UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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[ ] Soliciting Material Pursuant to Rule 240.14a-11(c) or Rule 240.14a-12
1ST SOURCE CORPORATION
(Name of Registrant as Specified in its Charter)
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1st Source Corporation
Post Office Box 1602
South Bend, Indiana 46634
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
TO THE SHAREHOLDERS OF 1ST SOURCE CORPORATION:
The Annual Meeting of Shareholders of 1st Source Corporation will be held at the
1st Source Center, 4th Floor Boardroom, 100 North Michigan Street, South Bend,
Indiana 46601, on April 28, 2005,27, 2006, at 10:00 a.m. local time, for the purpose of
considering and voting upon the following matters:
1. ELECTION OF DIRECTORS. Election of fourfive directors for terms expiring in 2008.2009.
2. OTHER BUSINESS. Such other matters as may properly come before the meeting or
any adjournment thereof.
Shareholders of record at the close of business on February 22, 2005,21, 2006 are
entitled to vote at the meeting.
By Order of the Board of Directors,
John B. Griffith
Secretary
South Bend, Indiana
March 21, 200517, 2006
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PLEASE DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN
THE ENCLOSED ENVELOPE. IF YOU DO NOT ATTEND THE MEETING, YOU MAY, NEVERTHELESS,
VOTE IN PERSON AND REVOKE A PREVIOUSLY SUBMITTED PROXY.
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1st SOURCE CORPORATION
----------------------
P.O. Box 1602 - South Bend, Indiana 46634
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of proxies to be voted at the Annual Meeting of Shareholders
of 1st Source Corporation ("1st Source"), to be held on April 28, 2005,27, 2006, at 10:00
a.m. local time, at the 1st Source Center, 100 North Michigan Street, 4th Floor
Boardroom, South Bend, Indiana 46601. Only Shareholders of record at the close
of business on February 22, 2005,21, 2006, will be eligible to vote at the Annual
Meeting. The voting securities of 1st Source consist only of Common Stock, of
which 21,376,73321,359,581 shares were outstanding on the record date. Each Shareholder of
record on the record date will be entitled to one vote for each share.
Cumulative voting is not authorized. The approximate date for making available
this Proxy Statement and the form of proxy to Shareholders is March 21, 2005.17, 2006.
With respect to each matter to be acted upon at the meeting, abstentions on
properly executed proxy cards will be counted for determining a quorum at the
meeting; however, such abstentions and shares not voted by brokers and other
entities holding shares on behalf of beneficial owners will not be counted in
calculating voting results on those matters for which the shareholder has
abstained or the broker has not voted.
The cost of solicitation of proxies will be borne by 1st Source. In addition to
the use of mails, proxies may be solicited through personal interview,
telephone, and facsimile by directors, officers and regular employees of 1st
Source without additional remuneration therefor.
REVOCABILITY
Shareholders may revoke their proxies at any time prior to the meeting by
giving written notice to John B. Griffith, Secretary; 1st Source Corporation;
Post Office Box 1602; South Bend, Indiana 46634, or by voting in person at the
meeting.
PERSONS MAKING THE SOLICITATION
This solicitation is being made by the Board of Directors of 1st Source.
1
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Ownership of beneficial owners of more than 5% of the Common Stock
outstanding at February 22, 2005:21, 2006:
Name and Address Type of Ownership Amount % of Class
- --------------------------------------------------------------------------------
Ernestine M. Raclin(1) Direct 167,736 0.78%
100 North Michigan Street Indirect(2)Indirect (2) 5,612,580 26.26%26.28%
South Bend, IN 46601 --------- -----
Total 5,780,316 27.04%27.06%
========= =====
Christopher J. Murphy III Direct 774,707 3.63%765,087 3.58%
100 North Michigan Street Indirect(3) 2,031,748 9.50%Indirect (3) 2,022,815 9.47%
South Bend, IN 46601 --------- ----
Total 2,806,455 13.13%2,787,902 13.05%
========= =====
Dimensional Fund Advisors, Inc. Direct(4) 1,370,959 6.42%
1299 Ocean Avenue, 11th Floor ========= ====
Santa Monica, CA 90401
1st Source Bank as Trustee for the Direct 1,311,901 6.14%1,257,816 5.89%
the 1st Source Corporation Employees' ========= ====
Employees' Profit Sharing Plan
and Trust
(1) Mrs. Raclin is the mother-in-law of Mr. Murphy.
(2) Owned indirectly by Mrs. Raclin who disclaims beneficial ownership thereof.
Most of these securities are held in trusts, of which 1st Source Bank is
the trustee and has sole voting power. While Mrs. Raclin is an income
beneficiary of many of these trusts, the ultimate benefit and ownership
will reside in her children and grandchildren.
(3) Owned indirectly by Mr. Murphy who disclaims beneficial ownership thereof.
The securities are held by Mr. Murphy's wife and children, or in trust or
limited partnerships for the benefit of his wife and children. Mr. Murphy
is not a current income beneficiary of most of the trusts. Due to the
structure of various trusts and limited partnerships, 665,308 shares are
shown both in Mr. Murphy's and Mrs. Raclin's ownership.
(4) As reported in Schedule 13G filed February 6, 2006, Dimensional Fund
Advisors, Inc., in its role as investment advisors for various clients, had
sole dispositive and/or voting power of the shares.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
The Board of Directors knows of no matters to come before the Annual Meeting
other than the matters referred to in this Proxy Statement. However, if any
other matters should properly come before the meeting, the persons named in the
enclosed proxy intend to vote in accordance with their best judgment. No
director, nominee for election as director, nor executive officer of 1st Source
has any special interest in any matter to be voted upon other than election to
the Board of Directors. Directors, executive officers, and voting trustees have
indicated that they intend to vote for all directors as listed in Proposal
Number 1.
PROPOSAL NUMBER 1: ELECTION OF DIRECTORS
The Board of Directors is divided into three (3) groups of directors whose
terms expire at different times. At the 20052006 Annual Meeting, four (4)five (5) directors
are to be elected for terms expiring in 2008,2009, or until the qualification and
election of a successor. Directors will be elected by a plurality of the votes
cast.
2
The following information is submitted for each nominee as well as each
director and each non-director executive officer continuing in office.
Beneficial Ownership
of Equity Securities(1)
-----------------------
Year
in Which
Directorship Common % of
Name Age Principal Occupation(3) Assumed Stock Class
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
TERMS EXPIRING IN APRIL, 20082009
- -----------------------------
Lawrence E. Hiler 59 Chairman, Hiler Industries 1992 2,166 *
(metal castings)
Rex Martin 53 Chairman, President and Chief 1996 2,768 *
Executive Officer, NIBCO, Inc.
(copper and plastic plumbing parts
manufacturer); and Director,
Coachmen Industries, Inc.
Christopher J. Murphy III 58 Chairman of the Board, President, 1972 2,806,455(2) 13.13%
and Chief Executive Officer, 1st
Source Corporation; and Chairman of
the Board and Chief Executive Officer,
1st Source Bank; and Director,
Quality Dining, Inc.
Timothy K. Ozark 55 Chairman and Chief Executive Officer, 1999 5,300 *
Aim Financial Corporation (mezzanine
funding and leasing)
DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRING IN APRIL, 2006
- -----------------------------
Terry L. Gerber 6465 President and Chief Executive Officer, 2004 10,03110,431 *
Gerber Manufacturing Company, Inc.
(clothing manufacturer)
William P. Johnson 62 President,63 Chief Executive Officer, Flying J, LLC (consulting); 1996 17,288 *
(consulting); prior thereto, Chief
Executive Officer, Goshen Rubber Co.,
Inc.(rubber (rubber and plastic parts manufacturer);
and Director, Coachmen Industries, Inc.
Craig A. Kapson 5455 President, Jordan Automotive Group 2004 54,40854,463 *
(automotive dealerships)
John T. Phair 5556 President, Holladay Properties (real 2004 30,87131,883 *
(real
estate development)
Mark D. Schwabero 53 President, Outboard Business Unit, 2004 2,838 *
Mercury Marine (marine propulsion
systems); prior thereto, President
and Chief Executive Officer,
Hendrickson International (heavy-duty
transportation products)
DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRING IN APRIL, 2007
- -----------------------------
David C. Bowers 69 Formerly, Executive Vice President, 2003 5,046 *
Park National Bank and Secretary and
Chief Financial Officer, Park National
Corporation (financial services)
Daniel B. Fitzpatrick 48 Chairman, and Chief Executive 1995 21,163 *
Officer, Quality Dining, Inc. (quick
service and casual dining restaurant
operator)
3
Beneficial Ownership
of Equity Securities(1)
-----------------------
Year
in Which
Directorship Common % of
Name Age Principal Occupation(3) Assumed Stock Class
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
DIRECTORS CONTINUING IN OFFICE
Mark D. Schwabero 52 President, Outboard Business Unit, 2004 1,438 *
Mercury Marine (marine
propulsion systems); prior thereto,
President and Chief Executive Officer,
Hendrickson International (heavy-duty
transportation products)
TERMS EXPIRING IN APRIL, 2007
- -----------------------------
David C. Bowers 68 Formerly, Executive Vice President, 2003 4,546 *
Park National Bank and Secretary
and Chief Financial Officer, Park
National Corporation (financial services)
Daniel B. Fitzpatrick 47 Chairman, President, Chief Executive 1995 36,870 *
Officer and Director, Quality Dining,
Inc. (quick service and casual dining
restaurant operator)
Wellington D. Jones III 6061 Executive Vice President, 1st Source 1998 234,298 1.10%236,655 1.11%
Corporation, and President
and Chief Operating Officer, 1st Source Bank
Dane A. Miller, Ph.D. 5960 President, Chief Executive Officer and 1987 18,804 *
and Director, Biomet, Inc. (medical
products and technology)
Toby S. Wilt 6061 Chairman, Christie Cookie Company 2002 10,000 *
(gourmet foods); President, TSW
Investment Company; Director,
Outback Steakhouse, Inc.; and
Director, TLC Vision Corporation
TERMS EXPIRING IN APRIL, 2008
- -----------------------------
Lawrence E. Hiler 60 Chairman, Hiler Industries (metal castings) 1992 2,166 *
Rex Martin 54 Chairman, President and Chief 1996 2,768 *
Executive Officer, NIBCO, Inc.
(copper and plastic plumbing parts
manufacturer)
Christopher J. Murphy III 59 Chairman of the Board, President, 1972 2,787,902 (2) 13.05%
and Chief Executive Officer, 1st Source
Corporation; and Chairman of
the Board and Chief Executive
Officer, 1st Source Bank
Timothy K. Ozark 56 Chairman and Chief Executive 1999 5,300 *
Officer, Aim Financial Corporation
(mezzanine funding and leasing)
NON-DIRECTOR EXECUTIVE OFFICERS
Richard Q. Stifel 6364 Executive Vice President, Business 99,876 *
Banking 100,161 *Services Group and Chief
Credit Officer, 1st Source Bank
(since 1992)
Allen R. Qualey 52 President and Chief Operating Officer, 91,860 *
Specialty Finance Group, 1st Source Bank
(since 1997)
4
Beneficial Ownership
of Equity Securities(1)
-----------------------
Year
in Which
Directorship Common % of
Name Age Principal Occupation(3) Assumed Stock Class
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Allen R. Qualey 53 President and Chief Operating Officer, 102,098 *
Specialty Finance Group, 1st Source Bank
(since 1997)
John B. Griffith 4748 Senior Vice President, General Counsel 9,40310,623 *
and Secretary, 1st Source Corporation and
1st Source Bank (since 2001); prior thereto,
Partner, McDermott, Will & Emery
Larry E. Lentych 5859 Senior Vice President, Treasurer and Chief 71,61974,997 *
Financial Officer, 1st Source Corporation
and 1st Source Bank (since 1988)
All Directors and Executive Officers as a Group (18 persons) 3,508,286 16.41%3,494,301 16.36%
* Represents holdings of less than 1%.
(1) Based on information furnished by the directors and executive officers as
of February 22, 2005.21, 2006.
(2) The amounts shown include shares of Common Stock held directly or
indirectly in the following amount by the spouse and other family members
of the immediate household of Christopher J. Murphy III, who disclaims
beneficial ownership of such securities: 2,031,7482,022,815 shares. Voting authority
for 957,082957,771 shares owned indirectly by Mr. Murphy is vested in 1st Source
Bank as Trustee for various family trusts. Investment authority for those
shares is held by 1st Source Bank as Trustee of the underlying trusts.
(3) The principal occupation represents the employment for the last five years
for each of the named directors and executive officers. Directorships
presently held in other registered corporations are also disclosed.
Directors and officers of 1st Source and their affiliates were customers of and
had transactions with 1st Source and its subsidiaries in the ordinary course of
business during 20042005 and in compliance with applicable federal and state laws
and regulations. Additional transactions are expected to take place in the
ordinary course of business in the future. All outstanding loans and commitments
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risk of collectibility,
or present other unfavorable features. Credit underwriting procedures followed
were no less stringent than those for comparable transactions with other
borrowers.
During 2005, Mr. Johnson iswas President and a principal shareholder of WPJ
Realty, Inc., a real estate company. In 2004, 1st Source Bank entered into two
lease agreements with WPJ Realty pursuant to which 1st Source Bank leases a
banking center facility and a drive-up Resource Center. In 2004,2005, 1st Source Bank
paid an aggregate of $88,523.67$91,556 to WPJ Realty, Inc. under these leases.
Both lease agreements grantgranted 1st Source Bank a right of first refusal and an
option to purchase the property during the lease term. In 2005, 1st Source
exercised the options to purchase both the banking center facility and the
drive-up Resource Center for an aggregate purchase price of $600,000. Mr.
Johnson entered into a lease agreement for office space in the banking center
facility pursuant to which he will pay rent at a market rate. The lease
agreements expire on Septemberagreement is cancelable by either party with 30 2013.days' notice.
5
Mr. Kapson is President and a principal shareholder of Jordan Motors, Inc.,
an automobile dealership. 1st Source Bank has established an ongoing
relationship with Jordan Motors in which Jordan Motors facilitates the purchase
of automobiles by car rental companies that are commercial lending customers of
the Bank. Where the customer chooses to utilize this arrangement, the purchase
price of such vehicles is funded by the Bank as a loan to the customer on
customary terms. During 20042005 the Bank loaned customers approximately $5.4$4.3
million for the purchase of automobiles from Jordan Motors, which amount
included service fees paid to Jordan of less than $18,000$12,000 in the aggregate. Also
during 20042005 the Bank purchased vehicles in an aggregate amount of approximately
$216,000$3.5 million from Jordan
5
Motors for lease to various commercial finance
customers of the Bank on customary terms. Revenues from all of the foregoing
represented less than 0.06%2.29% of 20042005 revenues of Jordan Motors.
BOARD COMMITTEES AND OTHER CORPORATE GOVERNANCE MATTERS
In January 2004 the Board of Directors adopted Corporate Governance Guidelines
to ensure and document the Company's existing high standards for corporate
governance. The Corporate Governance Guidelines are in accordance with the
listing standards of the Nasdaq Stock Market and Securities and Exchange
Commission rules. The Corporate Governance Guidelines are available on the
Company's website at www.1stsource.com.
DIRECTOR INDEPENDENCE -- The Board assesses each director's independence in
accordance with the Corporate Governance Guidelines. The Corporate Governance
Guidelines define an independent director as one who has no relationship to the
Company that would interfere with the exercise of independent judgment in
carrying out responsibilities as a director of the Company and who are otherwise
"independent" under the listing standards of the Nasdaq Stock Market. The Board
has determined, after careful review, that each member of the Board is
independent as defined in the Company's Corporate Governance Guidelines, with
the exception of Mr. Murphy and Mr. Jones, who are employed by the Company.
Accordingly, twelve out of the fourteen current members of the Board are
independent directors.
BOARD COMMITTEES -- 1st Source and its major subsidiary, 1st Source Bank, share
the following permanent committees made up of board members of both
organizations. Executive and Governance, Nominating, Audit, and Executive
Compensation and Human Resources Committee members are appointed annually after
the Annual Meeting of Shareholders.
Committee Members Functions 20042005 Meetings
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Executive and Governance(2) Christopher J. Murphy III(1)III o Serve as senior committee with 13
William P. JohnsonJohnson(1) oversight responsibility for effective
Rex Martin governance of the Company.
Timothy K. Ozark o Power to act for the Board of
Toby S. Wilt Directors between meetings subject to
certain statutory limitations.
o Identify and monitor the appropriate
structure of the Board.
o Select Board members for committee
assignments.
Nominating(2) William P. Johnson(1) o Identify, evaluate, recruit and select -2
Rex Martin qualified candidates for election,
Timothy K. Ozark re-election or appointment to the Board
Toby S. Wilt Board of Directors.
o See also "Nominating Committee
Information" below.
6
Committee Members Functions 20042005 Meetings
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Audit(2) David C. Bowers(1) o Select the Company's independent 46
Daniel B. Fitzpatrick registered public accounting firm.
Terry L. Gerber o Review the scope and results of the
Lawrence E. Hiler audits by the internal audit staff and the
Dane A. Miller independent registered public accounting firm.
Timothy K. Ozark o Review the adequacy of the accounting
Mark D. Schwabero and financial controls and presents the
Toby S. Wilt results to the Board of Directors with
respect to accounting practices and internal
procedures. Also makes recommendations for
improvements in such procedures.
o See also "Report of the Audit Committee" below.
Executive Compensation Timothy K. Ozark(1) o Determine compensation for senior 53
and Human Resources William P. Johnson management personnel, review the
Rex Martin Chief Executive Officer and manage
Toby S. Wilt the Company's stock plans.
o Establish wage and benefit policies for the
Company and its subsidiaries.
o Review human resource guidelines, policies
and procedures.
(1) Committee chairman
(2) The charter of the committee is available on the Company's website at
www.1stsource.com.
MEETINGS OF THE BOARD OF DIRECTORS AND DIRECTORS' COMPENSATION -- The Board of
Directors held six meetings in 2004. No incumbent2005. Incumbent directors attendedattending fewer than
75% of the aggregate total meetings of the Board of Directors and all committees
of the board of 1st Source on which they served.served were Dane A. Miller and Toby S.
Wilt. Directors receive fees in the amount of $16,000 per year, $1,000 per board
meeting and $750 per committee meeting attended ($1,000 per Audit Committee
meeting attended). Committee chairpersons receive an additional $250 per meeting
attended (an additional $750 per Audit Committee meeting attended). Total fees
paid in 20042005 were $466,833.$468,500.
ANNUAL MEETING ATTENDANCE -- Per the Company's Corporate Governance Guidelines,
directors are expected to attend the Annual Meeting of shareholders. The
Chairman of the Board presides at the Annual Meeting, and the Board of Directors
holds one of its regular meetings in conjunction with the Annual Meeting of
shareholders. All members of the Board at the time of the Company's 20042005 Annual
Meeting of shareholders attended that meeting.meeting except for Dane A. Miller and John
T. Phair.
CODE OF ETHICAL CONDUCT -- The Board of Directors has adopted a Code of Ethical
Conduct for Financial Managers, which is available on the Company's website at
www.1stsource.com. The Code of Ethical Conduct for Financial Managers
constitutes a code of ethics as defined in Section 406(c) of the Sarbanes-Oxley
Act of 2002 and applies to the Chief Executive Officer, Chief Financial Officer,
Controller and other individuals performing similar accounting or financial
reporting functions for the Company.
SHAREHOLDER COMMUNICATIONS -- Communications to the Board of Directors from
shareholders are welcomed. All written communications should be directed to the
attention of the Chairman of the Executive and Governance Committee. The
Chairman of the Executive and Governance Committee shall either (i) relay a
shareholder communication to the full board or an appropriate committee
chairman, or (ii) where he feels that the communication is not appropriate to
relay, at least provide a copy of the communication and an indication of his
proposed disposition to the General Counsel, or another independent director,
either of whom may forward the communication to any other directors if he deems
it prudent or appropriate to do so. The Chairman of the Executive and Governance
Committee shall forward all recommendations for board nominees submitted by
shareholders to the Chairman of the Nominating Committee.
7
NOMINATING COMMITTEE INFORMATION
The Board of Directors formed an independent Nominating Committee in January
2004. Its responsibilities were formerly carried out by the Executive Committee.
The charter of the Nominating Committee is available on the Company's website at
www.1stsource. com. All members of the Nominating Committee (see "Board
Committees" above) comply with the independence requirements of the Nasdaq Stock
Market listing standards.
The purpose of the Nominating Committee is to identify, evaluate, recruit and
select qualified candidates for election, re-election, or appointment to the
Board. The Nominating Committee may use multiple sources for identifying and
evaluating nominees for directors, including referrals from current directors
and executive officers and recommendations by shareholders. Candidates
recommended by shareholders will be evaluated in the same manner as candidates
identified by any other source. In order to give the Nominating Committee
adequate time to evaluate recommended director candidates, shareholder
recommendations should be submitted in writing at least 120 days prior to the
next Annual Meeting to be held on or about April 27, 2006.26, 2007. Nominations should be
addressed to the attention of the Chairman, Executive and Governance Committee,
c/o 1st Source Corporation.
The Nominating Committee will select new or incumbent nominees or recommend to
the Board replacement nominees considering the following criteria:
o Whether the nominee is under the mandatory retirement age of 70;
o Personal qualities and characteristics, accomplishments and reputation in
the business community;
o Current knowledge and contacts in the communities or industries in which
the Company does business;
o Ability and willingness to commit adequate time to Board and Committee
matters;
o The fit of the individual's skills with those of other directors and
potential directors in building a Board that is effective and responsive to
the needs of the Company; and
o Diversity of viewpoints, background, experience and other demographics.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees 1st Source's financial reporting process on behalf
of the Board of Directors, retains and oversees the Company's independent
registered public accounting firm and approves all audit and non-audit services
provided by the independent registered public accounting firm. The Board of
Directors has adopted a Charter for the Audit Committee to set forth its
authority and responsibilities. All of the members of the Committee are
independent as defined in the listing standards of the Nasdaq Stock Market and
Securities and Exchange Commission rules. The Board has determined that David C.
Bowers, Daniel B. Fitzpatrick, Lawrence E. Hiler, Dane A. Miller, Timothy K.
Ozark, and Toby S. Wilt qualify as audit committee financial experts, as defined
by Securities and Exchange Commission guidelines.
The Committee reviewed the audited financial statements in the Annual
Report with management. The Committee also reviewed the financial statements
with 1st Source's independent registered public accounting firm, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with accounting principles generally accepted in the United
States. The Committee also considered with the independent registered public
accounting firm their judgments as to the quality, not just the acceptability,
of 1st Source's accounting principles and such other matters as are required to
be discussed with the Committee under generally accepted auditing standards. In
addition, the Committee has discussed with the independent registered public
accounting firm the firm's independence from management and 1st Source,
including the matters in the written disclosures required by the Independence
StandardStandards Board, and considered the compatibility of nonaudit services provided
by the independent registered public accounting firm to 1st Source with the
firm's independence.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors that the audited financial statements be
included in the Annual Report on Form 10-K for the year ended December 31, 20042005
for filing with the Securities and Exchange Commission.
8
AUDIT COMMITTEE
David C. Bowers, Chairman
Daniel B. Fitzpatrick Terry L. Gerber
Lawrence E. Hiler Dane A. Miller
Timothy K. Ozark Mark D. Schwabero
Toby S. Wilt
REMUNERATION OF EXECUTIVE OFFICERS
The following tables set forth all aggregate remuneration accrued by 1st
Source and its subsidiaries in 20042005 for 1st Source's chief executive officer and
each of 1st Source's other four most highly compensated executive officers.
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation
Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h)
Securities
Other Annual Underlying LTIP All Other
Name and Principal Position(1) Year Salary Bonus(2)Bonus (2) Compensation Options (#Sh) Payouts(2) Compensation(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher J. Murphy III 2004 $570,000 $72,440(4) $33,9052005 $589,385 $675,860(4) $31,560 - $70,918 $ 52,033 $622,902(4)74,200(4)
Chairman, President & CEO, 2004 570,000 72,440(5) 33,905 - 52,033 622,902(5)
1st Source, and Chairman 2003 570,000 -(5)- 27,996 - 43,550 977,487(5)
1st Source, and Chairman 2002 565,659 - 27,990 - 129,017 14,000(6)
& CEO, 1st Source Bank
Wellington D. Jones III 2005 327,577 79,637 30,334 - 25,630 24,950
Executive Vice President 2004 315,452 61,898 26,453 - 18,520 16,152
Executive Vice1st Source, and President 2003 306,500 17,500 18,377 - 14,422 14,000
1st Source, and President 2002 303,683 - 20,191 4,843 41,538 14,000
& COO, 1st Source Bank
Allen R. Qualey 2005 220,000 42,199 8,354 - 17,806 24,950
President and COO, 2004 220,000 29,357 6,865 - 14,992 16,152
President and COO,Specialty Finance Group, 2003 220,000 - 5,415 - 11,708 14,000
Specialty Finance Group, 2002 217,846 - 5,592 - 34,711 14,000
1st Source Bank
Richard Q. Stifel 2005 219,582 44,046 7,552 - 12,897 24,950
Executive Vice President, 2004 204,000 45,667 6,331 - 9,142 16,152
Executive Vice President,Business Banking Group, 2003 200,220 10,000 3,066 - 7,102 14,000
Business Banking Group, 2002 196,724 - 5,764 562 20,036 14,000
1st Source Bank
John B. Griffith 2005 247,915 47,942 5,131 - 30,675 24,950
Senior Vice President, 2004 237,798 34,304 4,222 - 22,349 16,152
Senior Vice President,General Counsel and Secretary 2003 217,913 20,000 3,109 - 17,433 14,000
General Counsel and Secretary 2002 210,972 20,000 3,471 - 5,693 9,053
9
(1) Mr. Murphy, Mr. Jones Mr. Qualey and Mr. Stifel signed employment agreements in April
1998. Mr. Griffith signed an employment agreement in March 2001. Mr.
Murphy's agreement provides for a $570,000$598,000 base salary at December 31,
2004,2005, with annual increases of not less than 5% each year, and cash bonus
payments based on a formula computed in a manner similar to the awards to
executives under the Executive Incentive Plan and Long-Term Executive Award
Program. Mr. Murphy waived his right to a base salary
increase in 2004. Under the other fourthree agreements, Mr. Jones, Mr. Qualey, Mr. Stifel and Mr.
Griffith receive base salaries of $318,750, $220,000,
$204,000$331,500, $231,132 and $241,000,$250,650,
respectively, at December 31, 2004,2005, with annual increases each year as may
be determined by 1st Source, and cash and stock bonuses determined under
the Executive Incentive Plan and the Long-Term Executive Award Program. The
agreements permit gross-up payments necessary to cover possible excise tax
payments by the Executives and to reimburse the Executives for legal fees
that might be expended in enforcing the agreements' provisions or
contesting tax issues relating to the agreements' parachute provisions. Mr.
Murphy's agreement is a five-year agreement which is extended an additional
year each year unless either party gives notice not to extend. The
agreements for Mr. Jones and Mr. Stifel expire on December 31, 2005.2006. Mr.
Griffith's agreement expires on March 31, 2005.2006. In each case the
Executive's agreement will be extended from year to year thereafter unless
either party gives notice not to extend. Mr. Qualey's
agreement expired on December 31, 2004 in accordance with its terms. 1st
Source has agreed to continue the financial terms of Mr. Qualey's former
agreement while he and the company consider the most appropriate future
arrangement. Simultaneously, the incentive programs for the Specialty
Finance Group which Mr. Qualey heads are being reviewed and revised with
the assistance of an outside consulting firm. If an Executive terminates
employment because of any adverse change in his status, he will continue to
receive his base salary for a period of twelve months after his
termination. If an Executive terminates employment within one year of a
change in control (which term includes any third party which becomes
beneficial owner of 50%, or in the case of Mr. Murphy, 20% or more of the
outstanding stock of 1st Source, the election of a majority of new
directors in connection with a sale, merger, other business combination or
contested Board of Directors election, or any approval of any transaction
which results in a disposition of substantially all of the assets of 1st
Source), he will receive severance pay in cash equal to 2.99 times his
"Annualized Includable Compensation" (as defined under the Internal Revenue
Code of 1986, as amended.) The agreements also include restrictive
covenants which require, among other things, that the Executives not
compete with 1st Source in bank or bank-related services within certain
designated counties of Indiana and not divulge confidential information or
trade secrets for a twenty-four month period (in the agreement of Mr.
Griffith, an unlimited period with respect to confidential information or
trade secrets) after termination of employment. In the event of disability,
an Executive will receive his base salary for up to one year, in addition
to other disability programs in effect for all officers of 1st Source.
(2) 1st Source has an Executive Incentive Plan (the "Plan") and the 1998
Performance Compensation Plan which are administered by the Executive
Compensation Committee (the "Committee") of the Board. Awards under the
Plan consist of cash and "Book Value" and "Market Value" shares of Common
Stock. "Book Value" shares are awarded annually on a discretionary basis
and typically are subject to forfeiture over a period of five (5) years. In
2003, the Executive Compensation Committee extended, subject to Board and
shareholder approval, the forfeiture period for the award made in 1997 by
four (4) years for all members of the Executive Incentive Plan except Mr.
Murphy, Mr. Jones and Mr. Qualey, who forfeited the remaining 20% of that
award. It also extended the forfeiture period for the awards made in 1998,
1999, 2000 and 2001 by four (4) years for all members of the Executive
Incentive Plan except Mr. Murphy, who forfeited the remaining 60% of the
1998 award in January 2004 and the remaining 100% of the 1999 awardand 2000
awards in January 2005.2005 and January 2006 respectively. "Book Value" shares
may only be sold to 1st Source, and such sale is mandatory in the event of
death, retirement, disability or termination of employment. 1st Source may
terminate or extend the Plan at any time. During February 2006, February
2001 and February 1996, 1st Source granted special long-term incentive
awards (the "Awards") to participants in the Executive Incentive Plan
administered by the Committee. The 2006 Award was granted for the
attainment of the company's long-term goals for 2005, which were set in
2000. The 2001 Award was granted for the attainment of the company's
long-term goals for 2000, which were set in 1995. The 1996 Award was
granted for the attainment of the company's long-term goals for 1995 which
were set in 1990. Each Award was split between cash and 1st Source Common
Stock valued at the market price at the time of the award. Such shares are
subject to forfeiture over a period of ten (10) years. The first 10% of
these shares was vested at the grant of the Award. Subsequent vesting
requires (i) the participant to remain an employee of 1st Source and (ii)
that 1st Source be profitable on an annual basis based on the determination
of the Committee.
1st Source also has a Restricted Stock Award Plan (the "Restricted
Plan") for key employees. Awards under the Restricted Plan are made to
employees recommended by the Chief Executive Officer and approved by the
Committee. 10
Shares awarded under the Restricted Plan are subject to
forfeiture over a four (4) to ten (10) year period. Vesting is based upon
meeting certain criteria, including continued employment with 1st Source.
10
The bonus amounts shown represent the annual cash awards under the Plan,
the 1998 Performance Compensation Plan and other cash bonuses. Vested stock
under the Plan, the Awards and the Restricted Plan are included in the LTIP
Payouts column. The value placed on "Book Value" shares is the book value
per share as of December 31 of each year. The value placed on market value
shares is market value as of December 31 of each year. Mr. Murphy receives
this vested amount in cash.
Unvested stock holdings under the Plan, the Awards and the Restricted Plan
as of December 31, 2004,2005, are as follows:
Name
Book Value Market Value Calculated
Name Shares Shares Value
- --------------------------------------------------------------------------------
Christopher J. Murphy III 17,401 10,037 $530,28417,737 9,258 $529,401
Wellington D. Jones III 18,256 3,611 379,83121,857 4,035 466,929
Allen R. Qualey 12,581 3,051 276,10814,665 2,960 319,643
Richard Q. Stifel 4,304 1,501 106,12210,603 1,582 217,069
John B. Griffith 3,535 2,570 121,2726,810 2,036 165,069
(3) Amounts shown in "All Other Compensation" for Mr. Jones, Mr. Qualey, Mr.
Stifel, and Mr. Griffith represent 1st Source contributions to defined
contribution retirement plans.
(4) $606,750$49,250 of the amount shown in the "All Other Compensation" column for Mr.
Murphy for 20042005 is the amount Mr. Murphy earned as apart of his bonus for
20042005 under the 1998 Performance Compensation Plan. This amount served to
satisfy part
of the Company's remaining commitment to reimburse Mr. Murphy for his
additional tax liability related to the 2003 termination of the
split-dollar insurance benefit, discussed further in (5) below. The
remaining $16,152$24,950 shown in "All Other Compensation" represents 1st Source
contributions to defined contribution retirement plans.
(5) Mr. Murphy did not receive a cash bonus for 2003. The amountamounts in the "All
Other Compensation" column for Mr. Murphy for 2003 and 2004 largely relatesrelate
to termination at the end of 2003 of the split-dollar insurance benefit for
which 1st Source has been obligated to Mr. Murphy since 1998. Because of
changes in the tax treatment and other regulations affecting split-dollar
insurance arrangements, 1st Source and Mr. Murphy agreed to terminate the
existing split-dollar insurance benefit on terms that also satisfied the
company's obligation to him under the 1998 Performance Compensation Plan.
Mr. Murphy earned a bonus for 2003 under the 1998 Performance Compensation
Plan of $478,850. At the direction of the Executive Compensation Committee
of the Board, and by agreement with Mr. Murphy, the company's obligation
for such bonus, as well as its obligation to fund premiums for the life
insurance benefit, were fully satisfied by the company's assignment to Mr.
Murphy (or his designee) of its right to receive repayment out of any death
benefit of the aggregate amount of previously funded premiums for the
policy. $963,487 of the $977,487 included in "All Other Compensation" for
2003 for Mr. Murphy directly relates to the termination of the split-dollar
arrangement. Of the $963,487, $758,478 reflects the value of the premium
receivables assigned to Mr. Murphy. The company paid the remaining $205,009
to satisfy a loan against the cash surrender value of the policy used by
Mr. Murphy's designee trust to fund the 2002 premium for the policy. In
connection with termination of the split-dollar arrangement, Mr. Murphy
incurred a tax liability on the $963,487 distribution. Because the taxes
were not envisioned when 1st Source awarded the split-dollar insurance
benefit to Mr. Murphy in 1998, the Executive Compensation Committee also
decided to reimburse Mr. Murphy for his payment of such taxes. The
Committee and Mr. Murphy agreed that any amounts up to $656,000 he may earnearned
in 2004 or subsequent years, if needed, under the 1998 Performance
Compensation Plan will alsowould serve to satisfy the Company's commitment to
reimburse this additional tax liability. The foregoing, including final payment$606,750 of the tax liability eitheramount shown in
"All Other Compensation" for 2004 or a subsequent year, fully satisfies all
obligations tois the amount Mr. Murphy earned as a
bonus for 2004 under the split-dollar insurance benefit.1998 Performance Compensation Plan and served as a
partial reimbursement by the Company of this additional tax liability. The
remaining $16,152 and $14,000 shown in "All Other Compensation" for 2004
and 2003, respectively, represents 1st Source contributions to defined
contribution retirement plans.
11
(6) The $14,000 shown in "All Other Compensation" in 2002 for Mr. Murphy
represent 1st Source contributions to defined contribution retirement
plans.
EXECUTIVE INCENTIVE PLAN -- AWARDS FOR LAST FISCAL YEAR
Number of Performance Period(1)
Name Book Value Shares until Payout
- --------------------------------------------------------------------------------
Christopher J. Murphy III 4,597
EXECUTIVE INCENTIVE PLAN -- AWARDS FOR LAST FISCAL YEAR
Number of Performance Period Number of Performance Period
Name Book Value Shares until Payout(1) Market Value Shares until Payout(2)
Christopher J. Murphy III 8,218 5 years 2,223 10 years
Wellington D. Jones III 3,832 5 years 1,429 10 years
Allen R. Qualey 2,084 5 years 675 10 years
Richard Q. Stifel 2,189 5 years 561 10 years
John B. Griffith 2,221 5 years 562 10 years
Wellington D. Jones III 3,928 5 years
Allen R. Qualey 1,863 5 years
Richard Q. Stifel 1,629 5 years
John B. Griffith 2,177 5 years
(1) Vesting of awards is tied to 1st Source achieving targeted annual increases
in net income over the next five years. Twenty percent (20%) of the award
vests each year based on attaining the performance.
(2) Vesting of awards is tied to 1st Source being profitable on an annual basis
as determined by the Committee. Ten percent (10%) of the award vests each
year based on attaining the performance. The first 10% was vested at the
time of the award. The stock value from this initial vesting (calculated
using 1st Source's December 31, 2005 closing price of $25.15) is included
in the 2005 bonus amount on the Summary Compensation Table.
PENSION PLAN BENEFITS
Annual pension benefits payable to executive officers after their
retirement under annuity contracts received from the terminated Pension Plan are
as follows:
Annual Pension
Name Benefits
-----------------------------------------------------
Christopher J. Murphy III $17,078
Wellington D. Jones III 6,694
Richard Q. Stifel 3,879
EXECUTIVE COMPENSATION AND HUMAN RESOURCES COMMITTEE REPORT
1st Source officers are reviewed annually by their immediate supervisor. The
review includes an assessment of management performance and achievement of
individual, group and Company goals. In 2003, reviews for the three most senior
officers were delayed by at least one year.
The performance review is a normal part of 1st Source's Salary Administration
Program. Positions are rated and placed in a salary range. Annually, with the
Board's approval, management establishes a salary performance grid that sets the
range of merit increases that may be given to officers depending on individual
performance and position (lower, middle or upper third) in the respective salary
range.
The categories of performance under the Company's review program are:
o Substantially and consistently exceeds job requirements
o Often exceeds job requirements
o Meets and sometimes exceeds job requirements
o Meets some job requirements, improvement is required
o Does not meet minimal job requirements
12
Management awards salary increases as determined under the guidelines of the
Salary Administration Program in conformance with the salary performance grid in
effect for the year and the annual budget.
12
All of the officers reported herein, including Mr. Murphy, are under the
1st Source Salary Administration Program. In Mr. Murphy's case, he is evaluated
by us against a series of objectives set in the Company's annual budget plan and
in its long-term strategic plan as approved each year by our full Board. In
February 2005, we reviewed Mr. Murphy's salary. Under his employment contract
described elsewhere in this proxy statement, Mr. Murphy has a right to receive a
minimum annual increase of 5%. In 2002 and 2003 Mr. Murphy waived his right to these 5%
increases and, upon his recommendation, we granted no increase. We had intended
to review Mr. Murphy in the second quarter of 2004 but, upon his recommendation,
deferred his review until early 2005. At that time we assessed Mr. Murphy's
performance in dealing with the challenges facing the Company and his leadership
efforts and granted him a 5% increase. In February 2006, Mr. Murphy again waived
his right to a 5% increase. At that time we reviewed Mr. Murphy's salary based
on his 2005 performance and the Company's performance vs. the objectives set in
the Company's annual budget plan and, using the salary performance grid as is
used for all officers, granted him a 3.7% increase.
Bonuses under 1st Source's Executive Incentive Plan (EIP) are determined
annually following the close of the year. The bonus is calculated based on the
officer's "partnership level" adjusted for the Company's performance relative to
plan and for the individual's performance relative to weighted objectives set by
the individual and his or her supervisor at the beginning of the year. In Mr.
Murphy's case, the base bonus is calculated at a "partnership level" of 25% of
his salary. For each 1% that the Company varies from its profit plan for the
year, the base bonus is adjusted up or down by 2.5%. Since the Company performed
slightly aboveat approximately its plan for the year and generally met its qualitative and
other quantitative objectives, Mr. Murphy was awarded $144,880$274,785 in 20052006 for 20042005
performance.
Under the terms of the EIP, 50% of an Executive Incentive Plan bonus is
paid in cash at the time of the award. The other 50% is paid in book value stock
and is subject to forfeiture over the succeeding five (5) years. The forfeiture
lapses ratably for each year the employee remains with the Company and for each
year, or period of years, the Company grows its net income by a targeted minimum
per year. During this period, the "at risk" portion of the bonus, delineated in
book value stock, is transferred to the participant as the forfeiture period
lapses. In Mr. Murphy's case, while determined in book value stock, the award is
paid in cash as the forfeiture lapses. Due to the Company's performance in 2002,
the remaining 20% of the award made in 1997 would be forfeited. In early 2003
Mr. Murphy asked that the forfeiture period for these awards be extended for
four (4) years for all members of the Executive Incentive Plan except himself,
Mr. Jones, and Mr. Qualey, as they are the most senior officers of the
Corporation with credit and management authority and should bear full
responsibility for the Company's performance. The recommendation for the
extension was made in an effort to encourage the management team throughout the
Company to accelerate their efforts to return 1st Source to its historic
earnings levels. We approved this extension, as did the Board of Directors, and
the Shareholders. We also extended the forfeiture period for the awards made in
1998, 1999, 2000 and 2001 by four (4) years for all members of the Executive
Incentive Plan except Mr. Murphy, who forfeited the remaining 60% of the 1998
award in January 2004 and the remaining 100% of the 1999 awardand 2000 awards in
January 2005.2005 and January 2006, respectively. 100% of Mr. Murphy's 2000
and 2001 awardsaward
will likely be forfeited in January 2007.
In addition, bonuses under 1st Source's special long-term incentive award
program were determined following the end of 2005 for the current five-year
period. The bonus is calculated based on a pre-determined mathematical formula
which compares Company performance relative to the 2005 long-term goals set in
2000 adjusted for the officer's "partnership level" and for the individual's
performance over the five-year period. The Company largely achieved its
long-term credit quality goals and partially achieved its long-term
profitability goals. Accordingly, based on this application of the mathematical
formula to the Company's performance in 2005, Mr. Murphy was awarded a bonus of
$74,536 for 2001 to 2005 performance.
Under the Company's Executive Incentive Plan, 32.5% of this award will be paid
in cash in March 2006 and January 2007,
respectively.to Mr. Murphy. The other 67.5% will be subject to
forfeiture over the next nine (9) years. During this period, the "at risk"
portion of the bonus is delineated in market value stock but is paid in cash to
Mr. Murphy as the forfeiture lapses.
Mr. Murphy was also eligible for a cash bonus under the 1998 Performance
Compensation Plan based on goals established by us at the beginning of 2004.2005. For
2004,2005, the award level set was up to 2.5% of net income, or the same percentage
as set for the five (5)six (6) previous years. Under the terms of that plan, Mr. Murphy
earned a bonus of $606,750.$514,250. As discussed in our report for 20032004 in last year's
proxy as well as footnotes (4) and (5) to the Summary Compensation Table above,
the
payment$49,250 of this bonus for 20042005 served to satisfy part of the Company's remaining
commitment to reimburse Mr. Murphy's additional tax liability related to
termination of his split-dollar insurance benefit at the end of 2003.
13
EXECUTIVE COMPENSATION AND HUMAN RESOURCES COMMITTEE
Timothy K. Ozark, Chairman
William P. Johnson Rex Martin
Toby S. Wilt
13
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The persons named above were the only persons who served on the Executive
Compensation Committee of the Board of Directors during the last fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
There have been no option grants to executive officers in the last fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 20042005 OPTION VALUES
(a) (b) (c) (d) (e)
Number of Value of Unexercised
Securities Underlying In-the-Money
Unexercised Options at Options at
December 31, 20042005 December 31, 20042005
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Christopher J. Murphy III 167,615 $2,839,130- $ - 121,275 - $ - -
Wellington D. Jones III 4,569 46,321- - 65,481 - 23,05321,309 -
Allen R. Qualey 6,410 80,162 90,6538,675 86,820 81,978 - 340,715219,666 -
Richard Q. Stifel 13,324 211,396 52,7258,171 94,360 44,554 - 213,559103,838 -
John B. Griffith - - 12,500 12,500 32,000 32,00016,667 8,333 36,667 18,333
14
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG 1ST SOURCE, NASDAQ MARKET INDEX** AND PEER GROUP INDEX***
31-Dec-99 31-Dec-00 31-Dec-01 31-Dec-02 31-Dec-03 31-Dec-04 31-Dec-05
1st Source 100 78 95 78 103 124121 100 131 158 159
NASDAQ Index 100 63 50 35 53 5780 56 84 91 93
Peer Group 100 122 123 118 151 161101 97 124 132 127
* Assumes $100 invested on December 31, 1999,2000, in 1st Source Corporation
common stock, NASDAQ market index, and peer group index.
** The NASDAQ Market Index is calculated using all companies which trade on
the NASDAQ National Market System or on the NASD Supplemental Listing. It
includes both domestic and foreign companies.
*** The peer group is a market-capitalization-weighted stock index of 117115
banking companies in Indiana, Illinois, Michigan, Ohio, and Wisconsin.
NOTE: Total return assumes reinvestment of dividends.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Securities Exchange Act of 1934 requires executive officers and directors to
file reports of ownership and changes in ownership of 1st Source Corporation
stock with the Securities and Exchange Commission and to furnish 1st Source with
copies of all reports filed. Based solely on a review of the copies of such
reports furnished to 1st Source and written representations from the executive
officers and directors that no other reports were required, 1st Source believes
that all filing requirements were complied with during the last fiscal year,
except that Mr. Griffith, Mr. Jones, Mr. Lentych, and Mr. Stifel each filed late
one report for one transaction.year.
15
RELATIONSHIP WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The financial statements of 1st Source are audited annually by an independent
registered public accounting firm. For the year ended December 31, 20042005 and the
four (4)five (5) preceding years, the audit was performed by Ernst & Young LLP. Fees for
professional services provided by Ernst & Young LLP for the last two years were
as follows:
2005 2004
2003
- ------------------------------------------------------------------------------------------------------------------------------
Audit Fees(1) $358,700 $200,500Fees $520,000 $533,700
Audit-Related Fees 88,886 94,87065,995 92,786
Tax Fees 980 8,500 11,610
Other Fees - 1,500
- ============================================ ============
Total(1) $456,086 $306,980
============================================---------------------------------------------------------------------
Total $586,975 $636,486
======================================================== ============
(1) The amounts shown include fees billed through March 14, 2005.February 17, 2006. Management
and Ernst & Young LLP expect to meet in the near future to determine a
final fee for Ernst & Young's 2004 audit and its attestation report on
management's assessment of internal control over financial reporting.
Audit fees included fees associated with the annual audit and the reviews of 1st
Source's quarterly reports on Form 10-Q. Audit-related fees included fees for
pension and statutory audits and accounting consultations. Tax fees included
review of 1st Source's federal and state tax returns and tax advice on other
federal and state tax issues.
In 20042003 the Audit Committee adopted an Audit and Non-Audit Services
Pre-Approval Policy covering services performed by 1st Source's independent
registered public accounting firm. Under this policy the annual audit services
engagement terms and fees are subject to the specific pre-approval of the Audit
Committee. The Audit Committee will approve, if necessary, any changes in terms,
conditions and fees resulting from changes in audit scope, company structure, or
other matters. Any other services provided by the independent registered public
accounting firm will require specific pre-approval by the Audit Committee unless
the type of service has received general pre-approval from the Audit Committee.
In addition, a pre-approved type of service will require specific pre-approval
if the current year fee level for the type of service will exceed the approved
fee level established annually by the Audit Committee. Requests or applications
to provide services that require approval by the Audit Committee will be
submitted to the Audit Committee by both the independent registered public
accounting firm and the Chief Financial Officer, and must include a joint
statement as to whether, in their view, the request or application is consistent
with the SEC's rules on auditor independence. All fees paid to the independent
registered public accounting firm for their 20042005 services were pre-approved by
the Audit Committee in accordance with this policy.
Representatives of the firm of Ernst & Young LLP will be available to respond to
questions during the Annual Meeting. These representatives have indicated that
they do not presently intend to make a statement at the Annual Meeting. 1st
Source intends to retain Ernst & Young LLP as its independent registered public
accounting firm for the year ending December 31, 2005,2006, pending approval of fees
by the Audit Committee and execution of an engagement letter.
PROPOSALS OF SECURITY HOLDERS
Proposals submitted by security holders for presentation at the next Annual
Meeting must be submitted in writing to the Secretary, 1st Source Corporation,
on or before November 4, 2005.3, 2006.
16
ADDITIONAL INFORMATION
As to the proposals presented for approval, a plurality of the shares voted is
required for approval.
A COPY OF 1ST SOURCE'S MOST RECENT ANNUAL REPORT ON FORM 10-K WILL BE PROVIDED,
WITHOUT CHARGE (EXCEPT FOR EXHIBITS), ON WRITTEN REQUEST TO: TREASURER, 1ST
SOURCE CORPORATION, POST OFFICE BOX 1602, SOUTH BEND, INDIANA 46634.
A copy of 1st Source's Annual Report on Form 10-K is furnished herewith to
Shareholders for the calendar year ended December 31, 2004,2005, containing financial
statements for such year. The financial statements and the Report of Independent
Registered Public Accounting Firm are incorporated by reference in this Proxy
Statement.
By Order of the Board of Directors,
John B. Griffith
Secretary
South Bend, Indiana
March 21, 200517, 2006
17
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Christopher J. Murphy III, Wellington D. Jones
III, and John B. Griffith and each of them Proxies; to represent the
undersigned, with full power of substitution, at the Annual Meeting of
Shareholders of 1st Source Corporation to be held on April 28, 200527, 2006 and at any
and all adjournments thereof.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below (except as marked to the contrary)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
INSTRUCTION: to withhold authority to vote for any individual nominee, strike a
line through or otherwise strike the nominee's name in the list below.
Term Expires April, 2008:
Lawrence E. Hiler Rex Martin Christopher J. Murphy III Timothy K. Ozark2009:
Terry L. Gerber William P. Johnson Craig A. Kapson
John T. Phair Mark D. Schwabero
2. SUCH OTHER BUSINESS AS MAY PROPERLY BE BROUGHT BEFORE THE MEETING.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting.
1st Source Corporation
Post Office Box 1602
South Bend, Indiana 46634
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ALL NOMINEES LISTED IN PROPOSAL 1.
Please sign exactly as shares are registered. When shares are held by joint
tenants, both should sign. When signing as attorney, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
================================================================================
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
Signature__________________________________________________________
Signature (if held jointly)________________________________________
Date_______________________________________________________________
================================================================================