Strong 4th Quarter, Year End Earnings Expected by 1st Source
4 February 2000
Strong 4th Quarter, Year End Earnings Expected by 1st Source Corporation
SOUTH BEND, Ind.--Feb. 4, 2000--Restatement of Prior Period Results Likely
1st Source Corporation , parent company of 1st Source Bank, today announced that it is delaying announcement of earnings for the fourth quarter and for the full year 1999 pending finalization with its auditors of a revised model for recognition of gain on securitization transactions. 1st Source currently expects that the net effect of this adjustment on prior earnings will be an increase, as discussed further below.
Before giving effect to this adjustment, 1st Source estimates its net income for the fourth quarter of 1999 would be $10.4 million and its net income for the year 1999 would be $35.8 million. Likewise, before adjustment, 1st Source estimates diluted net income per common share for the fourth quarter of $0.55 and $1.86 for the full year 1999. 1st Source has also increased its quarterly dividend from $0.08 per share to $0.09 per share. 1st Source Corporation will issue a final annual earnings release upon completion of the current audit. It is likely that the net income for 1st Source Corporation will be restated upward for the last two quarters of 1998. There may also be a restatement for each of the quarters in 1999 due to the volatility of the calculations from the use of the proposed new model for valuing securitizations.
The restatement would pertain to 1st Source's accounting for measuring "gain on sale" income recognition on securitized loans in accordance with SFAS No. 125 ("Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"). Since June 30, 1998, 1st Source has sold approximately $581 million of capital equipment loans into its securitization facility. The loan securitization activities have provided an excellent source of funding for 1st Source to support the growth of its Specialty Finance Group. The auditors of 1st Source Corporation, PricewaterhouseCoopers LLP, recommended that 1st Source review its accounting policies and procedures relating to securitized loans. As a result of the review, 1st Source is developing with its auditors an enhanced and more sophisticated analytical model to enable 1st Source to refine its method of estimating the performance of the securitized loans and the value of the retained interests in the loans. The adoption of the model will likely be applied retroactively to the commencement of this securitization program in the third quarter of 1998. Preliminary results of the model indicate that adjustments to net income for 1998 and 1999, if material, are estimated to be positive. This change would result only in a difference in timing of the revenue recognition from the securitized loans and has no effect on the total cash flows of the securitized transactions.
Christopher J. Murphy III, 1st Source Chairman commented, "We are pleased with our results for 1999 and excited about our opportunities in 2000 and expect to report final earnings that reflect continued strong financial performance and credit quality. Obviously we regret the delay in finalizing earnings and the possibility of a restatement. Our policy is to take a conservative approach to income recognition. We emphasize that the adjustments we are evaluating should result in earlier recognition of income from our securitizations than the model we have previously employed."
1st Source's Board of Directors approved the fourth quarter cash dividend of $0.09 per share payable on February 16, 2000 to shareholders of record on February 14, 2000. 1st Source Corporation takes pride in its identification as the largest locally owned financial institution headquartered in the Northern Indiana-Southwestern Michigan area. While delivering a comprehensive range of consumer and commercial banking services, 1st Source Bank has distinguished itself with innovative products and highly personalized services. 1st Source also competes for business nationally by offering specialized financing services for used private aircraft, automobiles for leasing and rental agencies, heavy duty trucks, and construction equipment. The corporation includes 50 banking locations in twelve counties, eight Trustcorp Mortgage offices in Indiana, Ohio and Kentucky; and 15 locations nationwide for the 1st Source Bank Specialty Finance Group. With a history dating back to 1863, 1st Source has a tradition of providing superior service to customers while playing a leadership role in the continued development of the communities in which it serves.
1st Source may be accessed on its home page at "www.1stsource.com." Its common stock is traded on the Nasdaq Stock Market under "SRCE" and appears in the National Market System tables in many daily newspapers under the code name "1st Src." Marketmakers in 1st Source common shares are ABN-AMRO Securities (USA); Howe, Barnes Investments, Inc.; Keefe, Bruyette & Woods, Inc.; NatCity Investments; Raymond James and Associates; Sandler, O'Neill & Partners; Sherwood Securities Corporation; Spear, Leeds & Kellogg; and Stifel, Nicolaus & Company, Incorporated.
1st Source's fixed and floating rate cumulative trust preferred securities are traded on the Nasdaq stock market under the symbols "SRCEP" and "SRCEO", respectively. The rate on the fixed rate securities is 9.0 percent and the rate for the first quarter, 2000 on the floating rate securities is 7.48 percent. Marketmakers in those securities are Ryan Beck & Company and Stifel, Nicolaus & Company, Incorporated.
This press release contains forward-looking statements regarding management's estimates of the net effects of the likely accounting adjustments described above on the 1998 and 1999 time frame. The final calculation of such accounting adjustments is still in process and is subject to a number of factors, such as projection of losses, prepayments and other matters which make the final outcome of such calculation difficult to predict. Accordingly, such forward looking statements are subject to changes that may result from such process, and such changes may be material. These statements and other forward looking statements involve risks and uncertainties, including statements concerning future events or performance and assumptions and other statements that are other than statements of facts. 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 described in 1st Source Corporation's 1998 annual report, which description of such factors is incorporated herein by reference, could cause 1st Source Corporation's actual results or circumstances for future periods to differ materially from those anticipated or projected.