1st Source (SRCE) Q4 2015 earnings summary

Executive summary

• 2015 net income was $57.49 million, down 1.0% YoY; diluted EPS held at $2.17. Results were supported by higher net interest and noninterest income and lower credit-loss provision, offset by higher expenses and taxes.

• Year-end assets rose 7.41% to $5.19 billion; loans and leases increased 8.30% to $3.99 billion and deposits rose 8.84% to $4.14 billion.

• Performance included 1.15% return on average assets, a 3.60% tax-equivalent net interest margin, net recoveries, and nonperforming assets equal to 0.50% of loans, leases, and operating leases.

Financial highlights

• Net interest income increased 3.86% to $166.52 million; noninterest income rose 6.97% to $83.32 million, while noninterest expense increased 6.05% to $159.11 million.

• Provision for loan and lease losses declined 42.14% to $2.16 million; income tax expense rose 17.83% to $31.08 million.

• Fourth-quarter net income was $14.42 million vs. $15.00 million YoY; diluted EPS was $0.55 vs. $0.57. Q4 net interest margin was 3.61%.

• Equipment rental income increased 30.00% to $22.30 million, with a comparable rise in leased-equipment depreciation; mortgage banking income fell 15.07% to $4.57 million.

Outlook and guidance

• 2016 priorities included protecting credit quality, improving productivity and cost control, growing customer counts, and maintaining leading share in the 15-county primary market.

• Management expected a rising interest-rate curve to support performance; economic and market conditions remained volatile and sent mixed signals.

• The business-banking outlook was guardedly optimistic, with modest economic improvement tempered by manufacturing weakness and lower crop commodity prices.

• Construction lending was expected to benefit from improving residential and nonresidential activity; used-auto market conditions could soften in 2016.