1st Source Announces Record Q4, Year End Earnings
16 February 2000
Record 4th Quarter, Year End Earnings -- Restatement of Prior Period Results Announced
SOUTH BEND, Ind.--Feb. 16, 2000--1st Source Corporation , parent company of 1st Source Bank, today reported net income for the fourth quarter of 1999 of $10.8 million, 24.7 percent higher than the restated net income of $8.6 million reported for the fourth quarter of 1998.Diluted net income per common share for the fourth quarter of 1999 amounted to $0.56, up 24.4 percent from the restated $0.45 per common share reported in the fourth quarter of 1998.
Net income for 1999 was $35.8 million, 13.7 percent higher than the restated $31.5 million reported for the year 1998. Diluted net income per common share for 1999 amounted to $1.86, up 14.8 percent from the $1.62 restated diluted net income per common share for 1998.
Christopher J. Murphy III, Chairman of 1st Source Corporation, commented, "We're very pleased that 1st Source has achieved its fourteenth consecutive year of record earnings. This has been accomplished through the success of our new branches and the continuing growth of our Specialty Finance businesses across the country. We continue to be focused on achieving superior financial performance by serving customers on a personal basis."
The restatement pertains to 1st Source's accounting for measuring 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 a 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, an enhanced and more sophisticated analytical model was developed which enabled 1st Source to refine its method of estimating the performance of the securitized loans and the value of its retained interest in the loans. The new model results only in a difference in timing of the revenue recognition from its securitized loans and has no effect on the total cash flows of the securitized transactions.
The adoption of the model was applied retroactively to the commencement of this securitization program in the third quarter of 1998. The application of this new model resulted in an increase in net income in 1998 and no change to the previously disclosed estimated full year's net income in 1999. However, the previously reported quarterly net income for each of the first three quarters of 1999 did change as a result of the new model.
The changes to prior period financial statements are as follows:
(unaudited dollars in thousands except Per Share Data)
Quarter Year Ended Quarter
Ended Dec. 31, Ended
9/30/98 1998 3/31/99 6/30/99 9/30/99
------- --------- ------- ------- -------
Securitization
Income
Previous $ 2,902 $ 8,570 $ 2,771 $ 2,749 $ 2,977
As restated 3,700 9,305 3,825 2,012 2,156
Net Income
Previous 7,861 31,020 7,880 8,327 9,117
As restated 8,335 31,457 8,528 7,874 8,613
Diluted EPS
Previous 0.41 1.60 0.41 0.43 0.47
As restated 0.43 1.62 0.44 0.41 0.45
Retained Interest
Assets
Previous 7,677 9,100 11,408 13,593 16,175
As restated 7,414 8,371 10,839 11,418 11,917
Reserve for Loan
Losses
Previous 40,289 40,929 42,080 43,300 44,903
As restated 38,397 38,629 38,974 39,403 39,814
Shareholders'
Equity
Previous 210,452 215,859 222,445 225,491 230,984
As restated 211,421 216,793 223,975 226,521 231,469
1st Source will amend its Annual Report on Form 10-K for the year ended December 31, 1998, and Quarterly Reports on Form 10-Q for the quarters ended September 30, 1998, March 31, 1999, June 30, 1999, and September 30, 1999, in connection with the restatement.
The Board of Directors approved a fourth quarter cash dividend of $0.09 per share. The cash dividend is payable on February 16, 2000 to shareholders of record on February 14, 2000. The cash dividend is a 12.5 percent increase over the third quarter cash dividend in 1999.
Fourth quarter 1999 net income was favorably impacted by $1.09 million related to a $700,000 reduction in income tax expense primarily due to a fourth quarter change in Indiana state income tax law retroactive to the beginning of 1999, and a $387,000 net of tax gain on a venture capital investment.
In the following paragraphs, all applicable 1998 numbers have been restated as discussed to include the implementation of a new model for measuring income recognition on securitized loans.
The 1999 earnings represent a return on average shareholders' equity of 15.74 percent, compared to 15.30 percent for 1998. Return on average total assets for 1999 was 1.31 percent, compared to 1.23 percent for 1998.
As of December 31, 1999, the 1st Source equity-to-assets ratio was 8.31 percent, compared to 7.93 percent a year ago. Shareholders' equity was $238.8 million, up 10.2 percent from $216.8 million a year ago. Total assets at the end of 1999 were $2.87 billion, up 5.1 percent from last year. Total deposits were down 2.3 percent and total loans increased 9.6 percent over 1998.
1st Source's reserve for loan losses as of December 31, 1999, was 1.95 percent of total loans, compared to 2.05 percent at December 31, 1998. The ratio of nonperforming assets to loans was 0.74 percent on December 31, 1999, compared to 0.56 percent at December 31, 1998.
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.
Except for the historical information contained herein, this press release contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. However, such performance involves risks and uncertainties which may cause actual results to differ materially from those in such statements.
(chart attached)
4TH QUARTER 1999 FINANCIAL HIGHLIGHTS(a) 1st Source Corporation
(Unaudited - Dollars in thousands except Per Share Data)
3 Months Ended 12 Months Ended
December 31 December 31
1999 1998 1999 1998
---- ---- ---- ----
END OF PERIOD BALANCES
Assets 2,872,945 $2,733,592
Deposits 2,127,452 2,177,107
Loans 2,063,189 1,881,696
Reserve for Loan
Losses 40,210 38,629
Nonperforming
Assets 15,355 10,571
Common Shareholders'
Equity 238,820 216,793
Book Value Per
Common Share 12.64 11.48
Common Shares
Outstanding 18,901,017 18,882,284
INCOME STATEMENT
DATA
Net Interest Income $ 25,715 $ 23,554 $ 99,703 $ 93,921
Provision for Loan
Losses 2,474 2,024 7,442 9,156
Other Income 17,448 15,097 63,260 52,256
Other Expenses 24,929 22,899 99,023 85,500
Net Income 10,753 8,620 35,768 31,457
PER SHARE DATA
Basic Net Income Per
Common Share $ 0.57 $ 0.45 $ 1.89 $ 1.66
Diluted Net Income
Per Common Share 0.56 0.45 1.86 1.62
Cash Dividends 0.080 0.073 0.313 0.278
Market Value--High 29.875 32.000 35.750 36.750
Market Value--Low 24.875 25.750 23.875 25.250
AVERAGE BALANCES
Assets $2,828,536 $2,685,085 $2,740,044 $2,550,925
Deposits 2,168,831 2,121,004 2,127,171 1,999,514
Loans 1,981,268 1,851,025 1,949,172 1,853,537
Common Shareholders'
Equity 234,074 213,932 227,194 205,601
Earning Assets 2,552,387 2,454,949 2,478,182 2,344,555
KEY RATIOS
Return on Average
Assets 1.51% 1.27% 1.31% 1.23%
Return on Average
Common Shareholders'
Equity 18.23 15.99 15.74 15.30
Average Common
Shareholders'
Equity to Average
Assets 8.28 7.97 8.29 8.06
Net Interest Margin 4.14 3.95 4.17 4.16
Net Charge Offs to
Average Loans 0.28 0.30 0.12 0.20
Loan Loss Reserve
to Loans 1.95 2.05 1.95 2.05
Nonperforming Assets
to Loans 0.74 0.56 0.74 0.56
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COMMON STOCK LISTING
The Nasdaq Stock Market National Market
Symbol: "SRCE"
CUSIP No. 336901 10 3
(a) All applicable 1998 numbers have been restated for implementation
of a new model for measuring income recognition on securitized
loans.