1st Source 8K Results of Operations and Financial Condition | SRCE 21 Jan 11

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

Exhibit 99.1

1st Source Corporation Announces Record Earnings for Year,

Increased Dividend Declared

South Bend, IN - 1st Source Corporation (Nasdaq:SRCE), parent company of 1st Source Bank, today announced fourth quarter net income of $12.57 million, up 101.94% compared to $6.22 million in the fourth quarter of 2009. For the year of 2010, net income was $41.24 million, an increase of 61.80% over the $25.49 million reported in 2009. The annual net income sets a record as the highest in corporate history.

Diluted net income per common share for the fourth quarter was $0.25, up 31.58% compared to $0.19 per common share reported in the fourth quarter of the previous year. Diluted net income per common share for the year was $1.21, an increase of 53.16% over the $0.79 per common share a year earlier. Diluted net income per common share for the fourth quarter and for the year was negatively impacted by the preferred stock dividends and the accretion of discount on the preferred stock issued to the US Treasury under the TARP program in January 2009 and repurchased in December 2010. Adjusting for these, the diluted net income would have been $0.52 per common share for the fourth quarter of 2010, and $1.70 per common share for the year.

At the January 2011 meeting, the Board of Directors approved a cash dividend of $0.16 per common share, up 6.67% over the dividend declared in the same period a year earlier. The cash dividend is payable on February 15, 2011 to shareholders of record on February 4, 2011.

Christopher J. Murphy, III, Chairman of 1st Source, commented, "I could not be more pleased with our $12.6 million net income for the quarter and $41.2 million for the year, an annual net income record for 1st Source Corporation."

"The quarter was exceptionally busy. We repaid the $111 million Capital Purchase Program investment to the US Treasury with no conditions attached. Many others who paid back TARP funds were required to raise additional capital in the market which in most cases was dilutive to their present shareholders. We did not have to do that, attesting to the strength of the company and the Bank. We are pleased the economy has improved to the point where this extra insurance is no longer needed, and we continue to maintain strong capital and reserve ratios as always. The TARP repayment will save the company $5.55 million annually in after tax dollars, previously paid out in preferred dividends.”

“Also in the quarter, we closed on a new 10-year lease on our downtown South Bend main office that allows us to reduce our space in the building and lower our financial commitment for the term of the contract."

"Credit has improved but is still problematic going forward. We have seen slight improvement in the past year but the economy still has challenges for our personal and business banking clients, as well as some of our specialty finance markets. With that said, business seems to be slowly improving. In the coming year, we will continue to focus on providing advice and counsel to help our clients navigate this complicated financial world we live in, and will provide outstanding customer service. We pride ourselves on being a community bank and have always focused on the basics of providing deposit, investment, insurance and lending services to our neighbors, individuals, businesses, community organizations and loca l governments. I thank my colleagues and our loyal clients for a good year." Mr. Murphy concluded.

1st Source’s reserve for loan and lease losses as of December 31, 2010 was 2.83% of total loans and leases, compared to 2.85% as of December 31, 2009. Net charge-offs were $6.08 million for the fourth quarter 2010, compared to $5.63 million in the fourth quarter 2009. Net charge-offs for the full year were $20.57 million in 2010 compared to $22.64 million in 2009. The ratio of nonperforming assets to net loans and leases was 2.81% on December 31, 2010, compared to 3.15% on December 31, 2009.

The net interest margin was 3.67% for the fourth quarter of 2010 versus 3.27% for the same period in 2009. The net interest margin was 3.59% for the year ending December 31, 2010, versus 3.14% for the same period in 2009. Tax-equivalent net interest income was $39.96 million for the fourth quarter of 2010, compared to $34.49 million for 2009’s fourth quarter. For the twelve months of 2010, tax-equivalent net interest income was $150.87 million, compared to $132.00 million for the twelve months of 2009.

As of December 31, 2010, the 1st Source common equity-to-assets ratio was 10.94%, compared to 10.25% at December 31, 2009 and its tangible common equity-to-tangible assets ratio was 9.12% at December 31, 2010 compared to 8.43% at December 31, 2009. Common shareholders’ equity was $486.38 million, up from $465.39 million a year ago. Total assets at the end of 2010 were $4.45 billion, down 2.13% compared to the same period last year. Total loans and leases at December 31, 2010 were $3.07 billion, down 0.73% and total deposits at December 31, 2010 were $3.62 billion, down 0.81% from the comparable figures at the end of 2009.

Noninterest income for the fourth quarter of 2010 was $22.42 million, up 1.80% compared to $22.02 million for the fourth quarter of 2009. The predominate factors in the fourth quarter change were higher mortgage banking income and other income offset by lower service charges on deposit accounts, equipment rental income and investment securities and other investment gains. For the year, noninterest income was $86.69 million, up 1.36% from the $85.53 million in 2009. The annual increase was primarily due to higher trust fees and other income offset by lower service charges on deposit accounts and mortgage banking income.

Noninterest expense for the fourth quarter of 2010 was $39.94 million, up 3.56% compared to $38.56 million for the fourth quarter of 2009. The leading factors for the fourth quarter increase were higher salaries and employee benefits expense offset by lower loan and lease collection and repossession expense. For the year ending December 31, 2010, noninterest expense was $154.51 million, up 2.24% from $151.12 million one year ago. The annual increase was a result of higher employee salaries and benefits, professional fees, and loan and lease collection and repossession expense offset by reduced FDIC and other insurance (one time FDIC special assessment in 2009) and furniture and equipment expense.

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, 22 specialty finance locations nationwide, 7 trust and wealth management locations, and 7 1st Source Insurance offices. Wi th 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.

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(charts attached)

1st SOURCE CORPORATION
4th QUARTER 2010 FINANCIAL HIGHLIGHTS
(Unaudited - Dollars in thousands, except per share data)
	Three Months Ended						Twelve Months Ended
	December 31						December 31
	2010			2009			2010			2009
END OF PERIOD BALANCES
Assets							$	4,445,281		$	4,542,100
Loans and leases								3,070,623			3,093,150
Deposits								3,622,745			3,652,464
Reserve for loan and lease losses								86,874			88,236
Intangible assets								88,955			90,222
Common shareholders' equity								486,383			465,390
Total shareholders' equity								486,383			570,320

AVERAGE BALANCES
Assets	$	4,651,845		$	4,498,879		$	4,543,702		$	4,505,852
Earning assets		4,325,823			4,178,782			4,207,485			4,199,512
Investments		951,074			884,068			914,253			835,025
Loans and leases		3,087,494			3,067,062			3,109,508			3,154,820
Deposits		3,684,587			3,580,674			3,605,195			3,573,648
Interest bearing liabilities		3,454,799			3,407,214			3,402,199			3,441,922
Common shareholders' equity		495,808			471,535			485,793			468,405
Total shareholders' equity		598,383			576,257			590,464			566,464

INCOME STATEMENT DATA
Net interest income	$	39,162		$	33,531		$	147,497		$	128,212
Net interest income - FTE		39,963			34,487			150,872			131,999
Provision for loan and lease losses		3,443			8,360			19,207			31,101
Noninterest income		22,416			22,020			86,691			85,530
Noninterest expense		39,936			38,564			154,505			151,123
Net income		12,567			6,223			41,244			25,490
Net income available to common shareholders		6,127			4,517			29,655			19,074

PER SHARE DATA
Basic net income per common share	$	0.25		$	0.19		$	1.21		$	0.79
Diluted net income per common share		0.25			0.19			1.21			0.79
Common cash dividends declared		0.16			0.16			0.61			0.59
Book value per common share		20.12			19.30			20.12			19.30
Tangible book value per common share		16.44			15.56			16.44			15.56
Market value - High		20.75			16.60			20.75			23.92
Market value - Low		17.01			13.84			14.25			13.84
Basic weighted average common shares outstanding		24,186,469			24,126,225			24,232,092			24,157,179
Diluted weighted average common shares outstanding		24,195,208			24,130,517			24,239,194			24,163,689

KEY RATIOS
Return on average assets		1.07	%		0.55	%		0.91	%		0.57	%
Return on average common shareholders' equity		4.90			3.80			6.10			4.07
Average common shareholders' equity to average assets		10.66			10.48			10.69			10.40
End of period tangible common equity to tangible assets		9.12			8.43			9.12			8.43
Risk-based capital - Tier 1		14.05			16.43			14.05			16.43
Risk-based capital - Total		15.34			17.72			15.34			17.72
Net interest margin		3.67			3.27			3.59			3.14
Efficiency: expense to revenue		62.10			67.61			63.26			67.59
Net charge-offs to average loans and leases		0.78			0.73			0.66			0.72
Loan and lease loss reserve to loans and leases		2.83			2.85			2.83			2.85
Nonperforming assets to loans and leases		2.81			3.15			2.81			3.15

ASSET QUALITY
Loans and leases past due 90 days or more							$	361		$	628
Nonaccrual loans and leases								74,853			83,537
Other real estate								6,392			4,039
Former bank premises held for sale								1,200			2,490
Repossessions								5,670			10,165
Equipment owned under operating leases								236			154
Total nonperforming assets								88,712			101,013

1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - Dollars in thousands)
	December 31, 2010			December 31, 2009
ASSETS
Cash and due from banks	$	62,313		$	72,872
Federal funds sold and interest bearing deposits with other banks		36,394			141,166
Investment securities available-for-sale
(amortized cost of $952,101 and $893,439 at December 31, 2010 and 2009, respectively)		969,018			901,638
Other investments		19,508			21,012
Trading account securities		138			125
Mortgages held for sale		32,599			26,649

Loans and leases, net of unearned discount:
Commercial and agricultural loans		530,228			546,222
Auto, light truck and environmental equipment		396,500			349,741
Medium and heavy duty truck		162,824			204,545
Aircraft financing		614,357			617,384
Construction equipment financing		285,634			313,300
Commercial real estate		594,729			580,709
Residential real estate		390,951			371,514
Consumer loans		95,400			109,735
Total loans and leases		3,070,623			3,093,150
Reserve for loan and lease losses		(86,874	)		(88,236	)
Net loans and leases		2,983,749			3,004,914

Equipment owned under operating leases, net		78,138			97,004
Net premises and equipment		33,881			37,907
Goodwill and intangible assets		88,955			90,222
Accrued income and other assets		140,588			148,591

Total assets	$	4,445,281		$	4,542,100

LIABILITIES
Deposits:
Noninterest bearing	$	524,564		$	450,608
Interest bearing		3,098,181			3,201,856
Total deposits		3,622,745			3,652,464

Federal funds purchased and securities sold
under agreements to purchase		136,028			123,787
Other short-term borrowings		19,961			26,323
Long-term debt and mandatorily redeemable securities		24,816			19,761
Subordinated notes		89,692			89,692
Accrued expenses and other liabilities		65,656			59,753
Total liabilities		3,958,898			3,971,780

SHAREHOLDERS' EQUITY
Preferred stock; no par value		-			104,930
Common stock; no par value		350,282			350,269
Retained earnings		157,875			142,407
Cost of common stock in treasury		(32,284	)		(32,380	)
Accumulated other comprehensive income		10,510			5,094
Total shareholders' equity		486,383			570,320

Total liabilities and shareholders' equity	$	4,445,281		$	4,542,100

1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - Dollars in thousands)
	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2010			2009			2010			2009
Interest income:
Loans and leases	$	44,435		$	42,378		$	173,526		$	174,885
Investment securities, taxable		4,855			4,994			20,466			17,594
Investment securities, tax-exempt		1,315			1,659			5,573			6,705
Other		318			334			1,061			1,228
Total interest income		50,923			49,365			200,626			200,412

Interest expense:
Deposits		9,837			13,859			44,605			63,521
Short-term borrowings		187			206			800			1,115
Subordinated notes		1,647			1,647			6,589			6,589
Long-term debt and mandatorily redeemable securities		90			122			1,135			975
Total interest expense		11,761			15,834			53,129			72,200

Net interest income		39,162			33,531			147,497			128,212
Provision for loan and lease losses		3,443			8,360			19,207			31,101
Net interest income after provision for
loan and lease losses		35,719			25,171			128,290			97,111

Noninterest income:
Trust fees		4,161			3,563			15,838			15,036
Service charges on deposit accounts		4,510			5,278			19,323			20,645
Mortgage banking income		2,467			1,377			6,218			8,251
Insurance commissions		1,368			1,316			5,074			4,930
Equipment rental income		6,124			6,861			26,036			25,757
Other income		3,552			2,611			11,909			9,224
Investment securities and other investment gains		234			1,014			2,293			1,687
Total noninterest income		22,416			22,020			86,691			85,530

Noninterest expense:
Salaries and employee benefits		19,177			17,143			75,815			72,483
Net occupancy expense		2,162			2,090			8,788			9,185
Furniture and equipment expense		3,320			3,493			12,543			13,980
Depreciation - leased equipment		4,874			5,450			20,715			20,515
Professional fees		1,858			1,502			6,353			4,399
Supplies and communication		1,405			1,448			5,499			5,916
FDIC and other insurance		1,495			1,511			6,256			8,362
Business development and marketing expense		1,482			1,554			3,774			3,488
Loan and lease collection and repossession expense		405			1,507			6,227			4,283
Other expense		3,758			2,866			8,535			8,512
Total noninterest expense		39,936			38,564			154,505			151,123

Income before income taxes		18,199			8,627			60,476			31,518
Income tax expense		5,632			2,404			19,232			6,028

Net income		12,567			6,223			41,244			25,490
Preferred stock dividends and discount accretion		(6,440	)		(1,706	)		(11,589	)		(6,416	)
Net income available to common shareholders	$	6,127		$	4,517		$	29,655		$	19,074


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

Immediate Release

Larry Lentych

January 20, 2011

Andrea Short