1st Source Corporation Announces Fourth Quarter, Year End Results

1st Source Corporation (Nasdaq:SRCE), parent company of 1st Source Bank today reported net income of $12.32 million for the fourth quarter of 2008, compared to the $7.83 million of net income reported for the fourth quarter of 2007. Diluted net income per common share for the fourth quarter of 2008 amounted to $0.50, compared to $0.32 per common share reported in the fourth quarter of 2007. For the year, net income was $33.39 million in 2008, an increase of 9.32 percent from the $30.54 million reported for the year 2007. Diluted net income per common share for 2008 amounted to $1.37, up 7.03 percent compared to $1.28 diluted net income per common share for 2007.

The Board of Directors approved a fourth quarter cash dividend of $0.14 per share, which is equal to the cash dividend declared in the same period a year earlier. The cash dividend is payable on February 13, 2009 to shareholders of record on February 3, 2009.

Net income for the quarter was positively impacted by Wasatch Advisors, Inc. acquiring certain assets of 1st Source Corporation Investment Advisors which resulted in an $11.49 million pre-tax (after-tax $7.14 million) gain. 1st Source Monogram Mutual Funds - the Income Equity Fund, the Long/Short Fund and the Income Fund were re-branded with both the Wasatch and 1st Source name and continue to be managed by the same portfolio managers.

Christopher J. Murphy III, Chairman of 1st Source Corporation, commented, "Obviously, we are pleased with the nice increase in net income in the fourth quarter for 1st Source Corporation allowing us to complete 2008 with a nine percent gain over the previous year. With that said, there were a lot of moving parts that made it a challenging quarter, and we are not pleased with the strength of our core earnings. During the quarter, we had positives and negatives going both ways. And, in spite of strong credit performance, we continued to build reserves for losses inherent in our loan portfolio as this economy continues to deteriorate causing layoffs and rising unemployment in our local community banking markets and stresses among our specialty finance clients."

Mr. Murphy continued, "In December, Wasatch Advisors, Inc. acquired certain assets of 1st Source Corporation Investment Advisors giving us an $11.49 million Dollar gain. This gain was tempered by a mortgage servicing rights impairment charge of $1.86 million caused by falling interest rates, an additional $0.56 million impairment on Fannie Mae, Freddie Mac and other preferred stocks, and by providing $7.05 million to our loan and lease loss reserve."

"During the quarter, we saw an increase in our nonperforming assets, and while having only $2.88 million in net charge-offs, we still provided $7.05 million to our loan and lease loss reserve, building it to 2.42 percent of total loans and leases compared to 2.09 percent at the end of 2007. Even though we did not participate in the subprime mortgage markets nor in heavy real estate development lending, we are still a reflection of our Midwest manufacturing and durable goods markets hit hard by the overall economic downturn. Also, interest rates dropped in December, negatively affecting our net interest margin towards the end of the quarter. This compression in rates creates the possibility of a strain on earnings in the coming year."

Mr. Murphy concluded, "With all the turbulence in the financial industry we remain strong, stable, local and personal. We are a well capitalized organization, with an equity to assets ratio in excess of ten percent, and remain focused on providing straight talk and sound advice to our clients, maintaining rigorous cost control within the organization, and keeping a sharp eye on credit quality."

The net interest margin was 3.30 percent for the fourth quarter of 2008 versus 3.21 percent for the same period in 2007. The net interest margin was 3.34 percent for the year ended December 31, 2008, versus 3.18 percent for the same period in 2007. Tax-equivalent net interest income was $34.24 million for the fourth quarter of 2008, up 3.33 percent from 2007’s fourth quarter. For the year, tax-equivalent net interest income was $135.75 million compared to $122.53 million for 2007, an increase of 10.78 percent.

1st Source’s reserve for loan and lease losses as of December 31, 2008, was 2.42 percent of total loans and leases, compared to 2.09 percent as of December 31, 2007. Net charge-offs were $2.88 million for the fourth quarter 2008, compared to $1.48 million a year ago. Net charge-offs for the year were $3.47 million compared to $2.11 million in 2007. The ratio of nonperforming assets to net loans and leases was 1.30 percent on December 31, 2008, compared to 0.56 percent on December 31, 2007.

Noninterest income for the fourth quarter of 2008 was $30.23 million, compared to $16.17 million for the fourth quarter of 2007. The predominate factors causing the increase was the sale of certain assets of 1st Source Corporation Investment Advisors for a gain of $11.49 million, as mentioned above; the recording of $0.56 million of impairment on Fannie Mae, Freddie Mac, and other preferred equities versus $4.11 million of impairment on these preferred equities in the fourth quarter of 2007. These increases were partially offset by a decrease in mortgage banking income due to mortgage servicing rights impairment of $1.86 million. For the year, noninterest income was $84.00 million, up 18.95 percent from 2007, as the increase due to the sale of certain assets of 1st Source Corporation Investment Advisors was largely offset by increased impairment on the preferred equities. Trust fees, service charges on deposit accounts, insurance commissions, equipment rental income and other income all increased in 2008 as compared to 2007.

Noninterest expense for the fourth quarter of 2008 was $38.50 million, an increase of 5.12 percent as compared to the fourth quarter of 2007. For the year, noninterest expense was $153.11 million, up 9.12 percent from one year ago. The leading factor in the year-to-date change was increased expenses due to the May 31, 2007 acquisition of First National Bank, Valparaiso.

As of December 31, 2008, the 1st Source common equity-to-assets ratio was 10.16 percent, compared to 9.68 percent a year ago. Shareholders’ equity was $453.66 million, up from $430.50 million a year ago. Total assets at the end of the fourth quarter of 2008 were $4.46 billion, up slightly compared to the same period last year. Total loans and leases were up 3.35 percent and total deposits were up 1.29 percent from the comparable figures at the end of the fourth quarter of 2007.

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 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 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,” "possible,” "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.

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