1st Source Income up 36.72 Percent in First Quarter, Dividend Reported

    Business Editors

    SOUTH BEND, Ind.--(BUSINESS WIRE)--April 28, 2005--1st Source Corporation (Nasdaq:SRCE)(Nasdaq:SRCEO), parent company of 1st Source Bank today reported net income of $6.94 million for the first quarter of 2005, up 36.72 percent over the $5.08 million in the first quarter of 2004.
    Diluted net income per share of common stock for the first quarter of 2005 amounted to $0.33 compared with $0.24 for the first quarter of 2004, an increase of 37.50 percent. Return on average common shareholders' equity for 1st Source Corporation was 8.60 percent compared to 6.43 percent for the first quarter of 2004, and return on average total assets was 0.84 percent compared to 0.63 percent a year ago.
    At its April meeting, the Board of Directors approved a first quarter cash dividend of $0.12 per common share, an increase of 20.00 percent over the first quarter cash dividend in 2004. The cash dividend will be payable on May 16, 2005, to shareholders of record May 9, 2005.
    Christopher J. Murphy III, Chairman and Chief Executive Officer, commented on the first quarter by saying, "Our credit quality continues to show improvement and this quarter is no exception. Over the last three years, we have taken back 71 aircraft in repossession, and are pleased that 70 of them have been sold in an orderly manner, leaving us with only one left for disposition. Interest rate margin compression continues but recent changes in short term rates could lead to some improvement in subsequent quarters."
    Mr. Murphy continued, "This is also a time of growth in our community banking markets. We have opened three new banking centers in Northern Indiana so far this year including replacement facilities in Chesterton and on the Saint Mary's College campus, as well as a new in-store banking center in the Martin's Super Market in Granger. All in all, it has been a productive first quarter."
    As of March 31, 2005, the common equity-to-assets ratio for 1st Source was 9.78 percent, down from 9.93 percent a year ago. Common shareholders' equity was $326.63 million, up 2.12 percent from March 31, 2004. At the end of the first quarter of 2005, total assets were $3.34 billion, up 3.68 percent from a year ago. Loans and leases increased 4.73 percent and deposits increased 7.74 percent from a year ago.
    For the first quarter of 2005, 1st Source's provision for loan and lease losses was $(0.42) million as compared to $0.10 million for the first quarter of 2004. Net charge-offs were $0.60 million for the first quarter of 2005 compared to $0.10 million in the first quarter of 2004. The resulting reserve for loan and lease losses as of March 31, 2005, was 2.75 percent of total loans and leases, compared to 3.22 percent as of March 31, 2004. The ratio of nonperforming assets to net loans and leases was 1.10 percent on March 31, 2005, compared to 1.45 percent for the same period last year.
    Tax-equivalent net interest income was $24.25 million for the first quarter, down 8.39 percent from 2004's first quarter, and the net interest margin was 3.15 percent versus 3.53 percent in the first quarter of 2004.
    Noninterest income for the first quarter 2005 was $17.70 million, up 26.22 percent from the first quarter of 2004. The predominant factor behind the increase in 2005 was an increase in mortgage banking income, primarily due to mortgage servicing rights recovery of $1.09 million in the first quarter of 2005 versus mortgage servicing rights impairment of $3.23 million for the same period in 2004. Other factors affecting noninterest income include decreased equipment rental income and increased investment security and other investment gains.
    Noninterest expense was $31.67 million for the first quarter 2005, down 2.07 percent from the first quarter of 2004, primarily due to decreased loan collection and repossession expense, offset by increased salaries and employee benefits and net occupancy expense.
    1st Source is the largest locally controlled 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 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 63 banking centers in 15 counties, 5 Trustcorp Mortgage offices in Indiana and Ohio, and 23 locations nationwide for the 1st Source Bank Specialty Finance Group. With a history dating back to 1863, 1st Source Bank 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 Citigroup Global Markets, Incorporated; Crowell, Weedon & Company; FTN Midwest Securities; Goldman, Sachs & Company; Keefe, Bruyette & Woods, Inc.; Lehman Brothers, Incorporated; Morgan Stanley & Company, Inc.; Prudential Equity Group, Incorporated; RBC Capital Markets; Sandler O'Neill & Partners; Stifel, Nicolaus & Company, Incorporated; William Blair & Company and UBS Capital Markets.
    1st Source's floating rate cumulative trust preferred security is traded on the Nasdaq stock market under the symbol "SRCEO." The rate for the second quarter, 2005 is 5.09 percent. Marketmakers in those securities are Stifel, Nicolaus & Company, Incorporated and UBS Capital Markets.
    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 2005 FINANCIAL HIGHLIGHTS (Unaudited - Dollars in thousands, except for per share data)

Three Months Ended March 31 2005 2004 ----------- ----------- END OF PERIOD BALANCES Assets $ 3,341,453 $ 3,222,713 Loans and leases 2,278,995 2,176,113 Deposits 2,589,939 2,403,990 Reserve for loan and lease losses 62,647 70,045 Intangible assets 22,931 25,561 Common shareholders' equity 326,629 319,860

AVERAGE BALANCES Assets $ 3,338,667 $ 3,250,559 Earning assets 3,124,749 3,016,130 Investments 777,542 740,804 Loans and leases 2,278,249 2,199,040 Deposits 2,589,092 2,413,793 Interest bearing liabilities 2,580,918 2,514,040 Common shareholders' equity 327,535 317,571

INCOME STATEMENT DATA Net interest income $ 23,604 $ 25,762 Net interest income - FTE 24,253 26,475 (Recovery of)/provision for loan and lease losses (421) 101 Noninterest income 17,695 14,019 Noninterest expense 31,674 32,342 Net income 6,944 5,079

PER SHARE DATA Basic net income per common share $ 0.34 $ 0.25 Diluted net income per common share 0.33 0.24 Cash dividends per common share 0.120 0.100 Book value per common share 15.77 15.42 Market value - High 25.840 24.900 Market value - Low 20.390 20.960 Basic weighted average common shares outstanding 20,719,596 20,727,035 Diluted weighted average common shares outstanding 21,041,812 21,035,918

KEY RATIOS Return on average assets 0.84% 0.63% Return on average common shareholders' equity 8.60 6.43 Average common shareholders' equity to average assets 9.81 9.77 End of period tangible common equity to tangible assets 9.15 9.21 Net interest margin 3.15 3.53 Efficiency: expense to revenue 74.51 76.79 Net charge-offs to average loans and leases 0.11 0.02 Loan and lease loss reserve to loans and leases 2.75 3.22 Nonperforming assets to loans and leases 1.10 1.45

ASSET QUALITY Loans and leases past due 90 days or more $ 206 $ 230 Nonaccrual and restructured loans and leases 21,281 23,356 Other real estate 1,438 2,541 Repossessions 1,459 6,234 Equipment owned under operating leases 1,282 280 Total nonperforming assets 25,666 32,641

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

March 31, 2005 March 31, 2004 -------------- -------------- ASSETS ------ Cash and due from banks $ 86,955 $ 78,134 Federal funds sold and interest bearing deposits with other banks 26,252 1,055 Investment securities available-for- sale, at fair value (amortized cost of $740,662 and $723,011 at March 31, 2005 and 2004, respectively) 733,786 729,924

Mortgages held for sale 79,591 81,650

Loans and leases, net of unearned discount: Commercial and agricultural loans 431,750 407,166 Auto, light truck and environmental equipment 269,361 244,444 Medium and heavy duty truck 274,097 224,912 Aircraft financing 423,017 458,788 Construction equipment financing 200,601 211,388 Loans secured by real estate 579,388 538,066 Consumer loans 100,781 91,349 -------------- -------------- Total loans and leases 2,278,995 2,176,113 Reserve for loan and lease losses (62,647) (70,045) -------------- -------------- Net loans and leases 2,216,348 2,106,068

Equipment owned under operating leases (net of accumulated depreciation) 44,552 62,994 Premises and equipment 37,581 38,093 Accrued income and other assets 116,388 124,795 -------------- --------------

Total assets $ 3,341,453 $ 3,222,713 ============== ==============

LIABILITIES ----------- Deposits: Noninterest bearing $ 402,004 $ 378,209 Interest bearing 2,187,935 2,025,781 -------------- -------------- Total deposits 2,589,939 2,403,990

Federal funds purchased and securities sold under agreements to purchase 194,247 248,779 Other short-term borrowings 97,401 109,842 Long-term debt and mandatorily redeemable securities 18,027 23,181 Subordinated notes 59,022 56,444 Accrued expenses and other liabilities 56,188 60,617 -------------- -------------- Total liabilities 3,014,824 2,902,853

SHAREHOLDERS' EQUITY -------------------- Preferred stock; no par value - - Common stock; no par value 7,578 7,578 Capital surplus 214,001 214,001 Retained earnings 120,387 103,529 Cost of common stock in treasury (11,096) (9,512) Accumulated other comprehensive (loss)/income (4,241) 4,264 -------------- -------------- Total shareholders' equity 326,629 319,860 -------------- --------------

Total liabilities and shareholders' equity $ 3,341,453 $ 3,222,713 ============== ==============

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

Three Months Ended March 31 2005 2004 ---------- ---------- Interest income: Loans and leases $ 33,637 $ 32,454 Investment securities, taxable 3,818 4,289 Investment securities, tax-exempt 1,264 1,317 Other 77 65 ---------- ----------

Total interest income 38,796 38,125

Interest expense: Deposits 12,316 9,823 Short-term borrowings 1,702 1,257 Subordinated notes 964 961 Long-term debt and mandatorily redeemable securities 210 322 ---------- ----------

Total interest expense 15,192 12,363 ---------- ----------

Net interest income 23,604 25,762 (Recovery of)/provision for loan and lease losses (421) 101 ---------- ----------

Net interest income after provision for loan and lease losses 24,025 25,661

Noninterest income: Trust fees 3,246 3,090 Service charges on deposit accounts 3,963 3,706 Mortgage banking income 2,767 (891) Equipment rental income 4,015 5,824 Other income 2,800 2,542 Investment securities and other investment gains (losses) 904 (252) ---------- ----------

Total noninterest income 17,695 14,019 ---------- ----------

Noninterest expense: Salaries and employee benefits 18,544 15,754 Net occupancy expense 2,102 1,833 Furniture and equipment expense 2,642 2,584 Depreciation - leased equipment 3,323 4,536 Supplies and communication 1,343 1,432 Loan and lease collection and repossession expense (134) 1,055 Other expense 3,854 5,148 ---------- ----------

Total noninterest expense 31,674 32,342 ---------- ----------

Income before income taxes 10,046 7,338 Income tax expense 3,102 2,259 ---------- ----------

Net income $ 6,944 $ 5,079 ========== ==========

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

--30--MD/cl*

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

KEYWORD: MICHIGAN INDIANA ILLINOIS INDUSTRY KEYWORD: BANKING EARNINGS DIVIDEND SOURCE: 1st Source Corporation

Copyright Business Wire 2005