income resulting from loan
securitizations from these specialty finance lending
activities totaled $11.97 million in 2001. 1st Source also
generates equipment rental income through the leasing of
various automobiles, construction equipment and other
equipment to customers through operating leases, where 1st
Source retains ownership of the property being leased. Total
equipment rental income for 2001 totaled $26.2 million with
depreciation on this equipment amounting to $21.0 million.
- Loans secured by real estate amounted to $760 million, which
was approximately 30.0% of total loans outstanding, at
December 31, 2001. The primary focus of this lending area is
commercial real estate and residential mortgage lending in
the regional market area of Northern Indiana and Southwest
Michigan. Most of the residential mortgages are sold into
the secondary market and serviced by 1st Source's mortgage
subsidiary, Trustcorp Mortgage Company.
- 1st Source's consumer loans at December 31, 2001, amounted
to $128 million and 5.1% of total loans outstanding.
Consumer loans are primarily all other non-real estate loans
to individuals in 1st Source's regional market area.
Deposits
Through its network of 64 branches in 17 counties in Indiana and
Michigan, 1st Source generates deposits to fund its lending activities.
Total deposits at December 31, 2001 were $2.88 billion. Enhancing
customer service, 1st Source offers banking services, in addition to
its traditional branches, through its network of 70 automatic teller
machines, bank by phone services and on-line personal and business
financial products. Service charges on deposit accounts totaled $11.7
million for 2001.
Fee Based Businesses
1st Source maintains various fee based businesses to complement net
interest income.
- Trust fees are generated from employee benefit services,
personal and agency trusts and estate planning. In 2001,
trust fees were approximately $9.67 million.
- Mortgage loan sale and servicing income for 2001 amounted to
$19.97 million. Income from loan sale and servicing is
generated from the mortgage banking operations of Trustcorp
Mortgage Company. Trustcorp serviced approximately $1.69
billion of mortgage loans at December 31, 2001. The
significant increase in gains on the sale of mortgage loan
servicing and the decrease in mortgage loan servicing fees
in 2001 is reflective of Trustcorp Mortgage Company's $1.0
billion sale of mortgage servicing rights during the first
quarter of 2001.
4
- Insurance commissions from 1st Source's property and
casualty insurance agency totaled $2.2 million for 2001.
COMPETITION
The activities in which 1st Source and the Bank engage are highly
competitive. Those activities and the geographic markets served involve
primarily competition with other banks, some of which are affiliated with large
bank holding companies headquartered outside of 1st Source's principal market.
Larger financial institutions competing within 1st Source's principal market,
but headquartered elsewhere, include Key Bank, Wells Fargo Bank, Bank One, Fifth
Third Bank, Standard Federal Bank, and National City Bank. Competition among
financial institutions is based upon interest rates offered on deposit accounts,
interest rates charged on loans and other credit and service charges, the
quality of services rendered, the convenience of banking facilities and, in the
case of loans to large commercial borrowers, relative lending limits.
In addition to competing with other banks within its primary service
areas, the Bank also competes with other financial intermediaries, such as
credit unions, industrial loan associations, securities firms, insurance
companies, small loan companies, finance companies, mortgage companies, real
estate investment trusts, certain governmental agencies, credit organizations
and other enterprises. Additional competition for depositors' funds comes from
United States Government securities, private issuers of debt obligations and
suppliers of other investment alternatives for depositors. Many of 1st Source's
non-bank competitors are not subject to the same extensive federal regulations
that govern bank holding companies and banks. Such non-bank competitors may, as
a result, have certain advantages over 1st Source in providing some services.
1st Source competes against these financial institutions by offering
innovative products and highly personalized services. 1st Source also relies on
a history in the market dating back to 1863, relationships that long- term
employees have with their customers, and the capacity for quick local
decision-making.
EMPLOYEES
1st Source employs approximately 1,260 persons on a full-time
equivalent basis. 1st Source provides a wide range of employee benefits and
considers employee relations to be good.
REGULATION AND SUPERVISION
GENERAL. 1st Source and the Bank are extensively regulated under
federal and state law. These laws and regulations are intended to protect
depositors, not shareholders. To the extent that the following information
describes statutory or regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. Any change in
applicable laws or regulations may have a material effect on the business and
prospects of 1st Source. The operations of 1st Source may be affected by
legislative changes and by the policies of various regulatory authorities. 1st
Source is unable to predict the nature or the extent of the effects on its
business and earnings that fiscal or monetary policies, economic controls or new
federal or state legislation may have in the future.
1st Source is a registered bank holding company under the Bank Holding
Company Act of 1956 (the "BHCA") and, as such, is subject to regulation,
supervision and examination by the Board of Governors of the Federal Reserve
System (the "Federal Reserve"). 1st Source is required to file annual reports
with the Federal Reserve and to provide the Federal Reserve such additional
information as it may require.
5
The Bank, as an Indiana state bank, is supervised by the Indiana
Department of Financial Institutions (the "DFI") and the Federal Reserve. As
such, the Bank is regularly examined by and subject to regulations promulgated
by the DFI and the Federal Reserve. Because the FDIC provides deposit insurance
to the Bank, the Bank is also subject to supervision and regulation by the FDIC
(even though the FDIC is not its primary federal regulator).
BANK AND BANK HOLDING COMPANY REGULATION. As noted above, both 1st
Source and the Bank are subject to extensive regulation and supervision.
Bank Holding Company Act. Under the BHCA, as amended, the activities
of a bank holding company, such as 1st Source, are limited to business so
closely related to banking, managing or controlling banks as to be a proper
incident thereto. 1st Source is also subject to capital requirements applied on
a consolidated basis in a form substantially similar to those required of the
Bank. The BHCA also requires a bank holding company to obtain approval from the
Federal Reserve before (i) acquiring, or holding more than 5% voting interest in
any bank or bank holding company, (ii) acquiring all or substantially all of the
assets of another bank or bank holding company, or (iii) merging or
consolidating with another bank holding company.
The BHCA also restricts non-bank activities to those which, by statute
or by Federal Reserve regulation or order, have been identified as activities
closely related to the business of banking or of managing or controlling banks.
As discussed below, the Gramm-Leach-Bliley Act, which was enacted in 1999,
established a new type of bank holding company known as a "financial holding
company," that has powers that are not otherwise available to bank holding
companies.
Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") reorganized and reformed the regulatory structure applicable to
financial institutions generally.
The Federal Deposit Insurance Corporation Improvement Act of 1991. The
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was
adopted to supervise and regulate a wide variety of banking issues. In general,
FDICIA provides for the recapitalization of the Bank Insurance Fund ("BIF"),
deposit insurance reform, including the implementation of risk-based deposit
insurance premiums, the establishment of five capital levels for financial
institutions ("well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized") that would
impose more scrutiny and restrictions on less capitalized institutions, along
with a number of other supervisory and regulatory issues.
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.
Congress enacted the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Interstate Act") in September 1994. Beginning in September 1995,
bank holding companies have the right to expand, by acquiring existing banks,
into all states, even those which had theretofore restricted entry. The
legislation also provides that, subject to future action by individual states, a
holding company has the right to convert the banks which its owns in different
states to branches of a single bank. The states of Indiana and Michigan have
adopted the interstate branching provisions of the Interstate Act.
Economic Growth and Regulatory Paperwork Reduction Act of 1996. The
Economic Growth and Regulatory Paperwork Reduction Act of 1996 (the "EGRPRA")
was signed into law on September 30, 1996. EGRPRA streamlined the non-banking
activities application process for well-capitalized and well-managed bank
holding companies.
6
Gramm-Leach-Bliley Act of 1999. The Act is intended to modernize the
banking industry by removing barriers to affiliation among banks, insurance
companies, the securities industry and other financial service providers. It
provides financial organizations with the flexibility of structuring such
affiliations through a holding company structure or through a financial
subsidiary of a bank, subject to certain limitations. The Act establishes a new
type of bank holding company, known as a financial holding company, that may
engage in an expanded list of activities that are "financial in nature," which
include securities and insurance brokerage, securities underwriting, insurance
underwriting and merchant banking. The Act also sets forth a system of
functional regulation that makes the Federal Reserve the "umbrella supervisor"
for holding companies, while providing for the supervision of the holding
company's subsidiaries by other federal and state agencies. A bank holding
company may not become a financial holding company if any of its subsidiary
financial institutions are not well-capitalized or well-managed. Further, each
bank subsidiary of the holding company must have received at least a
satisfactory Community Reinvestment Act ("CRA") rating. The Act also expands the
types of financial activities a national bank may conduct through a financial
subsidiary, addresses state regulation of insurance, generally prohibits unitary
thrift holding companies organized after May 4, 1999 from participating in new
financial activities, provides privacy protection for nonpublic customer
information of financial institutions, modernizes the Federal Home Loan Bank
system and makes miscellaneous regulatory improvements. The Federal Reserve and
the Secretary of the Treasury must coordinate their supervision regarding
approval of new financial activities to be conducted through a financial holding
company or through a financial subsidiary of a bank. While the provisions of the
Act regarding activities that may be conducted through a financial subsidiary
directly apply only to national banks, those provisions indirectly apply to
state-chartered banks, such as the Bank, as well. In addition, the Bank is
subject to other provisions of the Act, including those relating to CRA and
privacy, regardless of whether 1st Source elects to become a financial holding
company or to conduct activities through a financial subsidiary of the Bank. 1st
Source does not, however, currently intend to file notice with the Federal
Reserve to become a financial holding company or to engage in expanded financial
activities through a financial subsidiary of the Bank. At this time, 1st Source
cannot predict the impact the Act will have on its operations.
Regulations Governing Capital Adequacy. The federal bank regulatory
agencies use capital adequacy guidelines in their examination and regulation of
bank holding companies and banks. If the capital falls below the minimum levels
established by these guidelines, the bank holding company or bank may be denied
approval to acquire or establish additional banks or nonbank businesses or to
open facilities. The various regulatory capital requirements that 1st Source is
subject to are disclosed on page 31 in Footnote "O" of 1st Source's 2001
Management's Discussion and Analysis of Financial Condition and Consolidated
Financial Statements and Notes for the year ended December 31, 2001, and is
incorporated herein by reference. Management of 1st Source believes that the
risk-weighting of assets and the risk-based capital guidelines do not have a
material adverse impact on 1st Source's operations or on the operations of the
Bank.
Community Reinvestment Act. The Community Reinvestment Act of 1977
requires that, in connection with examinations of financial institutions within
their jurisdiction, the federal banking regulators must evaluate the record of
the financial institutions in meeting the credit needs of their local
communities, including low and moderate income neighborhoods, consistent with
the safe and sound operation of those banks. These factors are also considered
in evaluating mergers, acquisitions and applications to open a branch or
facility.
Regulations Governing Extensions of Credit. The Bank is subject to
certain restrictions imposed by the Federal Reserve Act on extensions of credit
to the bank holding company or its subsidiaries, or investments in their
securities and on the use of their securities as collateral for loans to any
borrowers. These regulations and restrictions may limit the ability of 1st
Source to obtain funds from the Bank for its cash needs, including funds for
acquisitions and for payment of dividends, interest and operating expenses.
Further, under the BHCA and certain regulations of the Federal Reserve, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tying arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services.
7
The Bank is also subject to certain restrictions imposed by the
Federal Reserve Act on extensions of credit to executive officers, directors,
principal shareholders or any related interest of such persons. Extensions of
credit (i) must be made on substantially the same terms, including
interest-rates and collateral, and following credit underwriting procedures that
are not less stringent than, as those prevailing at the time for comparable
transactions with persons not covered above and who are not employees, and (ii)
must not involve more than the normal risk of repayment or present other
unfavorable features. The Bank is also subject to certain lending limits and
restrictions on overdrafts to such persons.
Reserve Requirements. The Federal Reserve requires all depository
institutions to maintain reserves against their transaction accounts and
non-personal time deposits. Reserves of 3% must be maintained against total
transaction accounts of $42.8 million or less (subject to adjustment by the
Federal Reserve) and 10% must be maintained against that portion of total
transaction accounts in excess of such amount.
Dividends. The ability of the Bank to pay dividends and management
fees is limited by various state and federal laws, by the regulations
promulgated by its primary regulators and by the principles of prudent bank
management.
Monetary Policy and Economic Control. The commercial banking business
in which 1st Source engages is affected not only by general economic conditions,
but also by the monetary policies of the Federal Reserve. Changes in the
discount rate on member bank borrowing, availability of borrowing at the
"discount window," open market operations, the imposition of changes in reserve
requirements against member banks deposits and assets of foreign branches, and
the imposition of and changes in reserve requirements against certain borrowings
by banks and their affiliates are some of the instruments of monetary policy
available to the Federal Reserve. These monetary policies are used in varying
combinations to influence overall growth and distributions of bank loans,
investments and deposits, and such use may affect interest rates charged on
loans or paid on deposits. The monetary policies of the Federal Reserve have had
a significant effect on the operating results of commercial banks and are
expected to do so in the future. The monetary policies of the Federal Reserve
are influenced by various factors, including inflation, unemployment, short-term
and long-term changes in the international trade balance and in the fiscal
policies of the U.S. Government. Future monetary policies and the effect of such
policies on the future business and earnings of 1st Source and the Bank cannot
be predicted.
Regulation FD. The Securities and Exchange Commission issued
Regulation FD which became effective in October 2000. The regulation mandates
that public companies disclose material, nonpublic information to all investors
simultaneously for intentional disclosures, or promptly for non-intentional
disclosures. Regulation FD was issued in order to increase investor confidence
and to uphold the integrity of the capital markets.
Pending Legislation. Because of concerns relating to competitiveness
and the safety and soundness of the banking industry, Congress often considers a
number of wide-ranging proposals for altering the structure, regulation and
competitive relationships of the nation's financial institutions. It cannot be
predicted whether or in what form any proposals will be adopted or the extent to
which the business of 1st Source may be affected thereby.
FORWARD LOOKING STATEMENTS
The information regarding "forward-looking statements" on page 2 of
the 2001 Management's Discussion and Analysis of Financial Condition and
Consolidated Financial Condition and Consolidated Financial Statements and Notes
for the year ended December 31, 2001, is incorporated herein by reference.
8
ITEM 1. BUSINESS (Continued)
SELECTED STATISTICAL INFORMATION
Distribution of Assets, Liabilities and Shareholders' Equity
Interest Rates and Interest Differential
(Dollars in Thousands)
Year ended December 31, 2001 2000 1999
---------------------------------- -------------------------------- ------------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
---------------------------------- -------------------------------- -------------------------------
ASSETS:
Investment securities:
Taxable $ 416,638 $ 22,695 5.45% $ 369,401 $ 22,264 6.03% $ 348,944 $ 20,049 5.75%
Tax exempt (1) 151,993 9,925 6.53% 167,682 11,413 6.81% 161,712 11,336 7.01%
Net loans (2 & 3) 2,464,798 212,067 8.60% 2,207,382 203,905 9.24% 1,949,172 171,770 8.81%
Other investments 32,462 820 2.53% 23,256 1,455 6.26% 18,354 911 4.96%
--------- ------- ----- --------- ------- ----- --------- ------- -----
Total earning assets 3,065,891 245,507 8.01% 2,767,721 239,037 8.64% 2,478,182 204,066 8.23%
Cash and due from banks 99,453 97,096 113,099
Reserve for loan losses (50,895) (41,441) (39,105)
Other assets 255,494 216,715 187,868
---------- ---------- ----------
Total $3,369,943 $3,040,091 $2,740,044
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest bearing deposits $2,330,988 $108,069 4.64% $2,066,846 $109,866 5.32% $1,843,692 $ 84,839 4.60%
Short-term borrowings 325,456 14,455 4.44% 327,941 19,664 6.00% 283,035 14,995 5.30%
Long-term debt 12,078 873 7.23% 12,193 895 7.34% 12,492 892 7.14%
--------- ------- ----- --------- ------- ----- --------- ------- -----
Total interest bearing
liabilities 2,668,522 123,397 4.62% 2,406,980 130,425 5.42% 2,139,219 100,726 4.71%
Noninterest bearing deposits 305,373 285,361 283,479
Other liabilities 103,062 95,176 90,152
Shareholders' equity 292,986 252,574 227,194
---------- ---------- ----------
Total $3,369,943 $3,040,091 $2,740,044
========== ========== ==========
Net interest income $122,110 $108,612 $103,340
======== ======== ========
Net yield on earning assets on
a taxable equivalent basis 3.98% 3.92% 4.17%
===== ===== =====
(1) Interest income includes the effects of taxable equivalent adjustments,
using a 35% rate. Tax equivalent adjustments were $3,058 in 2001,
$3,457 in 2000 and $3,441 in 1999.
(2) Loan income includes fees on loans of $6,394 in 2001, $6,043 in 2000 and
$5,745 in 1999. Loan income also includes the effects of taxable
equivalent adjustments, using a 35% rate. Tax equivalent adjustments
were $266 in 2001, $188 in 2000 and $196 in 1999.
(3) For purposes of this computation, nonaccruing loans are included in the
daily average loan amounts outstanding.
9
ITEM 1. BUSINESS (Continued)
The following table sets forth for the periods indicated a summary of the
changes in interest earned and interest paid, resulting from changes in volume
and changes in rates:
Increase (Decrease) Due to (1)
Volume Rate Net
-------- -------- --------
(In Thousands)
2001 compared to 2000
Interest earned on:
Loans ................................... $ 19,917 $(11,755) $ 8,162
Investment securities:
Taxable ............................... 1,741 (1,310) 431
Tax-exempt ............................ (1,031) (457) (1,488)
Interest-bearing deposits with
other banks .......................... (1) (2) (3)
Federal funds sold and other
money market investments ............. 1,442 (2,074) (632)
-------- -------- --------
Total earning assets ............. $ 22,068 $(15,598) $ 6,470
Interest paid on:
Savings deposits ........................ 2,919 (8,686) (5,767)
Other time deposits ..................... 8,168 (4,198) 3,970
Short-term borrowings ................... (131) (5,078) (5,209)
Long-term debt .......................... (9) (13) (22)
-------- -------- --------
Total interest-bearing liabilities 10,947 (17,975) (7,028)
-------- -------- --------
Net interest income ....................... $ 11,121 $ 2,377 $ 13,498
======== ======== ========
2000 compared to 1999
Interest earned on:
Loans ................................... $ 23,454 $ 8,681 $ 32,135
Investment securities:
Taxable ............................... 1,212 1,003 2,215
Tax-exempt ............................ 356 (279) 77
Interest-bearing deposits with
other banks ........................... (15) (24) (39)
Federal funds sold and other
money market investments .............. 335 248 583
-------- -------- --------
Total earning assets ............. $ 25,342 $ 9,629 $ 34,971
Interest paid on:
Savings deposits ........................ 1,161 3,908 5,069
Other time deposits ..................... 11,141 8,817 19,958
Short-term borrowings ................... 2,545 2,124 4,669
Long-term debt .......................... (16) 19 3
-------- -------- --------
Total interest-bearing liabilities 14,831 14,868 29,699
-------- -------- --------
Net interest income ....................... $ 10,511 $ (5,239) $ 5,272
======== ======== ========
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
10
ITEM 1. BUSINESS (Continued)
INVESTMENT PORTFOLIO
The carrying amounts of investment securities at the dates indicated are
summarized as follows:
December 31
--------------------------------------
2001 2000 1999
-------- -------- --------
(In Thousands)
U.S. Treasury and government agencies and corporations $434,867 $334,832 $282,313
States and political subdivisions 144,000 151,501 161,125
Other 61,611 76,789 103,792
-------- -------- --------
Total $640,478 $563,122 $547,230
The following table shows the maturities of investment securities at December
31, 2001, at the carrying amounts and the weighted average yields (for
tax-exempt obligations on a fully taxable basis assuming a 35% tax rate) of such
securities.
Maturing
-------------------------------------------------------------------------------------------------
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years
----------------- ---------------- ---------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------- ----- -------- ----- ------- ----- ------- -----
(Dollars in Thousands)
U.S. Treasury and
government agencies
and corporations $129,516 4.42% $252,068 4.08% $10,262 4.99% $43,021 4.12%
States and political
subdivisions 36,012 6.28% 96,933 6.51% 6,855 6.90% 4,200 6.41%
Other 4,783 4.68% 2,943 4.39% 5,070 3.08% 48,815 6.02%
---------- ----- ---------- ----- ------- ----- ------- -----
Total $170,311 4.82% $351,944 4.75% $22,187 5.14% $96,036 5.19%
Weighted average yields on tax-exempt obligations have been computed by
adjusting tax-exempt income to a fully taxable equivalent basis, excluding the
effect of the tax preference interest expense adjustments.
11
ITEM 1. BUSINESS (Continued)
LOAN PORTFOLIO
The following table shows 1st Source's loan distribution at the end of each of
the last five years for December 31:
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
Loans:
Commercial and agricultural $ 448,349 $ 481,068 $ 440,923 $ 399,021 $ 364,391
Commercial loans secured
by transportation and
construction equipment 1,198,615 1,055,145 896,848 732,488 752,677
Loans secured by real estate 760,095 645,041 591,401 630,915 568,136
Consumer loans 128,305 127,808 134,017 119,272 111,577
---------- ---------- ---------- ---------- ----------
Total Loans $2,535,364 $2,309,062 $2,063,189 $1,881,696 $1,796,781
========== ========== ========== ========== ==========
12
ITEM 1. BUSINESS (Continued)
LOAN PORTFOLIO (Continued)
The following table shows the rate sensitivity of loans (excluding residential
mortgages for 1-4 family residences, consumer loans and lease financing)
outstanding as of December 31, 2001. The amounts due after one year are also
classified according to the sensitivity to changes in interest rates.
Rate Sensitivity
----------------------------------------------------------------
Within After One But After
One Year Within Five Years Five Years Total
-------- ----------------- ---------- ---------
(In Thousands)
Commercial loans secured
by transportation and
construction equipment $ 588,506 $557,423 $40,661 $1,186,590
Commercial and agricultural 310,247 65,770 5,317 381,334
Loans secured by real estate 237,533 85,557 6,519 329,609
---------- -------- ------- ----------
Total $1,136,286 $708,750 $52,497 $1,897,533
========== ======== ======= ==========
Rate Sensitivity
----------------
Fixed Variable
Rate Rate
-------- -------
Due after one year but within five years $660,212 $48,538
Due after five years 46,745 5,752
-------- -------
Total $706,957 $54,290
======== =======
The following table summarizes the nonaccrual, past due and restructured loans:
December 31
---------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(Dollars in Thousands)
Nonaccrual Loans $35,825 $19,168 $11,967 $9,266 $10,030
Accruing loans past
due 90 days or more 453 385 254 275 730
Restructured loans -- -- -- -- --
------- ------- ------- ------ -------
Total nonperforming loans $36,278 $19,553 $12,221 $9,541 $10,760
======= ======= ====== ======= =======
13
ITEM 1. BUSINESS (Continued)
LOAN PORTFOLIO (Concluded)
Information with respect to nonaccrual and restructured loans at December 31,
2001 and 2000 is as follows:
December 31
2001 2000
-------- --------
(In Thousands)
Nonaccrual loans $35,825 $19,168
Interest income which would have been
recorded under original terms 4,857 2,663
Interest income recorded during the period 2,042 801
At December 31, 2001, $35,464,000 of the nonaccrual loans are collateralized.
Potential Problem Loans
At December 31, 2001, management was not aware of any potential problem loans
that would have a material affect on loan delinquency or loan charge-offs.
However, due to the weakening economy and the lingering affect of September 11
on the air cargo, aircraft sales and auto rental markets, 1st Source expects to
experience increases in non-performing assets in the near term. As customers
liquidate or reposition assets during the work out period, non-performing assets
will increase before they decrease. By their nature, loans in these specialty
businesses are of a larger size and when they reach a non-performing status (90
days delinquent), they can have a significant impact on the size of the
non-performing portfolio. As the assets are then liquidated over a period of
time, depending on the strength of the market, the non-performing assets then
decrease. Loans and leases are subject to constant review and are given
management's attention whenever a problem situation appears to be developing.
See the discussion of forward-looking statements under Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
under the caption "About Our Business", incorporated by reference from 1st
Source's 2001 Management's Discussion and Analysis of Financial Condition and
Consolidated Financial Statements and Notes
Loan Concentrations
At December 31, 2001, 15.5% of total business loans were concentrated with
borrowers in truck and automobile rental and leasing companies. Loans to air
transportation and aircraft dealers accounted for 12.5% of all business loans at
December 31, 2001.
14
ITEM 1. BUSINESS (Continued)
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes the Company's loan loss experience for each of
the last five years:
December 31
--------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(In Thousands)
Amount of loans outstanding
at end of period ............... $ 2,535,364 $ 2,309,062 $ 2,063,189 $ 1,881,696 $ 1,796,781
=========== =========== =========== =========== ===========
Average amount of net loans
outstanding during period ...... $ 2,464,798 $ 2,207,382 $ 1,949,172 $ 1,853,537 $ 1,610,889
=========== =========== =========== =========== ===========
Balance of reserve for loan
losses at beginning of period .. $ 44,644 $ 40,210 $ 38,629 $ 35,424 $ 29,516
Charge-offs:
Commercial and agricultural .... 4,938 1,818 879 1,295 293
Commercial loans secured
by transportation and
construction equipment ..... 7,099 5,489 519 1,671 317
Loans secured by real estate ... 177 30 148 323 157
Consumer loans ................. 2,178 1,738 1,481 1,510 643
----------- ----------- ----------- ----------- -----------
Total charge-offs .......... 14,332 9,075 3,027 4,799 1,410
----------- ----------- ----------- ----------- -----------
Recoveries:
Commercial and agricultural .... 290 293 84 255 101
Commercial loans secured
by transportation and
construction equipment ..... 292 911 87 419 917
Loans secured by real estate ... 0 2 50 47 87
Consumer loans ................. 389 467 418 427 161
----------- ----------- ----------- ----------- -----------
Total recoveries ........... 971 1,673 639 1,148 1,266
----------- ----------- ----------- ----------- -----------
Net charge-offs (recoveries) ........ 13,361 7,402 2,388 3,651 144
Additions charged to
operating expense .............. 28,623 14,877 7,442 9,156 6,052
Recaptured reserve due
to loan securitizations ........ (2,878) (3,041) (3,473) (2,300) --
Acquired reserves from
acquisitions ................... 596 -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at end of period ............ $ 57,624 $ 44,644 $ 40,210 $ 38,629 $ 35,424
=========== =========== =========== =========== ===========
Ratio of net charge-offs (recoveries)
to average net loans outstanding 0.54% 0.34% 0.12% 0.20% 0.01%
15
1st Source's reserve for loan losses is provided for by direct charges to
operations. Losses on loans are charged against the reserve and likewise,
recoveries during the period for prior losses are credited to the reserve. The
loss reserve is maintained at a level considered by management to be adequate to
absorb losses inherent in the loan portfolio. Management evaluates the adequacy
of the reserve periodically, reviewing all loans over a fixed-dollar amount
where the internal credit rating is at or below a predetermined classification,
actual and anticipated loss experience, current economic events in specific
industries and other pertinent factors including general economic conditions.
Determination of the reserve is inherently subjective as it requires significant
estimates, including the amounts and timing of expected future cash flows or
fair value of collateral on collateral-dependent impaired loans, estimated
losses on pools of homogeneous loans based on historical loss experience and
consideration of economic trends, all of which may be susceptible to significant
change. Management of 1st Source is constantly reviewing the status of the loan
portfolio to identify borrowers that might develop financial problems, in order
to aid borrowers in the handling of their accounts and prevent sizable
unexpected losses.
In 2001, after management's assessment of loan quality, 1st Source made a charge
of $28.62 million to operations as a provision for loan losses. At December 31,
2001, the reserve for loan losses was $57.62 million, or 2.27% of loans
outstanding, net of unearned discount.
16
ITEM 1. BUSINESS (Continued)
SUMMARY OF LOAN LOSS EXPERIENCE (Concluded)
The reserve for loan losses has been allocated according to the amount deemed
necessary to provide for the possibility of losses being incurred within the
categories of loans set forth in the table below. The amount of such components
of the reserve at December 31, and the ratio of such loan categories to total
outstanding loan balances, are as follows:
(Dollars in Thousands)
2001 2000 1999 1998 1997
-------------------- ----------------- ----------------- ----------------- -----------------
Percent Percent Percent Percent Percent
Of Loans Of Loans Of Loans Of Loans Of Loans
In Each In Each In Each In Each In Each
Category Category Category Category Category
Reserve to Total Reserve to Total Reserve to Total Reserve to Total Reserve to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
Commercial and
agricultural $10,976 17.7% $12,354 20.0% $ 7,698 21.4% $ 7,566 21.2% $ 6,325 20.3%
Commercial loans secured
by transportation
and construction
equipment 36,537 47.3% 24,161 45.7% 25,473 43.5% 21,822 38.9% 18,188 41.9%
Loans secured
by real estate 7,376 29.9% 5,661 27.9% 4,659 28.6% 6,460 33.5% 7,177 31.6%
Consumer loans 2,735 5.1% 2,468 6.4% 2,380 6.5% 2,781 6.4% 3,734 6.2%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total $57,624 100.0% $44,644 100.0% $40,210 100.0% $38,629 100.0% $35,424 100.0%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
Allowance for loan losses not specifically identified is allocated on a pro rata
basis to all loan categories.
17
ITEM 1. BUSINESS (Continued)
DEPOSITS
The average daily amounts of deposits and rates paid on such deposits are
summarized as follows:
Year Ended December 31
------------------------------------------------------------------------------------
2001 2000 1999
------------------------ ------------------------ -----------------------
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
Noninterest bearing
demand deposits $ 305,373 -- % $ 285,361 -- % $ 283,479 -- %
Interest bearing
demand deposits 596,330 2.82% 457,021 4.42% 218,631 4.19%
Savings deposits 165,820 1.78% 236,724 2.26% 440,047 2.57%
Other time deposits 1,568,838 5.63% 1,373,101 6.14% 1,185,014 5.43%
---------- ---------- ----------
Total $2,636,361 $2,352,207 $2,127,171
========== ========== ==========
The amount of time certificates of deposit of $100,000 or more and other time
deposits of $100,000 or more outstanding at December 31, 2001, by time remaining
until maturity is as follows (in thousands):
Under 3 months $248,609
4 - 6 months 92,295
7 - 12 months 93,531
Over 12 months 70,634
--------
Total $505,069
========
18
ITEM 1. BUSINESS (Continued)
RETURN ON EQUITY AND ASSETS
The ratio of net income to average shareholders' equity and average total
assets, and certain other ratios, are presented below:
Year Ended December 31
2001 2000 1999
------ ------ ------
Percentage of net income to:
Average shareholders' equity 13.14% 14.88% 15.74%
Average total assets 1.14% 1.24% 1.31%
Dividend payout ratio 19.30% 18.66% 16.80%
Percentage of average shareholders'
equity to average total assets 8.69% 8.31% 8.29%
Intangible assets (in thousands) $30,052 $2,155 $2,505
19
ITEM 1. BUSINESS (Concluded)
SHORT-TERM BORROWINGS
The following table shows the distribution of 1st Source's short-term borrowings
and the weighted average interest rates thereon at the end of each of the last
three years. Also provided are the maximum amount of borrowings and the average
amount of borrowings in thousands, as well as weighted average interest rates
for the last three years.
Federal Funds
Purchased and
Security Other
Repurchase Commercial Short-Term Total
2001 Agreements Paper Borrowings Borrowings
- -------------------------------- -------------- ---------- ------------ -----------
Balance at December 31, 2001 $214,709 $ 4,992 $ 44,772 $264,473
Maximum amount outstanding
at any month-end 298,717 17,545 144,951 461,213
Average amount outstanding 226,758 11,763 86,935 325,456
Weighted average interest
rate during the year 3.19% 4.52% 7.68% 4.44%
Weighted average interest rate
for outstanding amounts at
December 31, 2001 1.43% 1.79% 1.28% 1.41%
2000
- --------------------------------
Balance at December 31, 2000 $192,307 $14,756 $126,327 $333,390
Maximum amount outstanding
at any month-end 287,434 15,626 153,858 456,918
Average amount outstanding 193,311 13,038 121,592 327,941
Weighted average interest
rate during the year 5.22% 6.13% 7.21% 6.00%
Weighted average interest rate
for outstanding amounts at
December 31, 2000 5.44% 6.44% 6.75% 5.98%
1999
- --------------------------------
Balance at December 31, 1999 $263,253 $ 8,635 $137,854 $409,742
Maximum amount outstanding
at any month-end 263,253 10,325 142,143 415,721
Average amount outstanding 191,265 7,846 83,924 283,035
Weighted average interest
rate during the year 4.51% 4.95% 7.13% 5.30%
Weighted average interest rate
for outstanding amounts at
December 31, 1999 5.20% 5.35% 5.87% 5.43%
Federal funds purchased and securities sold under agreements to repurchase
generally mature within 1 to 30 days of the transaction date. Commercial paper
and other short-term borrowings generally mature within 30 to 180 days.
20
Securities purchased under agreements to resell and securities sold under
agreements to repurchase are generally treated as collateralized financing
transactions and are recorded at the amounts at which the securities were
acquired or sold plus accrued interest. Securities, generally U.S. government
and Federal agency securities, pledged as collateral under these financing
arrangements cannot be sold or repledged by the secured party. The fair value of
collateral either received from or provided to a third party is continually
monitored and additional collateral obtained or requested to be returned to 1st
Source as deemed appropriate.
21
ITEM 2. PROPERTIES
1st Source's headquarters building is located in downtown South Bend. In 1982,
the land was leased from the City of South Bend on a 49-year lease, with a
50-year renewal option. The building is part of a larger complex, including a
300-room hotel and a 500-car parking garage. 1st Source sold the building and
entered into a leaseback agreement with the purchaser for a term of 30 years.
The bank building is a structure of approximately 160,000 square feet, with 1st
Source and its subsidiaries occupying approximately 70% of the available office
space, and approximately 30% presently subleased to unrelated tenants.
1st Source also owns property and/or buildings on which 40 of the bank
subsidiary's 64 banking offices are located, including the facilities in Allen,
Elkhart, LaPorte, Marshall, Porter, St. Joseph and Starke Counties in the state
of Indiana, as well as a parking facility, two buildings housing drive-in
banking plazas, a records retention facility, and a computer operations center.
In 1995, 1st Source reacquired its former headquarters building through
foreclosure. It is being refurbished for additional tenants and 1st Source use.
The remaining properties utilized by the subsidiary are leased from unrelated
parties.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information regarding common stock prices and dividends on page 12 of 1st
Source's 2001 Management's Discussion and Analysis of Financial Condition and
Consolidated Financial Statements and Notes for the year ended December 31,
2001, is incorporated herein by reference. There were 1,119 shareholders of 1st
Source Common Stock as of December 31, 2001.
ITEM 6. SELECTED FINANCIAL DATA
The information under the caption "Selected Consolidated Financial Data" on page
3 of 1st Source's 2001 Management's Discussion and Analysis of Financial
Condition and Consolidated Financial Statements and Notes for the year ended
December 31, 2001, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 2 through 13 of 1st
Source's 2001 Management's Discussion and Analysis of Financial Condition and
Consolidated Financial Statements and Notes for the year ended December 31,
2001, is incorporated herein by reference.
22
Except for historical information contained herein, the matters discussed in
this document, and other information contained in 1st Source's SEC filings, may
express "forward-looking statements." Those statements, including statements or
assumptions concerning future events or performance, and other statements that
are other than statements of historical fact, are subject to material risks and
uncertainties. 1st Source cautions readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made. Readers are
advised that various factors - including, but not limited to, changes in laws
and regulations or accounting principles generally accepted in the United
States; 1st Source's competitive position within its markets served; increasing
consolidation within the banking industry; unforeseen changes in interest rates;
unforeseen downturns in the local, regional or national economies - could cause
1st Source's actual results or circumstances for future periods to differ
materially from those anticipated or projected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information under the caption "Interest Rate Risk Management" on pages 6 and
7 of 1st Source's 2001 Management's Discussion and Analysis of Financial
Condition and Consolidated Financial Statements and Notes for the year ended
December 31, 2001, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and the consolidated financial statements of
1st Source and its subsidiaries are included on pages 14 through 35 in 1st
Source's 2001 Management's Discussion and Analysis of Financial Condition and
Consolidated Financial Statements and Notes for the year ended December 31,
2001, and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the caption "Directors and Executive Officers" on pages 3
through 6 and under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" on page 17 of the proxy statement dated March 12, 2002, is
incorporated herein by reference with respect to Directors.
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Renumeration of Executive Officers" on pages
8 through 16 of the proxy statement dated March 12, 2002, is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Voting Securities and Principal Holders
Thereof" on page 2 and under the caption "Directors and Executive Officers" on
pages 3 through 6 of the proxy statement dated March 12, 2002, is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information on page 6 of the proxy statement dated March 12, 2002, is
incorporated herein by reference.
23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) -- The financial statements and financial statement schedules
are submitted as a separate section on page F-2 of this
report.
(3) -- Listing of exhibits is submitted as a separate section on
page E-2 of this report.
(b) Reports on Form 8-K -- None filed during the fourth quarter of 2001.
(c) Exhibits -- The exhibits to this form 10-K begin on page E-2
(d) Financial Statement Schedules -- None.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
1st SOURCE CORPORATION
Registrant
By: /s/ CHRISTOPHER J. MURPHY III
--------------------------------
Christopher J. Murphy III
Chairman of the Board, President and Chief Executive Officer
Date: February 22, 2002
------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ CHRISTOPHER J. MURPHY III
- ------------------------------------
Christopher J. Murphy III, Chairman of the Board, President and
Chief Executive Officer
Date: February 22, 2002
---------------------
/s/ WELLINGTON D. JONES III
- ------------------------------------
Wellington D. Jones III, Executive Vice President and a Director
Date: February 22, 2002
---------------------
/s/ LARRY E. LENTYCH
- ------------------------------------
Larry E. Lentych, Treasurer and Chief Financial Officer
Date: February 22, 2002
---------------------
/s/ JOHN B. GRIFFITH
- ------------------------------------
John B. Griffith, Secretary and General Counsel
Date: February 22, 2002
---------------------
/s/ E. WILLIAM BEAUCHAMP, c.s.c.
- ------------------------------------
Reverend E. William Beauchamp, C.S.C. Director
Date: February 22, 2002
---------------------
25
/s/ DANIEL B. FITZPATRICK
- ------------------------------------
Daniel B. Fitzpatrick, Director
Date: February 22, 2002
---------------------
/s/ LAWRENCE E. HILER
- ------------------------------------
Lawrence E. Hiler, Director
Date: February 22, 2002
---------------------
/s/ WILLIAM P. JOHNSON
- ------------------------------------
William P. Johnson, Director
Date: February 22, 2002
---------------------
/s/ REX MARTIN
- ------------------------------------
Rex Martin, Director
Date: February 22, 2002
---------------------
/s/ DANE A. MILLER
- ------------------------------------
Dane A. Miller, Director
Date: February 22, 2002
---------------------
/s/ TIMOTHY K. OZARK
- ------------------------------------
Timothy K. Ozark, Director
Date: February 22, 2002
---------------------
/s/ RICHARD J. PFEIL
- ------------------------------------
Richard J. Pfeil, Director
Date: February 22, 2002
---------------------
/s/ CLAIRE C. SKINNER
- ------------------------------------
Claire C. Skinner, Director
Date: February 22, 2002
---------------------
26
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (1) and (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 2001
1st SOURCE CORPORATION
SOUTH BEND, INDIANA
F-1
FORM 10-K -- ITEM 14(a) (1) and (2)
1ST SOURCE CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following report of independent auditors and consolidated financial
statements of 1st Source Corporation and subsidiaries, included in the annual
report of the registrant to its shareholders for the year ended December 31,
2001, are incorporated by reference in Item 8:
Report of Ernst & Young LLP, Independent Auditors
Consolidated statements of financial condition --
December 31, 2001 and 2000
Consolidated statements of income --
Years ended December 31, 2001, 2000 and 1999
Consolidated statements of shareholders' equity --
Years ended December 31, 2001, 2000 and 1999
Consolidated statements of cash flows --
Years ended December 31, 2001, 2000 and 1999
Notes to consolidated financial statements --
December 31, 2001, 2000 and 1999
The following report of independent accountants is submitted herewith in
response to Item 14(a):
Page Number
-----------
Report of PricewaterhouseCoopers LLP, Independent Accountants F-3
Financial statement schedules required by Article 9 of Regulation S-X are not
required under the related instructions, or are inapplicable and, therefore,
have been omitted.
F-2
[PRICEWATERHOUSECOOPERS LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of 1st Source Corporation:
In our opinion, the consolidated statement of financial condition as of December
31, 1999 and the related consolidated statements of income, shareholders' equity
and of cash flows for each of the two years in the period ended December 31,
1999, (appearing on pages 22 through 26 of the 1st Source Corporation 2000
Annual Report to Shareholders which has been incorporated by reference in this
Form 10-K) present fairly, in all material respects, the financial position,
results of operations and cash flows of 1st Source Corporation and its
subsidiaries at December 31, 1999 and for each of the two years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Corporation's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion. We have not
audited the consolidated financial statements of 1st Source Corporation for any
period subsequent to December 31, 1999.
/s/ PricewaterhouseCoopers LLP
South Bend, Indiana
February 15, 2000
F-3
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (3) and 14(c)
LIST OF EXHIBITS
YEAR ENDED DECEMBER 31, 2001
1st SOURCE CORPORATION
SOUTH BEND, INDIANA
E-1
FORM 10-K -- Item 14(a) (3) and 14(c)
1ST SOURCE CORPORATION AND SUBSIDIARIES
LIST OF EXHIBITS *
3(a) -- Articles of Incorporation of Registrant, as amended April 30, 1996,
and filed as exhibit to Form 10-K, dated December 31, 1996, and
incorporated herein by reference.
3(b) -- By-Laws of Registrant, as amended April 16, 1998, filed as exhibit
to Form 10-K, dated December 31, 1998, and incorporated herein by
reference.
4(a) -- Form of Common Stock Certificates of Registrant filed as exhibit to
Registration Statement 2-40481 and incorporated herein by reference.
Note: No long-term debt of the Registrant exceeds 10% of the
consolidated total assets of the Registrant and its subsidiaries. In
accordance with paragraph (4)(iii) of Item 601(b) of Regulation S-K,
the Registrant will furnish the Commission upon request copies of
long-term debt instruments and related agreements.
4(b)(1) -- Form of 9% Cumulative Trust Preferred Securities Indenture, dated
March 21, 1997, filed as exhibit to Form 10-K, dated December 31, 1997,
and incorporated herein by reference.
4(b)(2) -- Form of 9% Cumulative Trust Preferred Securities Trust Agreement,
dated March 21, 1997, filed as exhibit to Form 10-K, dated December 31,
1997, and incorporated herein by reference.
4(b)(3) -- Form of 9% Cumulative Trust Preferred Securities Guarantee
Agreement, dated March 21, 1997, filed as exhibit to Form 10-K, dated
December 31, 1997, and incorporated herein by reference.
4(c)(1) -- Form of Floating Rate Cumulative Trust Preferred Securities
Indenture, dated March 21, 1997, filed as exhibit to Form 10-K, dated
December 31, 1997, and incorporated herein by reference.
4(c)(2) -- Form of Floating Rate Cumulative Trust Preferred Securities Trust
Agreement, dated March 21, 1997, filed as exhibit to Form 10-K, dated
December 31, 1997, and incorporated herein by reference.
4(c)(3) -- Form of Floating Rate Cumulative Trust Preferred Securities
Guarantee Agreement, dated March 21, 1997, filed as exhibit to Form
10-K, dated December 31, 1997, and incorporated herein by reference.
10(a)(1) -- Employment Agreement of Christopher J. Murphy III, dated April 16,
1998, filed as exhibit to Form 10-K, dated December 31, 1998, and
incorporated herein by reference.
E-2
10(a)(2) -- Employment Agreement of Wellington D. Jones III, dated April 16,
1998, filed as exhibit to Form 10-K, dated December 31, 1998, and
incorporated herein by reference.
10(a)(3) -- Employment Agreement of Allen R. Qualey, dated April 16, 1998, filed
as exhibit to Form 10-K, dated December 31, 1998, and incorporated
herein by reference.
10(a)(4) -- Employment Agreement of Larry E. Lentych, dated April 16, 1998,
filed as exhibit to Form 10-K, dated December 31, 1998, and
incorporated herein by reference.
10(a)(5) -- Employment Agreement of Richard Q. Stifel, dated April 16, 1998,
filed as exhibit to Form 10-K, dated December 31, 1998, and
incorporated herein by reference.
10(b)(1) -- Form of Company's Employees' Money Purchase Pension Plan and Trust
Agreement dated January 1, 1989, and amendment to the Company's
Employees' Money Purchase Pension Plan and Trust dated April 1, 1994,
filed as exhibit to Form 10-K dated December 31, 1994, and incorporated
herein by reference.
10(b)(2) -- An amendment to Company's Employees' Money Purchase Pension Plan and
Trust Agreement dated July 20, 1999, and filed as exhibit to Form 10-K
dated December 31, 1999, and incorporated herein by reference
10(b)(3) -- An amendment to Company's Employees' Money Purchase Pension Plan and
Trust Agreement dated December 29, 2000, and filed as exhibit to Form
10-K dated December 31, 2000, and incorporated herein by reference.
10(c)(1) -- Form of Company's Employees' Profit Sharing Plan and Trust Agreement
dated September 16,1986, and amendment to the Company's Profit Sharing
Plan and Trust Agreement dated April 1, 1994, filed as exhibit to Form
10-K dated December 31, 1994, and incorporated herein by reference.
10(c)(2) -- An amendment to 1st Source Corporation Employees' Profit Sharing
Plan and Trust Agreement dated September 30, 1996, and filed as exhibit
to Form 10-K, dated December 31, 1996, and incorporated herein by
reference.
10(c)(3) -- An amendment to 1st Source Corporation Employees' Profit Sharing
Plan and Trust Agreement dated July 20, 1999, and filed as exhibit to
Form 10-K dated December 31, 1999, and incorporated herein by
reference.
10(c)(4) -- An amendment to 1st Source Corporation Employees' Profit Sharing
Plan and Trust Agreement dated December 29, 2000, and filed as exhibit
to Form 10-K dated December 31, 2000, and incorporated herein by
reference.
10(d) -- 1st Source Corporation Employee Stock Purchase Plan dated April 17,
1997, filed as exhibit to Form 10-K, dated December 31, 1997, and
incorporated herein by reference.
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10(e) -- 1st Source Corporation 1982 Executive Incentive Plan, amended April
19, 1988, and filed as exhibit to Form 10-K, dated December 31, 1988,
and incorporated herein by reference.
10(f) -- 1st Source Corporation 1982 Restricted Stock Award Plan, as amended
February 19, 1997, filed as exhibit to Form 10-K, dated December 31,
1997, and incorporated herein by reference.
10(g) -- 1st Source Corporation 2001 Stock Option Plan, filed as an exhibit
to 1st Source Corporation Proxy Statement dated March 7, 2001, and
incorporated herein by reference.
10(h) -- 1st Source Corporation Non-Qualified Stock Option Agreement with
Christopher J. Murphy III, dated January 1, 1992, as amended December
11, 1997, filed as exhibit to Form 10-K, dated December 31, 1997, and
incorporated herein by reference.
10(i)(1) -- 1st Source Corporation 1992 Stock Option Plan, dated April 23, 1992,
as amended December 11, 1997, filed as exhibit to Form 10-K, dated
December 31, 1997, and incorporated herein by reference.
10(i)(2) -- An amendment to 1st Source Corporation 1992 Stock Option Plan, dated
July 18, 2000, and filed as exhibit to Form 10-K, dated December 31,
2000, and incorporated herein by reference.
10(j) -- 1st Source Corporation 1998 Performance Compensation Plan, dated
February 19, 1998, filed as exhibit to Form 10-K, dated December 31,
1998, and incorporated herein by reference.
10(k) -- Consulting Agreement of Ernestine M. Raclin, dated April 14, 1998,
filed as exhibit to Form 10-K, dated December 31, 1998, and
incorporated herein by reference.
10(l)(1) -- Trustcorp Mortgage Company Employee Retirement Savings Plan, dated
October 1, 1990, filed as an exhibit to Form S-8, dated June 29, 2001,
and incorporated herein by reference.
10(l)(2) --First Amendment to the Trustcorp Mortgage Company Employee Retirement
Savings Plan, dated January 1, 1993, filed as an exhibit to Form S-8,
dated June 29, 2001 and incorporated herein by reference.
10(l)(3) -- Second Amendment to the Trustcorp Mortgage Company Employee
Retirement Savings Plan, effective January 1, 2000, filed as an
exhibit to Form S-8, dated June 29, 2001 and incorporated herein by
reference.
10(l)(4) --Third Amendment to the Trustcorp Mortgage Company Employee
Retirement Savings Plan, effective January 1, 2000, filed as an
exhibit to Form S-8, dated June 29, 2001 and incorporated herein by
reference.
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10(l)(5) -- Interim Amendment to the Trustcorp Mortgage Company Employee
Retirement Savings Plan, effective January 1, 2002, filed as exhibit
to Form 10-K, dated December 31, 2001, attached hereto.
13 -- Annual Report to Shareholders for the year ended December 31, 2001,
attached hereto.
21 -- Subsidiaries of Registrant, attached hereto.
23(a) -- Consent of Ernst & Young LLP, Independent Auditors, attached hereto.
23(b) -- Consent of PricewaterhouseCoopers LLP, Independent Accountants,
attached hereto.
* The exhibits included under exhibit 10 constitute all management
contracts, compensatory plans and arrangements required to be
filed as an exhibit to this form pursuant to Item 14(c) of this
report.
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