1st Source Corporation Raises Dividend Profitable 2nd Quarter Reported

SOUTH BEND, Ind.--(Business Wire)--
1st Source Corporation (Nasdaq:SRCE), parent company of 1st Source Bank, today
reported net income of $6.28 million for the second quarter of 2009, compared to
$7.25 million reported in the second quarter of 2008. For the first six months
of 2009, net income for 1st Source Corporation was $12.53 million, compared to
$16.60 million reported for the same period in 2008.

Diluted net income per common share for the second quarter of 2009 amounted to
$0.19 compared with $0.30 reported for the second quarter of 2008. Diluted net
income per common share for the first two quarters of 2009 was $0.39 compared to
$0.68 reported for the same period a year ago. Diluted net income per common
share was reduced by $0.07 for the second quarter of 2009 and $0.13 for the six
months ending June 30, 2009, due to the preferred stock dividends and the
accretion of the discount on the preferred stock issued to the U.S. Government
under the TARP Program. The preferred stock was issued in January 2009 and
therefore did not impact the three or six month periods ending June 30, 2008.
Diluted net income per common share was reduced an additional $0.08 for the
second quarter of 2009 due to increased FDIC insurance charges that have
resulted from failures of large banking organizations and the inclusion of large
investment banking organizations and other financial companies under FDIC
coverage.

At its July meeting, the Board of Directors increased the cash dividend to $0.15
per common share, up 7.14 percent over the dividend declared a year earlier. The
cash dividend will be payable to shareholders of record on August 10, 2009 and
paid on August 17, 2009.

Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, "We
are pleased with the trust our clients continue to place in us during these
uncertain times which allowed us to grow our deposits 7.43 percent over the
previous year. So far in 2009, we have produced $416 million in home mortgages
for our clients in Indiana and Michigan and have refinanced $31 million in
mortgage loans under the Home Affordable Refinance Program, with more in the
pipeline for modification. Additionally, our capital ratios remain strong and
our net interest margin is up slightly from the first quarter. Due to our
financial performance and strong capital, we did not have to participate in the
U.S. Treasury`s TARP Program but did so to ensure that we could meet the needs
of our customers in any future economic scenario. We believed it important to
support the government`s program to reliquify the capital markets. Having done
that, we are very disappointed in the high costs of the program, the negative
changes in the program and the negative characterizations of those who
participated even though many of us had nothing to do with causing the serious
losses in the financial services industry or the present negative economy."

Continued Mr. Murphy, "Even with the growth, it was still a tough quarter. We,
like a lot of our customers, are frustrated that we are all paying for the
excesses of the investment banking industry and some of the larger commercial
banks as well as some other overly aggressive financial institutions. Their
actions have led to a melt down of our national economy and adversely affected
jobs and businesses across the markets we serve. Needless to say, even though we
have not participated in the subprime lending business nor the real estate
development business, credit challenges increased in the region with our markets
having some of the highest unemployment rates in the country. During the
quarter, our loan portfolio shrank 1.88 percent. Net of recoveries, we charged
off $9.72 million in problem loans, and provided $8.49 million for the loan and
lease loss reserve, giving us a net charge off ratio of 1.23 percent and a
quarter ending reserve to loans and leases ratio of 2.64 percent. These ratios
compare very favorably to the majority of the banking industry. Finally, the
impact of changes in FDIC insurance, brought on primarily by some major bank
failures and the inclusion of troubled investment banking firms brought under
FDIC protection, added new insurance costs of $3.38 million this quarter over a
year ago, including the special assessment by the FDIC of $2.03 million."

"In these difficult times, we continue to look at our cost structure with an eye
to making sure we are delivering on our commitment of exceptional customer
service in an efficient and effective manner. During the quarter, we closed 3
banking centers that either overlapped with other locations or were
underperforming. We have frozen salaries for officers for the year, and all
expenditures are examined to insure they lead to long-term growth of the
company. During the quarter, we rolled out e-student checking and savings
accounts; e-statements for clients - hoping to save paper, trees and postage;
and upgraded our ATM system. With all the challenges occurring in the quarter,
we were able to reduce expenses yet remain focused on providing first-rate
service and excellent products for our clients," Mr. Murphy concluded.

As of June 30, 2009, the 1st Source common equity-to-assets ratio was 10.22
percent compared to 9.82 percent a year ago and its tangible equity to assets
ratio was 8.39 percent compared to 7.92 percent a year earlier. Total assets at
June 30, 2009, were $4.54 billion, up 1.49 percent over a year ago. Total loans
and leases were $3.15 billion, down 4.81 percent from June 30, 2008. Total
deposits were $3.62 billion, up 7.43 percent from the comparable figures at June
30, 2008.

The 1st Source reserve for loan and lease losses as of June 30, 2009, was 2.64
percent of total loans and leases compared to 2.16 percent at June 30, 2008. Net
charge-offs were $9.72 million in the second quarter 2009, compared with net
charge-offs of only $0.22 million in the same quarter a year ago. Year-to-date,
net charge-offs of $12.92 million have been recorded in 2009, compared to net
charge-offs of $0.94 million for the first half of 2008. The ratio of
nonperforming assets to net loans and leases was 2.48 percent on June 30, 2009,
compared to 2.09 percent on March 31, 2009 and 0.83 percent on June 30, 2008.

The net interest margin was 3.11 percent for the second quarter of 2009 versus
3.38 percent for the same period in 2008. The net interest margin was 3.07
percent for the six months ending June 30, 2009, versus 3.35 percent for the
same period in 2008. Tax-equivalent net interest income was $32.84 million for
the second quarter of 2009, compared to $34.03 million for 2008`s second
quarter. For the first six months of 2009, tax-equivalent net interest income
was $64.48 million, compared to $67.25 million for the first six months of 2008

Noninterest income for the second quarter of 2009 was $22.71 million, up 11.48
percent from the same period in 2008. For the first six months, noninterest
income was $43.25 million, up 4.49 percent from 2008. Noninterest income
increased in mortgage banking, equipment rental and investment securities and
other investment (losses) gains for the second quarter and year-to-date 2009 as
compared to the same periods in 2008. Mortgage banking income increased as a
result of recoveries on mortgage servicing rights impairment, equipment rental
income was higher due to an increase in the operating lease portfolio and
investment securities and other investment (losses) gains were improved due to a
reduction in other than temporary impairments and partnership gains.

Noninterest expense was $37.35 million for the second quarter of 2009, down 2.72
percent from the second quarter of 2008. For the first six months, noninterest
expense was $75.99 million, compared with $76.30 million for the same period in
2008. The leading factors in the change were reduced salaries and benefits and
professional fees offset by higher FDIC insurance costs. Salaries and employees
benefits were lower due to a reversal of post retirement benefit obligations and
decreased executive incentive provisions. Professional fees decreased as a
result of lower system security consultant costs. FDIC insurance costs increased
$3.38 million due largely to a special assessment imposed by the FDIC in the
second quarter.

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 through its community bank offices, 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 76 community banking centers in 17 counties, 23 specialty finance
locations nationwide, 7 trust and wealth management locations, and 7 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 it serves.

In addition to the results presented in accordance with generally accepted
accounting principles in the United States of America, this press release
contains certain non-GAAP financial measures. 1st Source Corporation believes
that providing non-GAAP financial measures provides investors with information
useful to understanding our financial performance. Additionally, these non-GAAP
measures are used by management for planning and forecasting purposes, including
measures based on "tangible equity" which is "common shareholders` equity"
excluding intangible assets.

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," "contemplate," "seek," "plan," "possible," "assume," "expect,"
"intend," "targeted," "continue," "remain," "estimate," "anticipate," "project,"
"will," "should," "indicate," "would," "may" 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.

1st SOURCE CORPORATION
2nd QUARTER 2009 FINANCIAL HIGHLIGHTS
(Unaudited - Dollars in thousands, except for per share data)

Three Months Ended Six Months Ended
June 30, June 30,

2009 2008 2009 2008
END OF PERIOD BALANCES
Assets $ 4,544,369 $ 4,477,614
Loans and leases 3,154,416 3,313,642
Deposits 3,615,043 3,365,066
Reserve for loan and lease losses 83,124 71,698
Intangible assets 91,009 92,535
Common shareholders' equity 464,592 439,622
Total shareholders' equity 568,890 439,622

AVERAGE BALANCES
Assets $ 4,525,757 $ 4,389,923 $ 4,531,013 $ 4,375,830
Earning assets 4,231,724 4,055,366 4,230,479 4,032,770
Investments 850,106 730,281 814,447 747,203
Loans and leases 3,179,034 3,253,147 3,211,858 3,215,371
Deposits 3,591,315 3,389,977 3,589,205 3,383,850
Interest bearing liabilities 3,461,696 3,485,877 3,485,730 3,480,720
Common shareholders' equity 467,732 445,509 466,305 442,629
Total shareholders' equity 571,830 445,509 557,747 442,629

INCOME STATEMENT DATA
Net interest income $ 31,913 $ 33,124 $ 62,635 $ 65,421
Net interest income - FTE 32,841 34,034 64,482 67,250
Provision for loan and lease losses 8,487 4,493 16,272 6,032
Noninterest income 22,705 20,367 43,254 41,394
Noninterest expense 37,349 38,395 75,989 76,296
Net income 6,283 7,245 12,534 16,599
Net income available to common shareholders 4,587 7,245 9,525 16,599

PER SHARE DATA
Basic net income per common share $ 0.19 $ 0.30 $ 0.39 $ 0.69
Diluted net income per common share 0.19 0.30 0.39 0.68
Common cash dividends declared 0.14 0.14 0.28 0.28
Book value per common share 19.21 18.23 19.21 18.23
Tangible book value per common share 15.45 14.40 15.45 14.40
Market value - High 21.98 22.62 23.92 22.62
Market value - Low 15.36 16.10 14.16 15.13
Basic weighted average common shares outstanding 24,185,415 24,105,746 24,167,905 24,101,010
Diluted weighted average common shares outstanding 24,226,542 24,374,273 24,208,966 24,372,225

KEY RATIOS
Return on average assets 0.56 % 0.66 % 0.56 % 0.76 %
Return on average common shareholders' equity 3.93 6.54 4.12 7.54
Average common shareholders' equity to average assets 10.33 10.15 10.29 10.12
End of period tangible common equity to tangible assets 8.39 7.92 8.39 7.92
Risk-based capital - Tier 1 15.62 11.49 15.62 11.49
Risk-based capital - Total 16.90 12.77 16.90 12.77
Net interest margin 3.11 3.38 3.07 3.35
Efficiency: expense to revenue 64.89 66.43 67.92 67.16
Net charge-offs to average loans and leases 1.23 0.03 0.81 0.06
Loan and lease loss reserve to loans and leases 2.64 2.16 2.64 2.16
Nonperforming assets to loans and leases 2.48 0.83 2.48 0.83

ASSET QUALITY
Loans and leases past due 90 days or more $ 621 $ 929
Nonaccrual and restructured loans and leases 67,983 20,807
Other real estate 1,790 1,079
Former bank premises held for sale 3,095 4,181
Repossessions 6,960 1,091
Equipment owned under operating leases 269 57
Total nonperforming assets 80,718 28,144

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

June 30, 2009 June 30, 2008
ASSETS
Cash and due from banks $ 70,798 $ 126,208
Federal funds sold and interest bearing deposits with other banks
29,545 29,116
Investment securities available-for-sale (amortized cost of $874,562 and $710,264 at June 30, 2009 and 2008, respectively)

883,047 712,436
Other investments 18,612 18,612
Trading account securities 104 150
Mortgages held for sale 136,505 35,883

Loans and leases, net of unearned discount:
Commercial and agricultural loans 593,914 669,867
Auto, light truck and environmental equipment 338,774 349,182
Medium and heavy duty truck 225,345 270,141
Aircraft financing 619,797 579,131
Construction equipment financing 345,928 398,888
Loans secured by real estate 910,728 908,364
Consumer loans 119,930 138,069
Total loans and leases 3,154,416 3,313,642
Reserve for loan and lease losses (83,124 ) (71,698 )
Net loans and leases 3,071,292 3,241,944

Equipment owned under operating leases, net 87,094 82,517
Net premises and equipment 38,837 40,888
Goodwill and intangible assets 91,009 92,535
Accrued income and other assets 117,526 97,325

Total assets $ 4,544,369 $ 4,477,614

LIABILITIES
Deposits:
Noninterest bearing $ 434,729 $ 385,967
Interest bearing 3,180,314 2,979,099
Total deposits 3,615,043 3,365,066

Federal funds purchased and securities sold under agreements to repurchase
146,529 228,853
Other short-term borrowings 27,464 257,141
Long-term debt and mandatorily redeemable securities 19,947 34,825
Subordinated notes 89,692 89,692
Accrued expenses and other liabilities 76,804 62,415
Total liabilities 3,975,479 4,037,992

SHAREHOLDERS' EQUITY
Preferred stock; no par value 104,298 -
Common stock; no par value 350,263 342,976
Retained earnings 140,355 127,328
Cost of common stock in treasury (31,314 ) (32,031 )
Accumulated other comprehensive income 5,288 1,349
Total shareholders' equity 568,890 439,622

Total liabilities and shareholders' equity $ 4,544,369 $ 4,477,614

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

Three Months Ended Six Months Ended
June 30, June 30,
2009 2008 2009 2008
Interest income:
Loans and leases $ 44,474 $ 50,348 $ 89,071 $ 103,611
Investment securities, taxable 4,207 5,945 8,243 12,392
Investment securities, tax-exempt 1,685 1,926 3,395 4,031
Other 264 360 597 669

Total interest income 50,630 58,579 101,306 120,703

Interest expense:
Deposits 16,596 21,649 34,202 46,769
Short-term borrowings 295 1,798 644 4,179
Subordinated notes 1,647 1,647 3,294 3,419
Long-term debt and mandatorily redeemable securities 179 361 531 915

Total interest expense 18,717 25,455 38,671 55,282

Net interest income 31,913 33,124 62,635 65,421
Provision for loan and lease losses 8,487 4,493 16,272 6,032

Net interest income after provision for loan and lease losses 23,426 28,631 46,363 59,389

Noninterest income:
Trust fees 3,887 4,954 7,691 9,216
Service charges on deposit accounts 5,219 5,764 9,965 10,872
Mortgage banking income 3,339 1,417 5,909 2,534
Insurance commissions 1,076 1,092 2,592 3,038
Equipment rental income 6,402 5,760 12,549 11,509
Other income 2,356 2,446 4,591 4,668
Investment securities and other investment gains (losses) 426 (1,066 ) (43 ) (443 )

Total noninterest income 22,705 20,367 43,254 41,394

Noninterest expense:
Salaries and employee benefits 16,829 19,065 36,915 39,699
Net occupancy expense 2,273 2,481 4,874 4,957
Furniture and equipment expense 3,765 3,883 7,246 7,861
Depreciation - leased equipment 5,088 4,609 10,044 9,225
Professional fees 815 2,522 1,877 3,680
Supplies and communication 1,428 1,682 2,995 3,351
FDIC and other insurance 3,719 334 5,269 683
Other expense 3,432 3,819 6,769 6,840

Total noninterest expense 37,349 38,395 75,989 76,296

Income before income taxes 8,782 10,603 13,628 24,487
Income tax expense 2,499 3,358 1,094 7,888

Net income 6,283 7,245 12,534 16,599
Preferred stock dividends and discount accretion (1,696 ) - (3,009 ) -
Net income available to common shareholders $ 4,587 $ 7,245 $ 9,525 $ 16,599

The Nasdaq Global Select Market Symbol: "SRCE" (CUSIP #336901 10 3)
Please contact us at shareholder@1stsource.com

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

Copyright Business Wire 2009

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