1st Source (SRCE) 8-K Results of Operations and Financial Condition

For:           Immediate Release                                                                                     Contact:                      Larry Lentych

  July 24, 2008                                                                                                                                    Andrea Short

            574 235 2000

1ST SOURCE CORPORATION REPORTS 2ND QUARTER EARNINGS,

DIVIDEND ANNOUNCED

South Bend, IN -- 1st Source Corporation (Nasdaq:SRCE), parent company of 1st Source Bank, today reported net income of $7.25 million for the second quarter of 2008 compared to the $8.06 million reported in the second quarter of 2007. For the first six months of 2008, net income for 1st Source Corporation was $16.60 million, relatively even with the $16.58 million reported for the same period in 2007.

Diluted net income per common share for the second quarter of 2008 amounted to $0.30 compared with $0.34 reported for the second quarter of 2007. Diluted net income per share for the first two quarters of 2008 was $0.68 compared to $0.72 reported for the same period a year ago.

Christopher J. Murphy III, Chairman and Chief Executive Officer, reported at its July meeting, the Board of Directors approved a cash dividend of $0.14 per share. The cash dividend will be payable to shareholders of record on August 5, 2008 and paid on August 15, 2008.

Mr. Murphy commented, “I am pleased with the results of the quarter as we strengthened reserves; had very low charge-offs; built capital; added customers, loans and investment assets; and completed the merger of our operations in Valparaiso. As we look across the industry, especially at what is happening to the large commercial and investment banks, I am thankful that we stuck to strong and basic lending principles.  We have no Alt A or sub-prime mortgages; a very large majority of the mortgages we have made are in the communities we serve.  We have not been a large lender in the residential or commercial real estate development business. Our commercial and business mortgage portfolio is primarily owner occupied in the Midwest markets we know.”

          “1st Source entered the quarter with strong reserves and experienced low charge-offs. Always mindful of the problems impacting our customers, we further built our reserve for loan and lease losses to 2.16% at the end of the quarter compared to 2.00% in the same period a year ago.  Charge-offs from loans and leases were only 0.03% for the quarter and 0.06% for the first half of 2008. While there was an increase in our non-performing asset ratio, it only rose to 0.83% of loans and leases and our over 30 day delinquencies were a low 0.37%.  So the addition to the reserve, an impairment charge in Freddie Mac preferred stock, and costs associated with our merger led to a slightly lower quarter. Having said that, much was accomplished that positions us well for the future,” Mr. Murphy concluded.

           As of June 30, 2008, the 1st Source common equity-to-assets ratio was 9.82 percent compared to 9.45 percent a year ago.  Total assets at June 30, 2008, were $4.48 billion, basically even with a year ago. Total loans and leases were $3.31 billion, up 5.73 percent from June 30, 2007.  Total deposits were $3.37 billion, down 6.15 percent from the comparable figures at June 30, 2007.

1st Source’s reserve for loan and lease losses as of June 30, 2008, was 2.16 percent of total loans and leases compared to 2.00 percent at June 30, 2007.  Net charge-offs were $0.22 million in the second quarter 2008, compared to net recoveries of $0.52 million for the same quarter a year ago.  Year-to-date net charge-offs of $0.94 million have been recorded in 2008, compared to net recoveries of $1.04 million for the first half of 2007. The ratio of nonperforming assets to net loans and leases was 0.83 percent on June 30, 2008, compared to 0.49 percent on June 30, 2007.

The net interest margin improved and was 3.38 percent for the second quarter of 2008 versus 3.16 percent for the same period in 2007. The net interest margin was 3.35 percent for the six months ending June 30, 2008, versus 3.17 percent for the same period in 2007. Tax-equivalent net interest income was $34.03 million for the second quarter of 2008, up 14.94 percent from 2007’s second quarter. For the first six months of 2008, tax-equivalent net interest income was $67.25 million compared to $56.58 million for the first six months of 2007, an increase of 18.87 percent.

 Noninterest income for the second quarter of 2008 was $20.37 million, up 6.80 percent from the same period in 2007. For the first six months, noninterest income was $41.39 million, up 13.23 percent from 2007.  Noninterest income increased in most categories for the second quarter and year-to-date 2008 as compared to the same periods in 2007.  The only significant category that decreased for the second quarter and year-to-date 2008 as compared to the same periods in 2007 was investment securities and other investment (losses) gains due to the $0.94 million in impairment charges on investments in FHLMC (Freddie Mac) preferred stock taken in the second quarter of 2008.

Noninterest expense was $38.40 million for the second quarter of 2008, compared with $34.45 million for the second quarter of 2007.  For the first six months, noninterest expense was $76.30 million, compared with $66.25 million for the same period in 2007.  The leading factor in the change was increased expenses in all categories in 2008 due to the May 31, 2007 acquisition of First National Bank, Valparaiso.

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 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 79 banking centers in 17 counties, 24 locations nationwide for the 1st Source Bank Specialty Finance Group, seven Trust and Wealth Management locations plus six 1st Source Insurance offices. With a history dating back to 1863, 1st Source Bank has a tradition of providing superior service to clients while playing a leadership role in the continued development of the communities in which it serves.

     1st Source may be accessed on its home page at “www.1stsource.com.”  Its common stock is traded on the Nasdaq Global Select Market under "SRCE" and appears in the National Market System tables in many daily newspapers under the code name "1st Src."

          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										Page 4
2nd QUARTER 2008 FINANCIAL HIGHLIGHTS
(Unaudited - Dollars in thousands, except for per share data)
	Three Months Ended June 30						Six Months Ended June 30
	2008			2007			2008			2007
END OF PERIOD BALANCES
Assets							$	4,477,614		$	4,504,650
Loans and leases								3,313,642			3,134,170
Deposits								3,365,066			3,585,441
Reserve for loan and lease losses								71,698			62,682
Intangible assets								92,535			91,196
Common shareholders' equity								439,622			425,526
AVERAGE BALANCES
Assets	$	4,389,923		$	4,024,910		$	4,375,830		$	3,854,301
Earning assets		4,055,366			3,752,861			4,032,770			3,603,069
Investments		730,281			692,434			747,203			673,889
Loans and leases		3,253,147			2,899,340			3,215,371			2,803,434
Deposits		3,389,977			3,192,247			3,383,851			3,042,150
Interest bearing liabilities		3,485,877			3,195,122			3,480,721			3,062,164
Common shareholders' equity		445,509			396,173			442,629			385,244
INCOME STATEMENT DATA
Net interest income	$	33,124		$	28,871		$	65,421		$	55,143
Net interest income - FTE		34,034			29,611			67,250			56,576
Provision for (recovery of) loan and lease losses		4,493			1,247			6,032			624
Noninterest income		20,367			19,070			41,394			36,556
Noninterest expense		38,395			34,446			76,296			66,246
Net income		7,245			8,060			16,599			16,583
PER SHARE DATA
Basic net income per common share	$	0.30		$	0.35		$	0.69		$	0.73
Diluted net income per common share		0.30			0.34			0.68			0.72
Cash dividends paid per common share		0.14			0.14			0.28			0.28
Book value per common share		18.23			17.43			18.23			17.43
Market value - High		22.62			27.92			22.62			32.62
Market value - Low		16.10			23.32			15.13			23.32
Basic weighted average common shares outstanding		24,105,746			23,127,790			24,101,010			22,818,015
Diluted weighted average common shares outstanding		24,386,218			23,423,121			24,384,170			23,113,159
KEY RATIOS
Return on average assets		0.66	%		0.80	%		0.76	%		0.87	%
Return on average common shareholders' equity		6.54			8.16			7.54			8.68
Average common shareholders' equity to average assets		10.15			9.84			10.12			10.00
End of period tangible common equity to tangible assets		7.92			7.58			7.92			7.58
Net interest margin		3.38			3.16			3.35			3.17
Efficiency: expense to revenue		66.43			68.15			67.16			68.60
Net charge-offs to average loans and leases		0.03			(0.07	)		0.06			(0.07	)
Loan and lease loss reserve to loans and leases		2.16			2.00			2.16			2.00
Nonperforming assets to loans and leases		0.83			0.49			0.83			0.49
ASSET QUALITY
Loans and leases past due 90 days or more							$	929		$	205
Nonaccrual and restructured loans and leases								20,807			10,274
Other real estate								1,079			2,856
Former bank premises held for sale								4,181			-
Repossessions								1,091			2,183
Equipment owned under operating leases								57			170
Total nonperforming assets								28,144			15,688

1st SOURCE CORPORATION				Page 5
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - Dollars in thousands)
	June 30, 2008			June 30, 2007
ASSETS
Cash and due from banks	$	126,208		$	97,691
Federal funds sold and
interest bearing deposits with other banks		29,116			196,232
Investment securities available-for-sale
(amortized cost of $710,264 and $782,903 at
June 30, 2008 and 2007, respectively)		712,436			779,667
Other investments		18,612			14,937
Trading account securities		150			-
Mortgages held for sale		35,883			25,599
Loans and leases, net of unearned discount:
Commercial and agricultural loans		669,867			567,932
Auto, light truck and environmental equipment		349,182			350,254
Medium and heavy duty truck		270,141			329,103
Aircraft financing		579,131			535,362
Construction equipment financing		398,888			362,654
Loans secured by real estate		908,364			834,153
Consumer loans		138,069			154,712
Total loans and leases		3,313,642			3,134,170
Reserve for loan and lease losses		(71,698	)		(62,682	)
Net loans and leases		3,241,944			3,071,488
Equipment owned under operating leases, net		82,517			79,082
Net premises and equipment		40,888			50,847
Goodwill and intangible assets		92,535			91,196
Accrued income and other assets		97,325			97,911
Total assets	$	4,477,614		$	4,504,650
LIABILITIES
Deposits:
Noninterest bearing	$	385,967		$	380,681
Interest bearing		2,979,099			3,204,760
Total deposits		3,365,066			3,585,441
Federal funds purchased and securities
sold under agreements to repurchase		228,853			241,578
Other short-term borrowings		257,141			22,874
Long-term debt and mandatorily redeemable securities		34,825			44,199
Subordinated notes		89,692			100,260
Accrued expenses and other liabilities		62,415			84,772
Total liabilities		4,037,992			4,079,124
SHAREHOLDERS' EQUITY
Preferred stock; no par value		-			-
Common stock; no par value		342,976			342,840
Retained earnings		127,328			110,220
Cost of common stock in treasury		(32,031	)		(25,524	)
Accumulated other comprehensive income (loss)		1,349			(2,010	)
Total shareholders' equity		439,622			425,526
Total liabilities and shareholders' equity	$	4,477,614		$	4,504,650

1st SOURCE CORPORATION									Page 6
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - Dollars in thousands)
	Three Months Ended June 30					Six Months Ended June 30
	2008			2007		2008			2007
Interest income:
Loans and leases	$	50,348		$	53,078	$	103,611		$	101,352
Investment securities, taxable		5,945			5,991		12,392			11,721
Investment securities, tax-exempt		1,926			1,721		4,031			3,138
Other		360			1,542		669			2,074
Total interest income		58,579			62,332		120,703			118,285
Interest expense:
Deposits		21,649			28,795		46,769			54,065
Short-term borrowings		1,798			2,572		4,179			5,262
Subordinated notes		1,647			1,296		3,419			2,390
Long-term debt and mandatorily redeemable securities		361			798		915			1,425
Total interest expense		25,455			33,461		55,282			63,142
Net interest income		33,124			28,871		65,421			55,143
Provision for loan and lease losses		4,493			1,247		6,032			624
Net interest income after provision for loan and lease losses		28,631			27,624		59,389			54,519
Noninterest income:
Trust fees		4,954			3,871		9,216			7,514
Service charges on deposit accounts		5,764			5,226		10,872			9,796
Mortgage banking income		1,417			1,059		2,534			1,630
Insurance commissions		1,092			938		3,038			2,576
Equipment rental income		5,760			5,287		11,509			10,385
Other income		2,446			2,482		4,668			4,201
Investment securities and other investment (losses) gains		(1,066	)		207		(443	)		454
Total noninterest income		20,367			19,070		41,394			36,556
Noninterest expense:
Salaries and employee benefits		19,065			18,153		39,699			35,719
Net occupancy expense		2,481			2,149		4,957			4,085
Furniture and equipment expense		3,883			3,748		7,861			6,842
Depreciation - leased equipment		4,609			4,243		9,225			8,319
Professional fees		2,522			1,267		3,680			2,168
Supplies and communication		1,682			1,512		3,351			2,784
Business development and marketing expense		1,000			1,416		1,643			2,274
Other expense		3,153			1,958		5,880			4,055
Total noninterest expense		38,395			34,446		76,296			66,246
Income before income taxes		10,603			12,248		24,487			24,829
Income tax expense		3,358			4,188		7,888			8,246
Net income	$	7,245		$	8,060	$	16,599		$	16,583
The Nasdaq Global Select Market Symbol: "SRCE" (CUSIP #336901 10 3)
Please contact us at shareholder@1stsource.com