1st Source Announces Dividend Increase, Third Quarter Profits

-- Profitable quarter, good revenue growth

-- Solid credit quality

-- Reserve for loan and lease losses to 2.28%

-- Year-to-date net charge-offs of 0.02%

-- Nonperforming assets of 0.88%

-- Dividend increase of 14.3%

-- Impairment charge for investments in Fannie Mae, Freddie Mac
of $8.07 million

-- 11.70% and 12.98% period end Tier 1 and total risk based
capital ratios in the "well capitalized level", the highest
regulatory designation.
SOUTH BEND, Ind.--(Business Wire)--
1st Source Corporation (Nasdaq:SRCE), parent company of 1st Source
Bank, today announced third quarter earnings results as well as an
increase in the quarterly cash dividend. Christopher J. Murphy III,
Chairman of 1st Source, commented, "With severe turbulence in so many
financial institutions, I'm extremely pleased with our operating
income growth and that 1st Source is able to increase its dividend
this quarter, maintaining our streak of over 19 years of consecutive
dividend growth. I am also pleased with the strong performance of our
loan portfolios and the level of our reserves."

1st Source Corporation reported operating income of $10.06 million
for the third quarter of 2008 compared to $6.13 million for same
period a year earlier. For the first three quarters of the year,
operating income was $27.44 million versus the $22.71 million a year
earlier. Net income, which was adversely impacted by impairment
charges of $5.59 million, net of tax, primarily from investments in
Fannie Mae and Freddie Mac preferred stock, was $4.47 million for the
quarter and $21.07 million year-to-date versus $6.13 million and
$22.71 million in net income for the same periods a year earlier.
Operating income per share for the third quarter of 2008 was $0.41 per
share versus $0.25 a year earlier while net income per share was $0.18
versus $0.25 a year ago. For the first three quarters of the year,
operating income per share was $1.12 compared to $0.96 per share in
2007, and net income per share was $0.86 for 2008 versus $0.96 per
share for 2007.

At the October meeting, the Board of Directors approved an
increase in the cash dividend to $0.16 per share, a 14.3 percent
increase over the dividend a year earlier. The cash dividend will be
payable on November 14, 2008, to shareholders of record on November 4,
2008.

According to Mr. Murphy, "While this has been a tough quarter for
business, we are pleased that we have been able to help our customers
continue to grow with loan and deposit products designed to meet their
needs. We are well positioned for the long term, are well-capitalized,
have a strong balance sheet, a solid credit portfolio and our net
interest margin is holding steady. We actually had net loan and lease
loss recoveries of $337 thousand for the quarter. Our mortgage and
lending businesses have always been conventional and conservative. We
have no sub-prime loans. We have no Alt-A loans. And, we have no
overly valued residential or commercial real estate development
loans."

"During the quarter, we completed blending First National Bank,
Valparaiso into 1st Source and welcomed a wonderful new set of clients
to the Bank. We are already seeing the benefits of the consolidation
as our costs are dropping, while we continue to grow the market by
offering highly personalized service, convenience, and a wider product
and service selection. My colleagues also spent the quarter counseling
our clients on positioning for turbulent times, the value of FDIC
insurance, and navigating through uncertainty," concluded Mr. Murphy.

Before the impairment charge, noninterest income for the three
month period ended September 30, 2008 was $21.38 million compared to
$17.90 million reported in the same period of 2007. For the first
three quarters of 2008, noninterest income before the impairment
charge was $63.03 million versus $54.45 million for the first three
quarters a year earlier. As discussed above, during the third quarter
of 2008, 1st Source wrote down Federal Home Loan Mortgage Corporation
(Freddie Mac) and Federal National Mortgage Association (Fannie Mae)
preferred stocks in the investment portfolio by $8.07 million ($5.01
million net of tax). Excluding this write-down, noninterest income
increased in all categories. Noninterest income including the
impairment charge was $12.38 million for the third quarter of 2008 and
$53.77 million year-to-date.

Noninterest expense for the third quarter was $38.32 million, an
increase from the $37.44 million reported in the third quarter a year
earlier. Noninterest expense for the first nine months was $114.61
million versus $103.69 million for the same period of 2007. The
leading factor in the year-to-date change was increased expenses due
to the May 31, 2007 acquisition of First National Bank, Valparaiso.

Net loans and leases at the close of the third quarter were $3.31
billion, up 3.54 percent from a year earlier. 1st Source's reserve for
loan and lease losses as of September 30, 2008, was 2.28 percent of
total loans and leases compared to 2.02 percent at September 30, 2007.
1st Source's provision for loan and lease losses was $3.57 million
this quarter compared to $3.66 million for the third quarter 2007. Net
recoveries were $0.34 million this quarter compared to net charge-offs
of $1.84 million in the quarter a year ago. The ratio of nonperforming
assets to net loans and leases was 0.88 percent on September 30, 2008,
compared to 0.52 percent on September 30, 2007.

As of September 30, 2008, the 1st Source common equity-to-assets
ratio was 10.00 percent compared to 9.68 percent a year ago. Common
shareholders' equity was $441.01 million, up 3.23 percent from the
$427.20 million reported a year ago. Total assets at the end of the
third quarter of 2008 were $4.41 billion, down slightly from a year
ago. Total loans and leases were up 3.54 percent and total deposits
were down 1.90 percent over the comparable figures at the end of the
third quarter of 2007.

In light of the national financial crisis and the enactment of the
Emergency Economic Stabilization Act of 2008, U.S. government agencies
are taking various actions in an attempt to enhance financial
stability. These include the U.S. Treasury Department's Troubled Asset
Relief Program Capital Purchase Program, which offers to all U.S.
banking organizations the opportunity to issue and sell preferred
stock, along with warrants to purchase common stock, to the U.S.
Treasury on what may be considered attractive terms. In addition, the
FDIC has initiated the Temporary Liquidity Guarantee Program that will
provide a 100 percent guarantee for a limited period of time to newly
issued senior unsecured debt and non-interest bearing transaction
deposits. Coverage under the Temporary Liquidity Guarantee Program is
available for 30 days without charge and thereafter at a cost of 75
basis points per annum for senior unsecured debt and 10 basis points
per annum for non-interest bearing transaction deposits. 1st Source's
capital ratios remain well above the minimum levels required for well
capitalized status and have not been adversely affected in any
significant respect by the national financial crisis. However, 1st
Source is assessing its participation in both programs to determine
what may be in its best interest long-term and has not yet made a
definitive decision as to whether it will participate.

In addition to the results presented in accordance with U.S.
generally accepted accounting principles (GAAP), this press release
contains certain non-GAAP financial measures. 1st Source believes that
providing a non-GAAP financial measure to illustrate our earnings
excluding extraordinary impairments of its Freddie Mac and Fannie Mae
securities is useful in understanding 1st Source's financial
performance because the severe deterioration of those issues is
unrelated to 1st Source's operations. Additionally, these non-GAAP
measures are used by management in its analysis of 1st Source's
performance. These non-GAAP measures, referred to above as "operating
income", exclude other-than-temporary impairment on investment
securities. The following table reconciles net income presented in
accordance with U.S. generally accepted accounting principles to
operating earnings, a non-GAAP measure.

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*T

Net income (dollars in
thousands): Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
2008 2007 2008 2007
------------------ -------------------

Operating income $ 10,063 $ 6,130 $27,444 $22,713

Other-than-temporary
impairment, net of tax
FHLMC and FNMA preferred
equities (5,012) - (5,593) -
Other preferred equities (579) - (780) -
---------- ------- ----------- -------
Total other-than-temporary
impairment, net of tax (5,591) - (6,373) -
---------- ------- ----------- -------

Net income $ 4,472 $ 6,130 $21,071 $22,713
========== ======= =========== =======

Earnings per share Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
2008 2007 2008 2007
------------------ -------------------

Operating income per share $ 0.41 $ 0.25 $ 1.12 $ 0.96

Other-than-temporary
impairment, net of tax
FHLMC and FNMA preferred
equities (0.21) - (0.23) -
Other preferred equities (0.02) - (0.03) -
---------- ------- ----------- -------
Total other-than-temporary
impairment, net of tax (0.23) - (0.26) -
---------- ------- ----------- -------

Earnings per share $ 0.18 $ 0.25 $ 0.86 $ 0.96
========== ======= =========== =======
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1st Source serves the northern half of Indiana and southwest
Michigan and is the largest locally controlled financial institution
headquartered in the area. While delivering a comprehensive range of
consumer and commercial banking services, 1st Source has distinguished
itself with highly personalized services. 1st Source Bank also
competes for business nationally by offering specialized financing
services for new and used private and cargo aircraft, automobiles for
leasing and rental agencies, medium and heavy duty trucks,
construction and environmental equipment. The Corporation includes 79
banking centers in 17 counties, 24 locations nationwide for the
1st Source Bank Specialty Finance Group, 7 Trust and Wealth management
locations plus 6 1st Source Insurance offices. With a history dating
back to 1863, 1st Source Bank has a tradition of providing superior
service to clients 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 Global
Select Market under "SRCE" and appears in the National Market System
tables in many daily newspapers under the code name "1st Src."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. 1st
Source cautions readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made.

1st Source may make other written or oral forward-looking
statements from time to time. Readers are advised that various
important factors could cause 1st Source's actual results or
circumstances for future periods to differ materially from those
anticipated or projected in such forward-looking statements. Such
factors, among others, include changes in laws, 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 or in the industries in which 1st Source has credit
concentrations; and other risks discussed in 1st Source's filings with
the Securities and Exchange Commission, including its Annual Report on
Form 10-K, which filings are available from the SEC. 1st Source
undertakes no obligation to publicly update or revise any
forward-looking statements.

(charts attached)

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1st SOURCE CORPORATION
3rd QUARTER 2008 FINANCIAL HIGHLIGHTS
(Unaudited - Dollars in thousands, except for per share data)

Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
----------- ---------- ----------- ------------
END OF PERIOD
BALANCES
Assets $ 4,409,619 $ 4,412,651
Loans and leases 3,314,863 3,201,595
Deposits 3,350,412 3,415,169
Reserve for loan
and lease losses 75,606 64,664
Intangible assets 92,185 91,546
Common
shareholders'
equity 441,010 427,195

AVERAGE BALANCES
Assets $ 4,400,009 $ 4,446,719 $ 4,383,948 $ 4,053,944
Earning assets 4,075,541 4,103,807 4,047,131 3,771,816
Investments 681,972 826,374 725,301 725,275
Loans and leases 3,322,970 3,179,234 3,251,499 2,930,077
Deposits 3,341,035 3,490,193 3,369,474 3,193,139
Interest bearing
liabilities 3,517,330 3,576,200 3,493,013 3,235,392
Common
shareholders'
equity 444,219 430,710 443,162 400,566

INCOME STATEMENT DATA
Net interest
income $ 33,397 $ 31,698 $ 98,818 $ 86,841
Net interest
income - FTE 34,258 32,735 101,508 89,398
Provision for loan
and lease losses 3,571 3,660 9,603 4,284
Noninterest income 12,380 17,897 53,774 54,453
Noninterest
expense 38,317 37,440 114,613 103,686
Net income 4,472 6,130 21,071 22,713

PER SHARE DATA
Basic net income
per common share $ 0.19 $ 0.25 $ 0.87 $ 0.97
Diluted net income
per common share 0.18 0.25 0.86 0.96
Cash dividends
paid per common
share 0.14 0.14 0.42 0.42
Book value per
common share 18.29 17.67 18.29 17.67
Tangible book
value per common
share 14.47 13.89 14.47 13.89
Market value -
High 30.00 26.53 30.00 32.62
Market value - Low 14.54 18.41 14.54 18.41
Basic weighted
average common
shares
outstanding 24,109,960 24,275,794 24,104,015 23,309,281
Diluted weighted
average common
shares
outstanding 24,393,603 24,567,404 24,386,756 23,603,676

KEY RATIOS
Return on average
assets 0.40 % 0.55 % 0.64 % 0.75%
Return on average
common
shareholders'
equity 4.00 5.65 6.35 7.58
Average common
shareholders'
equity to average
assets 10.10 9.69 10.11 9.88
End of period
tangible common
equity to
tangible assets 8.08 7.77 8.08 7.77
Net interest
margin 3.34 3.16 3.35 3.17
Efficiency:
expense to
revenue 66.01 71.30 66.78 69.56
Net charge-offs to
average loans and
leases (0.04) 0.23 0.02 0.04
Loan and lease
loss reserve to
loans and leases 2.28 2.02 2.28 2.02
Nonperforming
assets to loans
and leases 0.88 0.52 0.88 0.52

ASSET QUALITY
Loans and leases
past due 90 days
or more $ 1,476 $ 693
Nonaccrual and
restructured loans
and leases 22,812 10,211
Other real estate 1,615 824
Former bank
premises held for
sale 3,821 1,855
Repossessions 234 3,430
Equipment owned
under operating
leases 40 114
Total nonperforming
assets 29,998 17,127
*T

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1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - Dollars in thousands)

September 30, 2008 September 30, 2007
------------------ ------------------
ASSETS
--------------------------------
Cash and due from banks $ 75,704 $ 117,564
Federal funds sold and
interest bearing deposits with
other banks 59,090 3,754
Investment securities available-
for-sale (amortized cost of
$656,294 and $792,504 at
September 30, 2008 and 2007,
respectively) 658,905 795,865
Other investments 18,612 14,937
Mortgages held for sale 38,700 25,074

Loans and leases, net of
unearned discount:
Commercial and agricultural
loans 671,019 585,842
Auto, light truck and
environmental equipment 337,248 330,967
Medium and heavy duty truck 253,682 315,116
Aircraft financing 608,881 583,533
Construction equipment
financing 383,446 377,069
Loans secured by real estate 924,313 858,818
Consumer loans 136,274 150,250
------------------ ------------------
Total loans and leases 3,314,863 3,201,595
Reserve for loan and lease
losses (75,606) (64,664)
------------------ ------------------
Net loans and leases 3,239,257 3,136,931

Equipment owned under operating
leases, net 87,407 78,041
Net premises and equipment 41,194 49,272
Goodwill and intangible assets 92,185 91,546
Accrued income and other assets 98,565 99,667
------------------ ------------------

Total assets $ 4,409,619 $4,412,651
================== ==================

LIABILITIES
--------------------------------
Deposits:
Noninterest bearing $ 374,290 $ 389,099
Interest bearing 2,976,122 3,026,070
------------------ ------------------
Total deposits 3,350,412 3,415,169

Federal funds purchased and
securities
sold under agreements to
repurchase 244,491 327,623
Other short-term borrowings 190,173 24,611
Long-term debt and mandatorily
redeemable securities 34,861 44,303
Subordinated notes 89,692 100,002
Accrued expenses and other
liabilities 58,980 73,748
------------------ ------------------
Total liabilities 3,968,609 3,985,456

SHAREHOLDERS' EQUITY
--------------------------------
Preferred stock; no par value - -
Common stock; no par value 342,979 342,840
Retained earnings 128,428 112,938
Cost of common stock in treasury (32,019) (30,717)
Accumulated other comprehensive
income 1,622 2,134
------------------ ------------------
Total shareholders' equity 441,010 427,195
------------------ ------------------

Total liabilities and
shareholders' equity $ 4,409,619 $4,412,651
================== ==================
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1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - Dollars in thousands)

Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
--------- -------- --------- --------
Interest income:
Loans and leases $50,979 $57,970 $154,590 $159,322
Investment securities,
taxable 4,896 7,221 17,288 18,660
Investment securities, tax-
exempt 1,873 2,213 5,904 5,351
Other 317 926 986 3,282
--------- -------- --------- --------

Total interest income 58,065 68,330 178,768 186,615

Interest expense:
Deposits 20,347 31,184 67,116 85,249
Short-term borrowings 2,255 2,978 6,434 8,240
Subordinated notes 1,648 1,846 5,067 4,236
Long-term debt and
mandatorily redeemable
securities 418 624 1,333 2,049

--------- -------- --------- --------
Total interest expense 24,668 36,632 79,950 99,774
--------- -------- --------- --------

Net interest income 33,397 31,698 98,818 86,841
Provision for loan and lease
losses 3,571 3,660 9,603 4,284
--------- -------- --------- --------

Net interest income after
provision for loan and lease
losses 29,826 28,038 89,215 82,557

Noninterest income:
Trust fees 4,939 3,853 14,155 11,367
Service charges on deposit
accounts 5,761 5,278 16,633 15,074
Mortgage banking income 959 770 3,493 2,400
Insurance commissions 1,084 964 4,122 3,540
Equipment rental income 6,285 5,345 17,794 15,730
Other income 2,168 1,841 6,836 6,042
Investment securities and
other investment (losses)
gains (8,816) (154) (9,259) 300

--------- -------- --------- --------
Total noninterest income 12,380 17,897 53,774 54,453
--------- -------- --------- --------

Noninterest expense:
Salaries and employee
benefits 19,297 20,035 58,996 55,754
Net occupancy expense 2,332 2,467 7,289 6,552
Furniture and equipment
expense 3,694 3,996 11,555 10,838
Depreciation - leased
equipment 5,041 4,284 14,266 12,603
Professional fees 2,773 922 6,453 3,089
Supplies and communication 1,812 1,666 5,163 4,450
Business development and
marketing expense 881 1,027 2,524 3,302
Other expense 2,487 3,043 8,367 7,098

--------- -------- --------- --------
Total noninterest expense 38,317 37,440 114,613 103,686
--------- -------- --------- --------

Income before income taxes 3,889 8,495 28,376 33,324
Income tax (benefit) expense (583) 2,365 7,305 10,611
--------- -------- --------- --------

Net income $ 4,472 $ 6,130 $ 21,071 $ 22,713
========= ======== ========= ========

The NASDAQ Stock Market National Market
Symbol: "SRCE" (CUSIP #336901 10 3)
Please contact us at
shareholder@1stsource.com
*T

1st Source Corporation
Larry Lentych, 574-235-2000
or
Andrea Short, 574-235-2000

Copyright Business Wire 2008