1st Source Announces Third Quarter Profits

Dividend Announced

• Press Release
• Source: 1st Source Corporation
• On 4:10 pm EDT, Thursday October 22, 2009

SOUTH BEND, Ind.--(BUSINESS WIRE)--1st Source Corporation (Nasdaq:SRCE - News), parent company of 1st Source Bank, today announced third quarter net income of $6.73 million compared to $4.47 million in the third quarter 2008. For the first three quarters of the year, net income was $19.27 million versus $21.07 million a year earlier. Diluted net income per common share for the third quarter of 2009 was $0.21 versus $0.18 a year earlier while diluted net income per common share for the first three quarters was $0.60 compared to $0.86 in 2008. Diluted net income per common share was reduced by $0.07 for the third quarter of 2009 and $0.20 for the nine months ending September 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 nine month periods ending September 30, 2008.

Related Quotes

Symbol	Price	Change
SRCE	14.02	-0.36

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At the October meeting, the Board of Directors approved a cash dividend of $0.16 per common share, equal to the dividend a year earlier. The cash dividend will be payable on November 16, 2009, to shareholders of record on November 6, 2009.

Christopher J. Murphy III, Chairman of 1st Source, commented, “As the recession continues to buffet our markets, we continue to experience larger nonperforming asset ratios and larger charge-offs. Fortunately, we have maintained and continue to support strong reserves. Our local markets have been hit hard by layoffs and rising unemployment and there is also some stress among our specialty finance clients. While the Bank steered clear of sub-prime and construction or real estate development loans, our clients have been affected by the overall downturn in the economy, which then affects us. Although this year’s third quarter compares favorably to a year ago, the net income in the third quarter of 2008 was impacted by losses on investments in Fannie Mae and Freddie Mac preferred stock.”

Mr. Murphy continued, “During the quarter, we provided $6.47 million to our loan and lease loss reserve, while net-charge-offs were $4.09 million. Our reserve for loan and lease losses is 2.76 percent of loans and leases compared to 2.28 percent a year earlier. We will expense approximately $7.75 million in FDIC insurance fees this year compared to $1.60 million in 2008. With all of that said, our capital ratios remain very strong, our overall expenses are down, and we are a profitable organization that continues to provide our clients with expert service, straight talk and sound advice every day. Many in the financial world would like to be in our position,” concluded Mr. Murphy.

As of September 30, 2009, the 1st Source common equity-to-assets ratio was 10.64 percent compared to 10.00 percent a year ago and its tangible equity-to-assets ratio was 8.77 percent compared to 8.08 percent a year earlier. Common shareholders' equity was $469.72 million, up 6.51 percent from the $441.01 million reported a year ago. Total assets at the end of the third quarter of 2009 were $4.41 billion, up slightly from a year ago. Total loans and leases were $3.09 billion, down 6.66 percent and total deposits were $3.49 billion, up 4.07 percent over the comparable figures at the end of the third quarter of 2008.

Noninterest income for the third quarter was $20.26 million, up 63.62 percent from the same period in 2008. For the nine months, noninterest income was $63.51 million, up 18.11 percent from 2008. The increase in noninterest income was a result of significant improvements in investment securities and other investment gains (losses) due to a reduction in other than temporary impairment and partnership gains.

Noninterest expense for the third quarter was $36.57 million, a decrease from the $38.32 million reported in the third quarter a year earlier. Noninterest expense for the first nine months of 2009 was $112.56 million versus $114.61 million for the same period of 2008. The leading factors in the year-to-date change were reduced salaries and benefits and professional fees partially offset by higher FDIC insurance costs. The FDIC has announced that it will require the industry to prepay its next three years of estimated FDIC insurance in December of this year. Using the currently applicable rates for FDIC insurance, we will likely remit $21.57 million to the FDIC this December. This prepayment will not affect earnings in 2009, rather it will be ratably expensed in fiscal years 2010, 2011, and 2012.

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
Larry Lentych or Andrea Short, 574-235-2000