form10-q.htm



 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 
þ     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008
OR
 
o     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
 
(Exact name of registrant as specified in its charter)
INDIANA
 
35-1068133
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

100 North Michigan Street
South Bend, Indiana
46601
(Address of principal executive offices) (Zip Code)

                                                                            (574) 235-2000
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 
Yes
X
 
No
   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

             Large accelerated filer ___     Accelerated filer    X      Non-accelerated filer ___     Smaller reporting company ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 
Yes
   
No
X
 

Number of shares of common stock outstanding as of July 21, 2008 – 24,109,868 shares

 

 


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TABLE OF CONTENTS


PART I.  FINANCIAL INFORMATION
 
   
Page
Item 1.
Financial Statements (Unaudited)
 
 
3
 
4
 
5
 
6
 
7
Item 2.
14
Item 3.
23
Item 4.
23
     
PART II.  OTHER INFORMATION
 
     
Item 1.
24
Item 1A.
24
Item 2.
24
Item 3.
24
Item 4.
24
Item 5.
25
Item 6.
25
     
SIGNATURES
26
     
EXHIBITS
   Exhibit 31.1  
   
   Exhibit 32.1  
   Exhibit 32.2  
     
     
 
 
 
 
-2-





1st SOURCE CORPORATION
           
           
(Unaudited - Dollars in thousands)
           
   
June 30,
   
December 31,
 
   
2008
   
2007
 
ASSETS
           
Cash and due from banks
  $ 126,208     $ 153,137  
Federal funds sold and
               
interest bearing deposits with other banks
    29,116       25,817  
Investment securities available-for-sale
               
(amortized cost of $710,264 and $775,922
               
at June 30, 2008 and December 31, 2007, respectively)
    712,436       779,981  
Other investments
    18,612       14,937  
Trading account securities
    150       -  
Mortgages held for sale
    35,883       25,921  
Loans and leases - net of unearned discount:
               
Commercial and agricultural loans
    669,867       593,806  
Auto, light truck and environmental equipment
    349,182       305,238  
Medium and heavy duty truck
    270,141       300,469  
Aircraft financing
    579,131       587,022  
Construction equipment financing
    398,888       377,785  
Loans secured by real estate
    908,364       881,646  
Consumer loans
    138,069       145,475  
Total loans and leases
    3,313,642       3,191,441  
Reserve for loan and lease losses
    (71,698 )     (66,602 )
Net loans and leases
    3,241,944       3,124,839  
Equipment owned under operating leases, net of accumulated depreciation
    82,517       81,960  
Net premises and equipment
    40,888       45,048  
Goodwill and intangible assets
    92,535       93,567  
Accrued income and other assets
    97,325       101,897  
Total assets
  $ 4,477,614     $ 4,447,104  
                 
LIABILITIES
               
Deposits:
               
Noninterest bearing
  $ 385,967     $ 418,529  
Interest bearing
    2,979,099       3,051,134  
Total deposits
    3,365,066       3,469,663  
                 
Federal funds purchased and securities
               
sold under agreements to repurchase
    228,853       303,429  
Other short-term borrowings
    257,141       34,403  
Long-term debt and mandatorily redeemable securities
    34,825       34,702  
Subordinated notes
    89,692       100,002  
Accrued expenses and other liabilities
    62,415       74,401  
Total liabilities
    4,037,992       4,016,600  
                 
SHAREHOLDERS' EQUITY
               
Preferred stock; no par value
               
Authorized 10,000,000 shares; none issued or outstanding
    -       -  
Common stock; no par value
               
Authorized 40,000,000 shares; issued 25,911,397 at June 30, 2008
               
and 25,927,510 at December 31, 2007, less unearned shares
               
(267,891 at June 30, 2008 and 284,004 at December 31, 2007)
    342,976       342,840  
Retained earnings
    127,328       117,373  
Cost of common stock in treasury (1,533,638 shares at June 30, 2008, and
               
1,551,396 shares at December 31, 2007)
    (32,031 )     (32,231 )
Accumulated other comprehensive income
    1,349       2,522  
Total shareholders' equity
    439,622       430,504  
Total liabilities and shareholders' equity
  $ 4,477,614     $ 4,447,104  
                 
                 
The accompanying notes are a part of the consolidated financial statements.
               



1st SOURCE CORPORATION
                       
CONSOLIDATED STATEMENTS OF INCOME
                       
(Unaudited - Dollars in thousands, except per share amounts)
                       
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2008
   
2007
   
2008
   
2007
 
Interest income:
                       
Loans and leases
  $ 50,348     $ 53,078     $ 103,611     $ 101,352  
Investment securities, taxable
    5,945       5,991       12,392       11,721  
Investment securities, tax-exempt
    1,926       1,721       4,031       3,138  
Other
    360       1,542       669       2,074  
Total interest income
    58,579       62,332       120,703       118,285  
Interest expense:
                               
Deposits
    21,649       28,795       46,769       54,065  
Short-term borrowings
    1,798       2,572       4,179       5,262  
Subordinated notes
    1,647       1,296       3,419       2,390  
Long-term debt and mandatorily redeemable securities
    361       798       915       1,425  
Total interest expense
    25,455       33,461       55,282       63,142  
Net interest income
    33,124       28,871       65,421       55,143  
Provision for loan and lease losses
    4,493       1,247       6,032       624  
Net interest income after
                               
provision for loan and lease losses
    28,631       27,624       59,389       54,519  
Noninterest income:
                               
Trust fees
    4,954       3,871       9,216       7,514  
Service charges on deposit accounts
    5,764       5,226       10,872       9,796  
Mortgage banking income
    1,417       1,059       2,534       1,630  
Insurance commissions
    1,092       938       3,038       2,576  
Equipment rental income
    5,760       5,287       11,509       10,385  
Other income
    2,446       2,482       4,668       4,201  
Investment securities and other investment (losses) gains
    (1,066 )     207       (443 )     454  
Total noninterest income
    20,367       19,070       41,394       36,556  
Noninterest expense:
                               
Salaries and employee benefits
    19,065       18,153       39,699       35,719  
Net occupancy expense
    2,481       2,149       4,957       4,085  
Furniture and equipment expense
    3,883       3,748       7,861       6,842  
Depreciation - leased equipment
    4,609       4,243       9,225       8,319  
Professional fees
    2,522       1,267       3,680       2,168  
Supplies and communication
    1,682       1,512       3,351       2,784  
Business development and marketing expense
    1,000       1,416       1,643       2,274  
Other  expense
    3,153       1,958       5,880       4,055  
Total noninterest expense
    38,395       34,446       76,296       66,246  
Income before income taxes
    10,603       12,248       24,487       24,829  
Income tax expense
    3,358       4,188       7,888       8,246  
                                 
Net income
  $ 7,245     $ 8,060     $ 16,599     $ 16,583  
                                 
Per common share:
                               
Basic net income per common share
  $ 0.30     $ 0.35     $ 0.69     $ 0.73  
Diluted net income per common share
  $ 0.30     $ 0.34     $ 0.68     $ 0.72  
Dividends
  $ 0.14     $ 0.14     $ 0.28     $ 0.28  
Basic weighted average common shares outstanding
    24,105,746       23,127,790       24,101,010       22,818,015  
Diluted weighted average common shares outstanding
    24,386,218       23,423,121       24,384,170       23,113,159  
                                 
The accompanying notes are a part of the consolidated financial statements.
                               


                   
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                   
(Unaudited - Dollars in thousands, except per share amounts)
                   
                               
                           
Net
 
                           
Unrealized
 
                           
Appreciation
 
                     
Cost of
   
(Depreciation)
 
                     
Common
   
of Securities
 
         
Common
   
Retained
   
Stock
   
Available-
 
   
Total
   
Stock
   
Earnings
   
in Treasury
   
For-Sale
 
Balance at January 1, 2007
  $ 368,904     $ 289,163     $ 99,572     $ (19,571 )   $ (260 )
Comprehensive Income, net of tax:
                                       
Net Income
    16,583       -       16,583       -       -  
Change in unrealized appreciation
                                       
of available-for-sale securities, net of tax
    (1,750 )     -       -       -       (1,750 )
Total Comprehensive Income
    14,833       -       -       -       -  
Issuance of 40,088 common shares
                                       
under stock-based compensation awards,
                                       
including related tax effects
    538       -       381       157       -  
Cost of 233,806 shares of common
                                       
stock acquired for treasury
    (6,110 )     -       -       (6,110 )     -  
Cash dividend ($0.28 per share)
    (6,316 )     -       (6,316 )     -       -  
Issuance of 2,124,974 shares of common
                                       
stock for FINA Bancorp purchase
    53,677       53,677                          
Balance at June 30, 2007
  $ 425,526     $ 342,840     $ 110,220     $ (25,524 )   $ (2,010 )
                                         
Balance at January 1, 2008
  $ 430,504     $ 342,840     $ 117,373     $ (32,231 )   $ 2,522  
Comprehensive Income, net of tax:
                                       
Net Income
    16,599       -       16,599       -       -  
Change in unrealized appreciation
                                       
of available-for-sale securities, net of tax
    (1,173 )     -       -       -       (1,173 )
Total Comprehensive Income
    15,426       -       -       -       -  
Issuance of 17,758 common shares
                                       
under stock-based compensation awards,
                                       
including related tax effects
    319       -       119       200       -  
Stock-based compensation
    136       136                          
Cash dividend ($0.28 per share)
    (6,763 )     -       (6,763 )     -       -  
Balance at June 30, 2008
  $ 439,622     $ 342,976     $ 127,328     $ (32,031 )   $ 1,349  
                                         
The accompanying notes are a part of the consolidated financial statements.
                                 



1st SOURCE CORPORATION
           
CONSOLIDATED STATEMENTS OF CASH FLOWS
           
(Unaudited - Dollars in thousands)
           
   
Six Months Ended June 30,
 
   
2008
   
2007
 
Operating activities:
           
Net income
  $ 16,599     $ 16,583  
Adjustments to reconcile net income to net cash
               
provided by operating activities:
               
Provision for loan and lease losses
    6,032       624  
Depreciation of premises and equipment
    2,848       2,518  
Depreciation of equipment owned and leased to others
    9,225       8,319  
Amortization of investment security premiums
               
and accretion of discounts, net
    654       71  
Amortization of mortgage servicing rights
    1,552       638  
Mortgage servicing asset impairment
    69       -  
Deferred income taxes
    (5,405 )     (2,272 )
Realized investment securities losses (gains)
    443       (454 )
Change in mortgages held for sale
    (9,962 )     24,561  
Change in trading account securities
    (150 )     -  
Change in interest receivable
    1,528       (1,853 )
Change in interest payable
    (4,132 )     3,901  
Change in other assets
    2,456       625  
Change in other liabilities
    (1,733 )     10,571  
Other
    3,105       932  
Net change in operating activities
    23,129       64,764  
                 
Investing activities:
               
Cash paid for acquisition, net
    -       (56,370 )
Proceeds from sales of investment securities
    5,579       1,070  
Proceeds from maturities of investment securities
    287,077       178,157  
Purchases of investment securities
    (228,095 )     (83,099 )
Net change in short-term investments
    (6,974 )     24,923  
Net change in loans and leases
    (123,137 )     (192,667 )
Net change  in equipment owned under operating leases
    (9,782 )     (11,091 )
Purchases of premises and equipment
    (1,073 )     (13,549 )
Net change in investing activities
    (76,405 )     (152,626 )
                 
Financing activities:
               
Net change in demand deposits, NOW
               
accounts and savings accounts
    (73,017 )     (156,790 )
Net change in certificates of deposit
    (31,580 )     171,807  
Net change in short-term borrowings
    148,162       23,549  
Proceeds from issuance of long-term debt
    10,022       -  
Proceeds from issuance of trust preferred securities
    -       41,238  
Payments on subordinated notes
    (10,310 )     -  
Payments on long-term debt
    (10,370 )     (385 )
Net proceeds from issuance of treasury stock
    319       539  
Acquisition of treasury stock
    -       (6,110 )
Cash dividends
    (6,879 )     (6,426 )
Net change in financing activities
    26,347       67,422  
Net change in cash and cash equivalents
    (26,929 )     (20,440 )
Cash and cash equivalents, beginning of year
    153,137       118,131  
Cash and cash equivalents, end of period
  $ 126,208     $ 97,691  
                 
Supplemental non-cash activity:
               
Common stock issued for purchase of FNBV
    -     $ 53,677  
           
The accompanying notes are a part of the consolidated financial statements.
         


1ST SOURCE CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.                      Basis of Presentation

The accompanying unaudited consolidated financial statements reflect all adjustments (all of which are normal and recurring in nature) that are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, the results of operations, changes in shareholders’ equity, and cash flows for the periods presented. These unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with U. S. generally accepted accounting principles have been omitted. The Notes to the Consolidated Financial Statements appearing in 1st Source Corporation’s Annual Report on Form 10-K for 2007 (2007 Annual Report), which include descriptions of significant accounting policies, should be read in conjunction with these interim financial statements. The balance sheet at December 31, 2007, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U. S. generally accepted accounting principles for complete financial statements.  Certain amounts in the prior period consolidated financial statements have been reclassified to conform with the current year presentation.

Note 2.                      Merger Activity

On June 7, 2008, First National Bank, Valparaiso was merged into 1st Source Bank; both of which were wholly owned subsidiaries of 1st Source Corporation.

Note 3.                      Recent Accounting Pronouncements

GAAP Hierarchy:  In May 2008, the FASB issued Statement No. 162, "The Hierarchy of Generally Accepted Accounting Principles"  (SFAS No. 162)This standard identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy).  The provisions of SFAS No. 162 did not have a material impact on our financial condition and results of operations.

Disclosures About Derivative Instruments and Hedging Activities:  In March 2008, the FASB issued Statement No. 161, “Disclosures About Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133” (SFAS No. 161).  SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.  SFAS No. 161 is effective for fiscal years beginning after November 15, 2008.  We are assessing the potential disclosure effects of SFAS No. 161.

Business Combinations:  In December 2007, the FASB issued SFAS No. 141R, “Business Combinations.”  SFAS No. 141R broadens the guidance of SFAS No. 141, extending its applicability to all transactions and other events in which one entity obtains control over one or more other businesses.  It broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations.  SFAS No. 141R expands on required disclosures to improve the statement users’ abilities to evaluate the nature and financial effects of business combinations.  SFAS No. 141R is effective for the first annual reporting period beginning on or after December 15, 2008.  The provisions of SFAS No. 141R will only impact us if we are party to a business combination closing on or after January 1, 2009.

-7-

 
Written Loan Commitments Recorded at Fair Value Through Earnings:  In November 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 109 (SAB 109), “Written Loan Commitments Recorded at Fair Value through Earnings,” an amendment of  SAB 105, “Application of Accounting Principles to Loan Commitments.”  Under SAB 109, the expected net future cash flows of associated loan servicing activities should be included in the measurement of written loan commitments accounted for at fair value through earnings.  The guidance in SAB 109 is applied on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007.  We adopted the provisions of SAB 109 on January 1, 2008.  Details related to the adoption of SAB 109 and the impact on our financial statements are more fully discussed in Note 7 – Fair Value.

Fair Value Option:  In February 2007, the Financial Accounting Standards Board (FASB) issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB No. 115” (SFAS No. 159).  The fair value option permits companies to choose to measure eligible items at fair value at specified election dates.  Companies will report unrealized gains and losses on items for which the fair value option has been elected in earnings after adoption.  SFAS No. 159 requires additional disclosures related to the fair value measurements included in the companies' financial statements.  This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007.  We adopted the provisions of SFAS No. 159 on January 1, 2008.  Details related to the adoption of SFAS No. 159 and the impact on our financial statements are more fully discussed in Note 7 – Fair Value.

Fair Value Measurements:  In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”  This standard clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability. Additionally, it establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.  We adopted the provisions of SFAS No. 157 on January 1, 2008.  Details related to the adoption of SFAS No. 157 and the impact on our financial statements are more fully discussed in Note 7 – Fair Value.

Note 4.  Reserve for Loan and Lease Losses

The reserve for loan and lease losses is maintained at a level believed to be adequate by management to absorb probable losses inherent in the loan and lease portfolio.  The determination of the reserve requires significant judgment reflecting management’s best estimate of probable loan and lease losses related to specifically identified loans and leases as well as probable losses in the remainder of the various loan and lease portfolios.  The methodology for assessing the appropriateness of the reserve consists of several key elements, which include: specific reserves for identified special attention loans and leases (classified loans and leases and internal watch list credits), percentage allocations for special attention loans and leases without specific reserves, formula reserves for each business lending division portfolio, and reserves for pooled homogeneous loans and leases.  Management’s evaluation is based upon a continuing review of these portfolios, estimates of customer performance, collateral values and dispositions and assessments of economic and geopolitical events, all of which are subject to judgment and will change.

-8-

 
Note 5.  Financial Instruments with Off-Balance-Sheet Risk and Derivative Transactions

To meet the financing needs of our customers, 1st Source Corporation and its subsidiaries are parties to financial instruments with off-balance-sheet risk in the normal course of business. These off-balance-sheet financial instruments include commitments to originate, purchase and sell loans and standby letters of credit.  The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition.  Our exposure to credit loss in the event of nonperformance by the other party to the financial instruments for loan commitments and standby letters of credit is represented by the dollar amount of those instruments. We use the same credit policies and collateral requirements in making commitments and conditional obligations as we do for on-balance-sheet instruments.

We have certain interest rate derivative positions that are not designated as hedging instruments.  These derivative positions relate to transactions in which we enter into an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution.  In connection with each transaction, we agree to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate.  At the same time, we agree to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount.  The transaction allows our client to effectively convert a variable rate loan to a fixed rate.  Because we act as an intermediary for our client, changes in the fair value of the underlying derivative contracts offset each other and do not impact our results of operations.  As of June 30, 2008, the notional amount of non-hedging interest rate swaps was $373.53 million.
 
1st Source Bank, a subsidiary of 1st Source Corporation, grants mortgage loan commitments to borrowers, subject to normal loan underwriting standards. The interest rate risk associated with these loan commitments is managed by entering into contracts for future deliveries of loans.  Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

We issue letters of credit that are conditional commitments that guarantee the performance of a customer to a third party. The credit risk involved and collateral obtained in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers.

As of June 30, 2008 and December 31, 2007, 1st Source Bank had commitments outstanding to originate and purchase mortgage loans aggregating $121.83 million and $71.50 million, respectively. Outstanding commitments to sell mortgage loans aggregated $50.38 million at June 30, 2008, and $45.53 million at December 31, 2007.  Standby letters of credit totaled $57.40 million and $61.79 million at June 30, 2008, and December 31, 2007, respectively.  Standby letters of credit have terms ranging from six months to one year.

Note 6.  Stock-Based Compensation

As of June 30, 2008, we had five stock-based employee compensation plans, which are more fully described in Note L of the Consolidated Financial Statements in 1st Source’s Annual Report on Form 10-K for the year ended December 31, 2007.  These plans include two stock option plans, the Employee Stock Purchase Plan, the Executive Incentive Plan, and the Restricted Stock Award Plan.

Stock-based compensation expense for all stock-based compensation awards granted is based on the grant-date fair value.  For all awards except stock option awards, the grant date fair value is either the fair market value per share or book value per share (corresponding to the type of stock awarded) as of the grant date.  For stock option awards, the grant date fair value is estimated using the Black-Scholes option pricing model.  For all awards we recognize these compensation costs only for those shares expected to vest on a straight-line basis over the requisite service period of the award, for which we use the related vesting term.  We estimate forfeiture rates based on historical employee option exercise and employee termination experience.  We have identified separate groups of awardees that exhibit similar option exercise behavior and employee termination experience and have considered them as separate groups in the valuation models and expense estimates.

-9-

 
The stock-based compensation expense recognized in the condensed consolidated statement of operations for the six months ended June 30, 2008 and 2007 was based on awards ultimately expected to vest, and accordingly has been adjusted by the amount of estimated forfeitures.  SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  Forfeitures were estimated based partially on historical experience.

The aggregate intrinsic value in the table below represents the total pretax intrinsic value (the difference between 1st Source’s closing stock price on the last trading day of the second quarter of 2008 (June 30, 2008) and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2008.  This amount changes based on the fair market value of 1st Source’s stock.  Total fair value of options vested and expensed was $9 thousand and $46 thousand, net of tax, for the six months ended June 30, 2008 and 2007, respectively.



                         
   
June 30, 2008
             
               
Average
       
         
Weighted
   
Remaining
   
Total
 
         
Average
   
Contractual
   
Intrinsic
 
   
Number of
   
Grant-date
   
Term
   
Value
 
   
Shares
   
Fair Value
   
(in years)
   
(in 000's)
 
                         
Options outstanding, beginning of year
    471,517     $ 26.51              
Granted
    -       -              
Exercised
    -       -              
Forfeited
    (14,008 )     26.76              
Options outstanding, June 30, 2008
    457,509     $ 26.51       0.65     $ 89  
                                 
                                 
Vested and expected to vest at June 30, 2008
    457,509     $ 26.51       0.65     $ 89  
Exercisable at June 30, 2008
    449,259     $ 26.77       0.57     $ 56  

No options were granted during the six months ended June 30, 2008.
 
As of June 30, 2008, there was $2.68 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 4.48 years.
 
The following table summarizes information about stock options outstanding at June 30, 2008:


     
Options Outstanding
   
Options Exercisable
 
           
Weighted
                   
           
Average
   
Weighted
         
Weighted
 
Range of
   
Number
   
Remaining
   
Average
   
Number
   
Average
 
Exercise
   
of shares
   
Contractual
   
Exercise
   
of shares
   
Exercise
 
Prices
   
Outstanding
   
Life
   
Price
   
Exercisable
   
Price
 
$ 12.04 to $17.99       29,508       4.24     $ 13.38       21,258     $ 13.90  
$ 18.00 to $26.99       48,917       2.68       20.46       48,917       20.46  
$ 27.00 to $28.40       379,084       0.11       28.31       379,084       28.31  
 
The fair value of each stock option was estimated on the date of grant using the Black-Scholes option-pricing model.

-10-

 
Note 7.  Fair Value

As of January 1, 2008, we adopted SFAS No. 157, “Fair Value Measurements” and SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” including an amendment of SFAS No. 115.  SFAS No. 157 does not change existing guidance as to whether or not an asset or liability is carried at fair value.  It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  SFAS No. 159 generally permits the measurement of selected eligible financial instruments at fair value at specified election dates, subject to the conditions set forth in the standard.

We also adopted the provisions of FASB Staff Position (FSP) No. 157-2, which defers until January 1, 2009, the application of SFAS 157 to nonfinancial assets and nonfinancial liabilities not recognized or disclosed at least annually at fair value.  Items affected by this deferral include goodwill, repossessions and other real estate, all for which any necessary impairment analyses are performed using fair value measurements.  We do not expect the adoption of FSP No. 157-2 will to have a material impact on our financial condition, results of operations, or liquidity.

We elected to adopt SFAS No. 159 for mortgages held for sale (MHFS) at fair value prospectively for new MHFS originations starting on January 1, 2008.  We believe the election for MHFS (which are now hedged with free-standing derivatives (economic hedges)) will reduce certain timing differences and better match changes in the value of these assets with changes in the value of derivatives used as economic hedges for these assets.  There was no transition adjustment required upon adoption of SFAS No. 159 for MHFS because we continued to account for MHFS originated prior to January 1, 2008 at the lower of cost or fair value.  At June 30, 2008, MHFS carried at fair value totaled $35.88 million.  At June 30, 2008, there were no MHFS that were originated prior to January 1, 2008.
 
In accordance with SFAS No. 157, we group our financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.  These levels are:

§ Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

§ Level 2 – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date.  The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

§ Level 3 – Assets and liabilities that have little to no pricing observability as of the reported date.  These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

-11-

 
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Certain assets and liabilities are measured at fair value on a recurring basis.  The following is a discussion of these assets and liabilities and valuation techniques applied to each for fair value measurement:

§  
Investment securities available for sale are valued primarily by a third party pricing agent and both the market and income valuation approaches are implemented using the following types of inputs:

§ U.S. treasuries are priced using the market approach and utilizing live data feeds from active market exchanges for identical securities.
§ Government-sponsored agency debt securities and corporate bonds are primarily priced using available market information through processes such as benchmark curves, market valuations of like securities, sector groupings and matrix pricing.
§ Other government-sponsored agency securities, mortgage-backed securities and some of the actively traded REMICs and CMO’s, are primarily priced using available market information including benchmark yields, prepayment speeds, spreads and volatility of similar securities.
§ Other inactive government-sponsored agency securities are primarily priced using consensus pricing and dealer quotes.
§ State and political subdivisions are largely grouped by characteristics, i.e., geographical data and source of revenue in trade dissemination systems.  Since some securities are not traded daily and due to other grouping limitations, active market quotes are often obtained using benchmarking for like securities.  Local tax anticipation warrants, with very little market activity, are priced using an appropriate market yield curve.
§ Marketable equity (common) securities are primarily priced using the market approach and utilizing live data feeds from active market exchanges for identical securities.
§ Marketable equity (preferred) securities are primarily priced using available market information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing.
§ Other non-marketable securities are primarily priced using cost or book values due to an absence of market activity and market data.

§  
Mortgages held for sale and the related loan commitments and forward contracts (hedges) are valued using an income approach and utilizing an appropriate current market yield and a loan commitment closing rate based on historical analysis.

§  
Interest rate swap positions, both assets and liabilities, are valued by a third-party pricing agent using an income approach and utilizing models that use as their basis readily observable market parameters.  This valuation process considers various factors including interest rate yield curves, time value and volatility factors.


-12-

The table below presents the balance of assets and liabilities at June 30, 2008 measured at fair value on a recurring basis:


Assets and Liabilities Measured at Fair Value on a recurring basis:
                   
                     
June 30, 2008
 
(Dollars in thousands)
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets:
                       
Investment securities available for sale
  $ 52,539     $ 640,521     $ 19,376     $ 712,436  
Mortgages held for sale
    -       35,883       -       35,883  
Accrued income and other assets (Interest rate swap
    -               -       -  
     agreements)
            5,251               5,251  
Total
  $ 52,539     $ 681,655     $ 19,376     $ 753,570  
                                 
Liabilities
                            -  
Accrued expenses and other liabilities (Interest rate
                               
     swap agreements)
  $ -     $ 5,251     $ -     $ 5,251  
Total
  $ -     $ -     $ -     $ -  


The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:

 
 
       
       
       
       
(Dollars in thousands)
 
Quarter ended June 30, 2008
 
   
Investment securities available for sale
 
Beginning balance April 1, 2008
  $ 13,681  
  Total gains or losses (realized/unrealized):
       
          Included in earnings
    (47 )
          Included in other comprehensive income
    (215 )
  Purchases and issuances
    11,822  
  Settlements
    -  
  Maturities
    (4,222 )
  Transfers in and/or out of Level 3
    (1,643 )
Ending balance June 30, 2008
  $ 19,376  
         
The amount of total gains or (losses) for the period included in earnings
       
attributable to the change in unrealized gains or losses relating to
       
assets and liabilities still held at June 30, 2008.
  $ -  

We may be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP.   These other financial assets include loans measured for impairment under SFAS 114, venture capital partnership investments and mortgage servicing rights.  Impaired loans and related write-downs are based on the fair value of the underlying collateral if repayment is expected solely from the collateral.  Collateral values are estimated using customized discounting criteria, appraisals and dealer and trade magazine quotes which are used in a market valuation approach.  Venture capital partnership investments and the adjustments to fair value primarily result from application of lower-of-cost-or-fair value accounting.  The partnership investments are priced using financial statements provided by the partnerships.  Mortgage servicing rights (MSRs) and related adjustments to fair value result from application of lower-of-cost-or-fair value accounting.  Fair value measurements for mortgage servicing rights are derived based on a variety of inputs including prepayment speeds, discount rates, scheduled servicing cash flows, delinquency rates and other assumptions.  MSRs do not trade in an active, open market with readily observable prices and though sales of MSRs do occur, precise terms and conditions typically are not readily available.  For assets measured at fair value on a nonrecurring basis the following represents impairment charges (recoveries) recognized on these assets during the quarter ended June 30, 2008:  impaired loans $0.52 million; venture capital partnership investments $ 0.13 million; mortgage servicing rights $( 0.52) million.  For assets measured at fair value on a nonrecurring basis on hand at June 30, 2008, the following table provides the level of valuation assumptions used to determine each valuation and the fair value measurement of the related assets:
 
-13-



                         
                         
Assets and Liabilities Measured at Fair Value on a non-recurring basis:
                   
                         
       
   
June 30, 2008
 
(Dollars in thousands)
 
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Loans
  $ -     $ -     $ 17,021     $ 17,021  
Accrued income and other assets (venture capital partnership investments)
    -       -       2,766       2,766  
Accrued income and other assets (mortgage servicing rights)
                    11,275       11,275  
    $ -     $ -     $ 19,787     $ 19,787  


Fair Value Option

The following table reflects the differences between fair value carrying amount of mortgages held for sale measured at fair value under SFAS No. 159 and the aggregate unpaid principal amount we are contractually entitled to receive at maturity on June 30, 2008:


                         
                         
                         
                         
(Dollars in thousands)
 
Fair value carrying amount
   
Aggregate unpaid principal
   
Excess of fair value carrrying amount over (under) unpaid principal
       
                         
Mortgages held for sale reported at fair value:
                       
  Total loans
  $ 35,883     $ 35,224     $ 659       (1 )
  Nonaccrual loans
    -       -       -          
  Loans 90 days or more past due and still accruing
    -       -       -          
                                 
(1) The excess of fair value carrying amount over unpaid principal includes changes in fair value recorded at and
 
subsequent to funding, gains and losses on the related loan commitment prior to funding, and premiums on acquired loans.
 


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for historical information contained herein, the matters discussed in this document express “forward-looking statements.” Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” “should,” and similar expressions indicate forward-looking statements. Those statements, including statements, projections, estimates 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. We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. We may make other written or oral forward-looking statements from time to time. Readers are advised that various important factors could cause our actual results or circumstances for future periods to differ materially from those anticipated or projected in such forward-looking statements. Such factors include, but are not limited to, changes in law, regulations or U. S. generally accepted accounting principles; our competitive position within the markets we serve; increasing consolidation within the banking industry; unforeseen changes in interest rates; unforeseen changes in loan prepayment assumptions; unforeseen downturns in or major events affecting the local, regional or national economies or the industries in which we have credit concentrations; and other matters discussed in our filings with the SEC, including our Annual Report on Form 10-K  for 2007, which filings are available from the SEC. We undertake no obligation to publicly update or revise any forward-looking statements.

-14-

 
The following management’s discussion and analysis is presented to provide information concerning our financial condition as of June 30, 2008, as compared to December 31, 2007, and the results of operations for the three and six month periods ended June 30, 2008 and 2007. This discussion and analysis should be read in conjunction with our consolidated financial statements and the financial and statistical data appearing elsewhere in this report and our 2007 Annual Report.


FINANCIAL CONDITION

Our total assets at June 30, 2008, were $4.48 billion, relatively unchanged from December 31, 2007.  Total loans and leases were $3.31 billion at June 30, 2008, an increase of $122.20 million or 3.83% from December 31, 2007.  Total deposits at June 30, 2008, were $3.37 billion, down $104.60 million or 3.01% from the comparable figures at the end of 2007.

Nonperforming assets at June 30, 2008, were $28.14 million compared to $18.48 million at December 31, 2007, an increase of 52.30%.  The majority of the increase was in the medium and heavy duty truck financing portfolio.  At June 30, 2008, nonperforming assets were 0.83% of net loans and leases compared to 0.56% at December 31, 2007.

Accrued income and other assets were as follows:

 
(Dollars in Thousands)
     
       
   
June 30,
   
December 31,
 
   
2008
   
2007
 
Accrued income and other assets:
           
Bank owned life insurance cash surrender value
  $ 38,064     $ 38,871  
Accrued interest receivable
    17,764       19,293  
Mortgage servicing assets
    6,590       7,279  
Other real estate
    1,079       781  
Former bank premises held for sale
    4,181       4,040  
Repossessions
    1,091       2,291  
All other assets
    28,556       29,342  
Total accrued income and other assets
  $ 97,325     $ 101,897  

 
CAPITAL

As of June 30, 2008, total shareholders' equity was $439.62 million, up $9.12 million or 2.12% from the $430.50 million at December 31, 2007.  In addition to net income of $16.60 million, other significant changes in shareholders’ equity during the first six months of 2008 included $6.76 million of dividends paid.  The accumulated other comprehensive income component of shareholders’ equity totaled $1.35 million at June 30, 2008, compared to $2.52 million at December 31, 2007.  The decrease in accumulated other comprehensive income was a result of changes in unrealized gain or loss on securities in the available-for-sale portfolio.  Our equity-to-assets ratio was 9.82% as of June 30, 2008, compared to 9.68% at December 31, 2007. Book value per common share rose to $18.23 at June 30, 2008, up from $17.87 at December 31, 2007.  Tangible book value per common share was $14.40 at June 30, 2008, up from $13.99 at December 31, 2007.

-15-

 
We declared and paid dividends per common share of $0.14 during the second quarter of 2008.  The trailing four quarters dividend payout ratio, representing dividends per share divided by diluted earnings per share, was 44.80%.  The dividend payout is continually reviewed by management and the Board of Directors.

The banking regulators have established guidelines for leverage capital requirements, expressed in terms of Tier 1 or core capital as a percentage of average assets, to measure the soundness of a financial institution.  In addition, banking regulators have established risk-based capital guidelines for U. S. banking organizations.  The actual and required capital amounts and ratios of 1st Source Corporation and 1st Source Bank, as of June 30, 2008, are presented in the table below:


                                     
                           
To Be Well
 
                           
Capitalized Under
 
               
Minimum Capital
   
Prompt Corrective
 
   
Actual
   
Adequacy
   
Action Provisions
 
(Dollars in thousands)
 
Amount
   
Ratio
   
Amount
   
Ratio
   
Amount
   
Ratio
 
Total Capital (To Risk-Weighted Assets):
                                   
1st Source Corporation
  $ 480,676       12.77 %   $ 301,212       8.00 %   $ 376,514       10.00 %
1st Source Bank
    475,337       12.68       299,892       8.00       374,865       10.00  
Tier 1 Capital (to Risk-Weighted Assets):
                                               
1st Source Corporation
    432,556       11.49       150,606       4.00       225,909       6.00  
1st Source Bank
    428,049       11.42       149,946       4.00       224,919       6.00  
Tier 1 Capital (to Average Assets):
                                               
1st Source Corporation
    432,556       10.07       171,896       4.00       214,869       5.00  
1st Source Bank
    428,049       10.05       170,407       4.00       213,009       5.00  

 
LIQUIDITY AND INTEREST RATE SENSITIVITY

Effective liquidity management ensures that the cash flow requirements of depositors and borrowers, as well as the operating cash needs of 1st Source Corporation, are met.  Funds are available from a number of sources, including the securities portfolio, the core deposit base, Federal Home Loan Bank borrowings, and the capability to package loans for sale.   Our loan to asset ratio was 74.00% at June 30, 2008 compared to 71.76% at December 31, 2007 and 69.58% at June 30, 2007.  Cash and cash equivalents totaled $126.21 million at June 30, 2008 compared to $153.14 million at December 31, 2007 and $97.69 million at June 30, 2007.  At June 30, 2008, the consolidated statement of financial condition was rate sensitive by $1.00 billion more liabilities than assets scheduled to reprice within one year, or approximately 0.69%.  Management believes that the present funding sources provide adequate liquidity to meet our cash flow needs.

SUBORDINATED DEBT

During the first quarter of 2008, we redeemed $10.31 million in floating-rate trust preferred securities issued by 1st Source Capital Trust III and $0.43 million of pre-tax capitalized debt issuance costs were written off.   We will dissolve our unconsolidated subsidiary 1st Source Capital Trust III.

-16-


RESULTS OF OPERATIONS

Net income for the three and six month periods ended June 30, 2008, was $7.25 million and $16.60 million respectively, compared to $8.06 million and $16.58 million for the same periods in 2007.  Diluted net income per common share was $0.30 and $0.68 respectively, for the three and six month periods ended June 30, 2008, compared to $0.34 and $0.72 for the same periods in 2007.  Return on average common shareholders' equity was 7.54% for the six months ended June 30, 2008, compared to 8.68% in 2007. The return on total average assets was 0.76% for the six months ended June 30, 2008, compared to 0.87% in 2007.

The change in net income for the six months ended June 30, 2008, over the first six months of 2007, was primarily the result of an increase of $5.41 million to our provision for loan and lease losses and a $10.05 million increase in noninterest expense, which were offset by a $10.28 million increase in net interest income and a $4.84 million increase in noninterest income.  Details of the changes in the various components of net income are further discussed below.

NET INTEREST INCOME

The taxable equivalent net interest income for the three months ended June 30, 2008, was $34.03 million, an increase of 14.94% over the same period in 2007. The net interest margin on a fully taxable equivalent basis was 3.38% for the three months ended June 30, 2008, compared to 3.16% for the three months ended June 30, 2007. The taxable equivalent net interest income for the six month period ended June 30, 2008 was $67.25 million, an increase of 18.87% over 2007, resulting in a net yield of 3.35%, compared to a net yield of 3.17% for the same period in 2007.

Average earning assets increased $302.51 million or 8.06% and $429.70 million or 11.93%, respectively, for the three and six month periods ended June 30, 2008, over the comparable periods in 2007.  Average interest-bearing liabilities increased $290.76 million or 9.10% and $418.56 million or 13.67%, respectively, for the three and six month periods ended June 30, 2008, over the comparable period one year ago.  The yield on average earning assets decreased 84 basis points to 5.90% for the second quarter of 2008 from 6.74% for the second quarter of 2007.  The yield on average earning assets for the six month period ended June 30, 2008, decreased 59 basis points to 6.11% from 6.70% for the six month period ended June 30, 2007. The rate earned on assets continued to decrease due to the reduction in short-term market interest rates from a year ago.  Total cost of average interest-bearing liabilities decreased 126 basis points to 2.94% for the second quarter of 2008 from 4.20% for the second quarter of 2007. Total cost of average interest-bearing liabilities decreased 97 basis points to 3.19% for the six month period ended June 30, 2008 from 4.16% for the six month period ended June 30, 2007.  The cost of interest-bearing liabilities was also affected by the decline in short-term market interest rates.  The result to the net interest margin, or the difference between interest income on earning assets and expense on interest-bearing liabilities, was an increase of 22 basis points and 18 basis points, respectively, for the three and six month periods ended June 30, 2008 from June 30, 2007.

Average loans and leases grew by $353.81 million or 12.20% during the second quarter of 2008, compared to the second quarter of 2007.  Average loans and leases outstanding increased most notably in commercial loans, construction equipment financing, aircraft financing, and loans secured by real estate for both the second quarter and year-to-date 2008 as compared to 2007.

Total average investment securities increased 5.47% and 10.88%, respectively, for the three and six month periods over one year ago.  Average mortgages held for sale increased 13.78% and decreased 3.03% respectively, for the three and six month periods over the same periods one year ago.  Average other investments, which include federal funds sold, time deposits with other banks, Federal Reserve Bank and Federal Home Loan Bank stock and commercial paper, decreased 72.51% for the three month period ended June 30, 2008 from same period one year ago, and 60.35% for the first six months of 2008 as compared to the first six months of 2007 as excess funds were used to fund loan and lease growth.

-17-

 
      Average interest-bearing deposits increased $165.84 million or 5.84% and $297.76 million or 10.99%, respectively, for the second quarter of 2008 and first six months of 2008, over the same periods in 2007. The effective rate paid on average interest-bearing deposits decreased 117 basis points to 2.90% for the second quarter of 2008 compared to 4.07% for the second quarter of 2007.  The effective rate paid on average interest-bearing deposits decreased 89 basis points to 3.13% for the first six months of 2008 compared to 4.02% for the first six months of 2007.  The decline in the average cost of interest-bearing deposits during the second quarter and first six months of 2008 as compared to the second quarter and first six months of 2007 was primarily the result of decreases in interest rates offered on deposit products due to decreases in market interest rates.

Average short term borrowings increased $113.68 million or 47.11% and $102.06 million or 41.65%, respectively, for the second quarter of 2008 and the first six months of 2008, compared to the same time periods in 2007.  Interest paid on short-term borrowings decreased due to the interest rate decrease in adjustable rate borrowings.  Average long-term debt decreased $8.55 million or 19.64% during the second quarter of 2008 as compared to the second quarter of 2007 and decreased $9.02 million or 20.70% during the first six months of 2008 as compared to the first six months of 2007.  The majority of the decrease in long-term debt was made up of Federal Home Loan Bank borrowings.
.
Average demand deposits increased 9.06% and 13.19%, respectively, for the three and six month period ended June 30, 2008 as compared to the three and six month periods of 2007.  Much of the increase was due to the May 31, 2007 acquisition of First National Bank, Valparaiso (FNBV).
 
The following table provides an analysis of net interest income and illustrates the interest earned and interest expense charged for each major component of interest earning assets and interest bearing liabilities.  Yields/rates are computed on a tax-equivalent basis, using a 35% rate.  Nonaccrual loans and leases are included in the average loan and lease balance outstanding.
 
 
                                                 
INTEREST RATES AND INTEREST DIFFERENTIAL
                                                 
(Dollars in thousands)
                                                 
   
Three months ended June 30,
   
Six months ended June 30,
 
         
2008
               
2007
               
2008
               
2007
       
                                                                         
         
Interest
               
Interest
               
Interest
               
Interest
       
   
Average
   
Income/
   
Yield/
   
Average
   
Income/
   
Yield/
   
Average
   
Income/
   
Yield/
   
Average
   
Income/
   
Yield/
 
   
Balance
   
Expense
   
Rate
   
Balance
   
Expense
   
Rate
   
Balance
   
Expense
   
Rate
   
Balance
   
Expense
   
Rate
 
ASSETS:
                                                                       
Investment securities:
                                                                       
Taxable
  $ 505,109     $ 5,945       4.73 %   $ 482,344     $ 5,821       4.84 %   $ 516,576     $ 12,392       4.82 %   $ 478,333     $ 11,439       4.82 %
Tax exempt
    225,172       2,688       4.80 %     210,090       2,364       4.51 %     230,627       5,583       4.87 %     195,556       4,382       4.52 %
Mortgages - held for sale
    36,462       537       5.92 %     32,047       494       6.18 %     34,412       1,021       5.97 %     35,489       1,132       6.43 %
Net loans and leases
    3,253,147       49,959       6.18 %     2,899,340       52,681       7.29 %     3,215,371       102,867       6.43 %     2,803,434       100,409       7.22 %
Other investments
    35,476       360       4.08 %     129,040       1,712       5.32 %     35,784       669       3.76 %     90,257       2,356       5.26 %
                                                                                                 
Total Earning Assets
    4,055,366       59,489       5.90 %     3,752,861       63,072       6.74 %     4,032,770       122,532       6.11 %     3,603,069       119,718       6.70 %
                                                                                                 
Cash and due from banks
    88,565                       79,994                       92,071                       75,107                  
Reserve for loan and lease losses
    (68,407 )                     (59,470 )                     (67,621 )                     (59,137 )                
Other assets
    314,399                       251,525                       318,610                       235,262                  
                                                                                                 
Total
  $ 4,389,923                     $ 4,024,910                     $ 4,375,830                     $ 3,854,301                  
                                                                                                 
LIABILITIES AND SHAREHOLDERS' EQUITY:
                         
Interest-bearing deposits
  $ 3,006,221     $ 21,649       2.90 %   $ 2,840,382     $ 28,795       4.07 %   $ 3,006,812     $ 46,769       3.13 %   $ 2,709,051     $ 54,065       4.02 %
Short-term borrowings
    354,971       1,798       2.04 %     241,297       2,572       4.28 %     347,126