1st Source Corporation Reports Increase in First Quarter Income, Cash Dividend Declared

1st Source Corporation (Nasdaq: SRCE), parent company of 1st Source Bank and First National Bank, Valparaiso, today reported net income of $9.35 million for the first quarter of 2008, an increase of 9.75 percent over the $8.52 million from the first quarter a year ago. Diluted net income per common share for the first quarter of 2008 amounted to $0.38, up 2.70 percent over the $0.37 from the first quarter of 2007. Christopher J. Murphy III, Chairman and Chief Executive Officer, commented on the first quarter by saying, "1st Source is pleased to be reporting improved earnings for the first quarter. We have had good performance on credit quality and are working diligently to remain appropriately reserved, well capitalized and flexible enough to bend with the current economic winds. However, 1st Source is not immune from the environment in which we operate. We have not been severely impacted as have many of our peers as we did not participate in sub-prime lending or real estate development lending. But, we are in a number of businesses that could be adversely affected by a prolonged recession and these include financing for heavy duty construction machinery, trucking, aircraft, the recreational vehicle and manufactured housing industry and other durable goods manufacturers. Our credit quality has declined only slightly as evidenced by a relatively normal 30-day delinquency rate of 0.71 percent at the end of March 2008, versus a very good delinquency rate of 0.25 percent at the end of the first quarter a year earlier.” Mr. Murphy continued, "Loan and deposit totals have remained steady with some focused growth. We are carefully managing our rates and loan commitments to improve our net interest margin but find the volatility of the national money markets challenging at best. With short-term rates down, we have seen some improvement in the net interest margin over the fourth quarter of 2007 and as compared to a year ago. In June, we will merge First National Bank, Valparaiso into 1st Source Bank allowing us to offer the full array of 1st Source products and services to all of our clients. This should also help with expense management. In this environment, we must be even more diligent in our focus on reducing costs and increasing our productivity everywhere in the bank.” "1st Source will continue to focus on three areas - pristine credit quality, rigorous expense control and outstanding client service. Doing each one well should help us safely navigate the turbulent market and financial challenges of the coming year,” concluded Mr. Murphy. At its April meeting, the Board of Directors approved a first quarter cash dividend of $0.14 per common share. The cash dividend will be payable on May 15, 2008, to shareholders of record May 5, 2008. Return on average common shareholders’ equity for 1st Source Corporation was 8.56 percent compared to 9.24 percent for the first quarter of 2007, and return on average total assets was 0.86 percent compared to 0.94 percent a year ago. As of March 31, 2008, the common equity-to-assets ratio for 1st Source was 9.87 percent, up from 9.86 percent a year ago. Common shareholders’ equity was $440.32 million, up 17.40 percent from March 31, 2007. At the end of March 2008, total assets were $4.46 billion, up 17.33 percent from a year ago. Loans and leases increased 15.93 percent and deposits increased 15.55 percent from a year ago. For the first quarter of 2008, 1st Source’s provision for loan and lease losses was $1.54 million as compared to a recovery of provision of $0.62 million for the first quarter of 2007. Net charge-offs were $0.71 million for the first quarter of 2008 compared to net recoveries of $0.52 million in the first quarter of 2007. The reserve for loan and lease losses as of March 31, 2008, was 2.11 percent of total loans and leases compared to 2.13 percent as of March 31, 2007. The ratio of nonperforming assets to net loans and leases was 0.57 percent on March 31, 2008, compared to 0.50 percent for the same period last year. At March 31, 2008, nonperforming assets included $3.81 million of former bank premises held for sale. Tax-equivalent net interest income was $33.22 million for the first quarter of 2008, up 23.18 percent from 2007's first quarter, and the net interest margin improved to 3.33 percent over the 3.17 percent in the first quarter of 2007. Noninterest income for the three-month period ended March 31, 2008 was $21.03 million, an increase of 20.25 percent as compared to the first quarter of 2007. Noninterest income increased in all categories with equipment rental income and trust fees having the largest increase. Noninterest expense for the three-month period ended March 31, 2008 was $37.90 million, an increase of 19.19 percent as compared to the first quarter of 2007. The leading factor in the increase in salaries and employee benefits, furniture and equipment expense, and occupancy expense was the acquisition of First National Bank, Valparaiso on May 31, 2007. Additionally, depreciation expense on leased equipment increased in 2008 compared to 2007. 1st Source is the largest locally controlled financial institution headquartered and serving the Northern Indiana-Southwestern Michigan area. While delivering a comprehensive range of consumer and commercial banking services, 1st Source Bank 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 over 75 banking centers in 17 counties, 24 locations nationwide for the 1st Source Bank Specialty Finance Group, plus six 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.” Marketmakers in 1st Source common shares are Cantor, Fitzgerald & Company; FTN Midwest Research Securities Corporation; Goldman, Sachs Research; Howe Barnes Investments; Keefe, Bruyette & Woods, Inc.; Lehman Brothers Equity Research; Morgan Stanley; Sandler O’Neill & Partners; Stifel, Nicolaus and Company, Incorporated; Susquehanna Financial Group; Timber Hill, Inc. and UBS Securities LLC. 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.   1st SOURCE CORPORATION 1st QUARTER 2008 FINANCIAL HIGHLIGHTS (Unaudited - Dollars in thousands, except for per share data)     Three Months Ended March 31 2008   2007 END OF PERIOD BALANCES Assets $ 4,462,320 $ 3,803,085 Loans and leases 3,189,841 2,751,415 Deposits 3,505,124 3,033,431 Reserve for loan and lease losses 67,428 58,702 Intangible assets 93,165 19,313 Common shareholders' equity 440,315 375,058   AVERAGE BALANCES Assets $ 4,361,737 $ 3,681,796 Earning assets 4,010,173 3,451,613 Investments 779,062 665,350 Loans and leases 3,177,595 2,706,462 Deposits 3,377,724 2,890,385 Interest bearing liabilities 3,475,565 2,927,729 Common shareholders' equity 439,749 374,194   INCOME STATEMENT DATA Net interest income $ 32,297 $ 26,272 Net interest income - FTE 33,216 26,965 Provision for (Recovery of provision for) loan and lease losses 1,539 (623) Noninterest income 21,027 17,486 Noninterest expense 37,901 31,800 Net income 9,354 8,523   PER SHARE DATA Basic net income per common share $ 0.39 $ 0.38 Diluted net income per common share 0.38 0.37 Cash dividend declared 0.140 0.140 Book value per common share 18.27 16.66 Market value - High 21.810 32.620 Market value - Low 15.130 24.270 Basic weighted average common shares outstanding 24,096,274 22,504,799 Diluted weighted average common shares outstanding 24,382,507 22,797,557   KEY RATIOS Return on average assets 0.86 %   0.94 % Return on average common shareholders' equity 8.56 9.24 Average common shareholders' equity to average assets 10.08 10.16 End of period tangible common equity to tangible assets 7.95 9.40 Net interest margin 3.33 3.17 Efficiency: expense to revenue 67.92 69.09 Net charge-offs/(recoveries) to average loans and leases 0.09 (0.08) Loan and lease loss reserve to loans and leases 2.11 2.13 Nonperforming assets to loans and leases 0.57 0.50   ASSET QUALITY Loans and leases past due 90 days or more $ 1,072 $ 75 Nonaccrual and restructured loans and leases 10,966 12,275 Other real estate 937 534 Former bank premises held for sale 3,805 - Repossessions 1,604 1,019 Equipment owned under operating leases 200 112 Total nonperforming assets 18,584 14,015     1st SOURCE CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION   (Unaudited - Dollars in thousands)   March 31, 2008 March 31, 2007 ASSETS Cash and due from banks $ 118,844 $ 70,962 Federal funds sold and interest bearing deposits with other banks 90,351 136,409 Investment securities available-for-sale, at fair value (amortized cost of $763,024 and $643,334 at March 31, 2008 and 2007, respectively)   772,994 643,915   Mortgages held for sale 37,853 41,649   Loans and leases, net of unearned discount Commercial and agricultural loans 641,159 508,976 Auto, light truck and environmental equipment 301,879 308,341 Medium and heavy duty truck 281,554 336,254 Aircraft financing 575,676 501,838 Construction equipment financing 370,276 326,779 Loans secured by real estate 876,885 644,819 Consumer loans   142,412     124,408   Total loans and leases 3,189,841 2,751,415 Reserve for loan and lease losses   (67,428 )   (58,702 ) Net loans and leases 3,122,413 2,692,713   Equipment owned under operating leases, net of accumulated depreciation 79,844 75,541 Net premises and equipment 44,365 36,925 Goodwill and intangible assets 93,165 19,313 Accrued income and other assets   102,491     85,658     Total assets $ 4,462,320   $ 3,803,085     LIABILITIES Deposits: Noninterest bearing $ 419,287 $ 404,350 Interest bearing   3,085,837     2,629,081   Total deposits 3,505,124 3,033,431   Federal funds purchased and securities sold under agreements to repurchase   237,558 204,389 Other short-term borrowings 74,387 18,085 Long-term debt and mandatorily redeemable securities 35,025 43,604 Subordinated notes 89,692 59,022 Accrued expenses and other liabilities   80,219     69,496   Total liabilities 4,022,005 3,428,027   SHAREHOLDERS' EQUITY Preferred stock; no par value - - Common stock; no par value 342,840 289,163 Retained earnings 123,420 105,231 Cost of common stock in treasury (32,091 ) (19,697 ) Accumulated other comprehensive income   6,146     361   Total shareholders' equity   440,315     375,058     Total liabilities and shareholders' equity $ 4,462,320   $ 3,803,085       1st SOURCE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited - Dollars in thousands)   Three Months Ended March 31 2008 2007 Interest income: Loans and leases $ 53,263 $ 48,274 Investment securities, taxable 6,600 5,730 Investment securities, tax-exempt 2,105 1,417 Other   156   532     Total interest income 62,124 55,953   Interest expense: Deposits 25,120 25,270 Short-term borrowings 2,381 2,690 Subordinated notes 1,772 1,094 Long-term debt and mandatorily redeemable securities   554   627     Total interest expense   29,827   29,681     Net interest income 32,297 26,272 Provision for (recovery of provision for) loan and lease losses   1,539   (623 )   Net interest income after provision for (recovery of provision for) loan and lease losses 30,758 26,895   Noninterest income: Trust fees 4,262 3,643 Service charges on deposit accounts 5,108 4,570 Mortgage banking income 1,117 571 Insurance commissions 1,946 1,638 Equipment rental income 5,749 5,098 Other income 2,222 1,719 Investment securities and other investment gains   623   247     Total noninterest income   21,027   17,486     Noninterest expense: Salaries and employee benefits 20,634 17,566 Net occupancy expense 2,476 1,936 Furniture and equipment expense 3,978 3,094 Depreciation - leased equipment 4,616 4,076 Supplies and communication 1,669 1,272 Other expense   4,528   3,856     Total noninterest expense   37,901   31,800     Income before income taxes 13,884 12,581 Income tax expense   4,530     4,058     Net income $ 9,354 $ 8,523       The Nasdaq Global Select Market Symbol: "SRCE" (CUSIP #336901 10 3) Please contact us at shareholder@1stsource.com