1st Source Corporation reported operating income of $10.06 million for the third quarter of 2008 compared to $6.13 million for same period a year earlier. For the first three quarters of the year, operating income was $27.44 million versus the $22.71 million a year earlier. Net income, which was adversely impacted by impairment charges of $5.59 million, net of tax, primarily from investments in Fannie Mae and Freddie Mac preferred stock, was $4.47 million for the quarter and $21.07 million year-to-date versus $6.13 million and $22.71 million in net income for the same periods a year earlier. Operating income per share for the third quarter of 2008 was $0.41 per share versus $0.25 a year earlier while net income per share was $0.18 versus $0.25 a year ago. For the first three quarters of the year, operating income per share was $1.12 compared to $0.96 per share in 2007, and net income per share was $0.86 for 2008 versus $0.96 per share for 2007.

At the October meeting, the Board of Directors approved an increase in the cash dividend to $0.16 per share, a 14.3 percent increase over the dividend a year earlier. The cash dividend will be payable on November 14, 2008, to shareholders of record on November 4, 2008.

According to Mr. Murphy, "While this has been a tough quarter for business, we are pleased that we have been able to help our customers continue to grow with loan and deposit products designed to meet their needs. We are well positioned for the long term, are well-capitalized, have a strong balance sheet, a solid credit portfolio and our net interest margin is holding steady. We actually had net loan and lease loss recoveries of $337 thousand for the quarter. Our mortgage and lending businesses have always been conventional and conservative. We have no sub-prime loans. We have no Alt-A loans. And, we have no overly valued residential or commercial real estate development loans."

"During the quarter, we completed blending First National Bank, Valparaiso into 1st Source and welcomed a wonderful new set of clients to the Bank. We are already seeing the benefits of the consolidation as our costs are dropping, while we continue to grow the market by offering highly personalized service, convenience, and a wider product and service selection. My colleagues also spent the quarter counseling our clients on positioning for turbulent times, the value of FDIC insurance, and navigating through uncertainty," concluded Mr. Murphy.

Before the impairment charge, noninterest income for the three month period ended September 30, 2008 was $21.38 million compared to $17.90 million reported in the same period of 2007. For the first three quarters of 2008, noninterest income before the impairment charge was $63.03 million versus $54.45 million for the first three quarters a year earlier. As discussed above, during the third quarter of 2008, 1st Source wrote down Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage Association (Fannie Mae) preferred stocks in the investment portfolio by $8.07 million ($5.01 million net of tax). Excluding this write-down, noninterest income increased in all categories. Noninterest income including the impairment charge was $12.38 million for the third quarter of 2008 and $53.77 million year-to-date.

Noninterest expense for the third quarter was $38.32 million, an increase from the $37.44 million reported in the third quarter a year earlier. Noninterest expense for the first nine months was $114.61 million versus $103.69 million for the same period of 2007. The leading factor in the year-to-date change was increased expenses due to the May 31, 2007 acquisition of First National Bank, Valparaiso.

Net loans and leases at the close of the third quarter were $3.31 billion, up 3.54 percent from a year earlier. 1st Source's reserve for loan and lease losses as of September 30, 2008, was 2.28 percent of total loans and leases compared to 2.02 percent at September 30, 2007. 1st Source's provision for loan and lease losses was $3.57 million this quarter compared to $3.66 million for the third quarter 2007. Net recoveries were $0.34 million this quarter compared to net charge-offs of $1.84 million in the quarter a year ago. The ratio of nonperforming assets to net loans and leases was 0.88 percent on September 30, 2008, compared to 0.52 percent on September 30, 2007.

As of September 30, 2008, the 1st Source common equity-to-assets ratio was 10.00 percent compared to 9.68 percent a year ago. Common shareholders' equity was $441.01 million, up 3.23 percent from the $427.20 million reported a year ago. Total assets at the end of the third quarter of 2008 were $4.41 billion, down slightly from a year ago. Total loans and leases were up 3.54 percent and total deposits were down 1.90 percent over the comparable figures at the end of the third quarter of 2007.

In light of the national financial crisis and the enactment of the Emergency Economic Stabilization Act of 2008, U.S. government agencies are taking various actions in an attempt to enhance financial stability. These include the U.S. Treasury Department's Troubled Asset Relief Program Capital Purchase Program, which offers to all U.S. banking organizations the opportunity to issue and sell preferred stock, along with warrants to purchase common stock, to the U.S. Treasury on what may be considered attractive terms. In addition, the FDIC has initiated the Temporary Liquidity Guarantee Program that will provide a 100 percent guarantee for a limited period of time to newly issued senior unsecured debt and non-interest bearing transaction deposits. Coverage under the Temporary Liquidity Guarantee Program is available for 30 days without charge and thereafter at a cost of 75 basis points per annum for senior unsecured debt and 10 basis points per annum for non-interest bearing transaction deposits. 1st Source's capital ratios remain well above the minimum levels required for well capitalized status and have not been adversely affected in any significant respect by the national financial crisis. However, 1st Source is assessing its participation in both programs to determine what may be in its best interest long-term and has not yet made a definitive decision as to whether it will participate.

In addition to the results presented in accordance with U.S. generally accepted accounting principles (GAAP), this press release contains certain non-GAAP financial measures. 1st Source believes that providing a non-GAAP financial measure to illustrate our earnings excluding extraordinary impairments of its Freddie Mac and Fannie Mae securities is useful in understanding 1st Source's financial performance because the severe deterioration of those issues is unrelated to 1st Source's operations. Additionally, these non-GAAP measures are used by management in its analysis of 1st Source's performance. These non-GAAP measures, referred to above as "operating income", exclude other-than-temporary impairment on investment securities. The following table reconciles net income presented in accordance with U.S. generally accepted accounting principles to operating earnings, a non-GAAP measure.

	Â				Â			Â
Net income (dollars in thousands):		Three Months Ended							Nine Months Ended
		September 30,							September 30,
		2008			Â	2007			2008				2007
													Â
Operating income		$	10,063			$	6,130		$	27,444			$	22,713
													Â
Other-than-temporary impairment, net of tax
FHLMC and FNMA preferred equities			(5,012	)			-			(5,593	)			-
Other preferred equities		Â	(579	)		Â	-		Â	(780	)		Â	-
Total other-than-temporary impairment, net of tax		Â	(5,591	)		Â	-		Â	(6,373	)		Â	-
													Â
													Â
Net income		$	4,472	Â		$	6,130		$	21,071	Â		$	22,713
													Â
Earnings per share		Three Months Ended							Nine Months Ended
		September 30,							September 30,
		2008			Â	2007			2008			Â	2007
													Â
Operating income per share		$	0.41			$	0.25		$	1.12			$	0.96
													Â
Other-than-temporary impairment, net of tax
FHLMC and FNMA preferred equities			(0.21	)			-			(0.23	)			-
Other preferred equities		Â	(0.02	)		Â	-		Â	(0.03	)		Â	-
Total other-than-temporary impairment, net of tax		Â	(0.23	)		Â	-		Â	(0.26	)		Â	-
													Â
													Â
Earnings per share		$	0.18	Â		$	0.25		$	0.86	Â		$	0.96

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 6 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," "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.

(charts attached)

Â
1st SOURCE CORPORATION
3rd QUARTER 2008 FINANCIAL HIGHLIGHTS
(Unaudited - Dollars in thousands, except for per share data)
Â
	Â		Three Months Ended				Â	Nine Months Ended
			September 30					September 30
			2008			2007		2008		Â	2007
END OF PERIOD BALANCES
Assets								$	4,409,619		$	4,412,651
Loans and leases									3,314,863			3,201,595
Deposits									3,350,412			3,415,169
Reserve for loan and lease losses									75,606			64,664
Intangible assets									92,185			91,546
Common shareholders' equity									441,010			427,195
													Â
AVERAGE BALANCES
Assets		$	4,400,009		$	4,446,719		$	4,383,948		$	4,053,944
Earning assets			4,075,541			4,103,807			4,047,131			3,771,816
Investments			681,972			826,374			725,301			725,275
Loans and leases			3,322,970			3,179,234			3,251,499			2,930,077
Deposits			3,341,035			3,490,193			3,369,474			3,193,139
Interest bearing liabilities			3,517,330			3,576,200			3,493,013			3,235,392
Common shareholders' equity			444,219			430,710			443,162			400,566
													Â
INCOME STATEMENT DATA
Net interest income		$	33,397		$	31,698		$	98,818		$	86,841
Net interest income - FTE			34,258			32,735			101,508			89,398
Provision for loan and lease losses			3,571			3,660			9,603			4,284
Noninterest income			12,380			17,897			53,774			54,453
Noninterest expense			38,317			37,440			114,613			103,686
Net income			4,472			6,130			21,071			22,713
													Â
PER SHARE DATA
Basic net income per common share		$	0.19		$	0.25		$	0.87		$	0.97

advertisement