1st Source Corporation Reports Record Annual Earnings, History of Increased Dividends Continues

SOUTH BEND, Ind.--(BUSINESS WIRE)-- 1st Source Corporation (NAS: SRCE) , parent company of 1st Source Bank, today announced record net income of $49.63 million for the year of 2012, an increase of 2.98% over the $48.20 million in 2011. The annual net income sets a record as the highest in company history. Fourth quarter net income was $12.35 million, up 10.41% compared to $11.18 million in the fourth quarter of 2011, due to higher mortgage banking income along with reduced loan and lease collection and repossession expenses.

Diluted net income per common share for the year was $2.02, an all-time record and an increase of 3.06% over the $1.96 per common share a year earlier. Diluted net income per common share for the fourth quarter was $0.50, up 11.11% compared to $0.45 per common share reported in the fourth quarter of the previous year.

At the January 2013 meeting, the Board of Directors approved a cash dividend of $0.17 per common share. The cash dividend is payable on February 15, 2013 to shareholders of record on February 4, 2013. Dividends for 2012 increased 3.13% over the previous year and achieved 25 years of consecutive dividend growth.

Christopher J. Murphy, III, Chairman of 1st Source, commented, "In spite of the rocky economy, 2012 was a good year for 1st Source Corporation. We set a record for annual net income. We continue our record of 25 years of consecutive dividend growth which puts us in a very select group nationally."

"We also had a busy fourth quarter. New banking centers were opened in Nappanee and Columbia City, Indiana; mobile banking and purchase rewards for our checking account clients were rolled out; and 1st Source Mortgage Express was introduced - a quick and easy online mortgage application that is especially handy for our clients wishing to refinance."

"Credit continues to improve. Our 30 day delinquency rate ended 2012 at 0.16% of total loans and leases; our net charge-offs for 2012 were 0.13% to average net loans and leases; while our net charge-offs in dollars were $4.09 million compared to $8.36 million a year earlier. Credit performance is strong, but our net interest margin is being squeezed. We continue to focus on controlling expenses to compensate."

"At 1st Source, we strive to be distinctively convenient, provide straight talk and sound advice for our clients, and always keep their best interests in mind - treating them in a very personal way. I am proud of what my colleagues throughout the Bank have accomplished this year. It is their focus and dedication to serving our clients well that has led to our success." Mr. Murphy concluded.

The net interest margin was 3.64% for the fourth quarter of 2012 versus 3.66% for the same period in 2011. The net interest margin was 3.69% for the years ending December 31, 2012 and 2011. Tax-equivalent net interest income was $39.00 million for the fourth quarter of 2012, compared to $37.89 million for 2011's fourth quarter. For the twelve months of 2012, tax-equivalent net interest income was $153.84 million, compared to $150.91 million for the twelve months of 2011.

As of December 31, 2012, the common equity-to-assets ratio was 12.28%, compared to 11.98% at December 31, 2011 and its tangible common equity-to-tangible assets ratio was 10.56% at December 31, 2012 compared to 10.18% at December 31, 2011. Common shareholders' equity was $558.66 million, up from $523.92 million a year ago. Total assets at the end of 2012 were $4.55 billion, up 4.04% from the same period last year. Total loans and leases at December 31, 2012 were $3.33 billion, up 7.67%, and total deposits at December 31, 2012 were $3.62 billion, up 2.96% from the comparable figures at the end of 2011.

Reserve for loan and lease losses as of December 31, 2012 was 2.50% of total loans and leases, compared to 2.64% as of December 31, 2011. Net charge-offs were $0.98 million for the fourth quarter 2012, compared to $2.17 million in the fourth quarter 2011. Net charge-offs for the full year were $4.09 million in 2012 compared to $8.36 million in 2011. The ratio of nonperforming assets to net loans and leases was 1.25% on December 31, 2012, compared to 2.28% on December 31, 2011.

Noninterest income for the fourth quarter of 2012 was $20.57 million, up 1.52% compared to $20.27 million for the fourth quarter of 2011. The fourth quarter increase was a result of higher mortgage banking income and investment securities and other investment gains offset by lower equipment rental income. For the year, noninterest income was $81.19 million, up slightly from the $80.87 million in 2011. The year-to-date increase was due to higher mortgage banking income and insurance commissions reduced by lower equipment rental income and investment securities and other investment gains.

Noninterest expense for the fourth quarter of 2012 was $39.72 million, down 2.62% compared to $40.79 million for the fourth quarter of 2011. The leading factors for the fourth quarter decrease were reduced depreciation on leased equipment and lower loan and lease collection and repossession expenses offset by higher salary and employee benefits expense. For the year ending December 31, 2012, noninterest expense was $151.54 million, down from $152.35 million one year ago. The annual difference was a result of reduced depreciation on leased equipment, reductions to provisions for unfunded loan commitments, loan and lease collection and repossession expenses, and lower net occupancy expenses. These decreases wereoffset by increased salary and employee benefit expenses and furniture and equipment expenses.

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, 9 trust and wealth management locations, 8 1st Source Insurance offices, as well as 22 specialty finance locations nationwide. Celebrating 150 years, 1st Source has a history dating back to 1863. The 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.

(Unaudited - Dollars in thousands, except per share data)
Three Months Ended Twelve Months Ended
December 31 December 31
2012         2011 2012         2011






Loans and leases 3,327,553 3,090,543
Deposits 3,624,347 3,520,141
Reserve for loan and lease losses 83,311 81,644
Intangible assets 87,502 87,675
Common shareholders' equity 558,655 523,918
Assets $ 4,548,602









Earning assets 4,260,643 4,102,618 4,174,443 4,090,297
Investments 900,882 858,941 882,392 899,895
Loans and leases 3,268,948 3,063,248 3,209,490 3,078,581
Deposits 3,635,800 3,548,246 3,574,211 3,555,454
Interest bearing liabilities 3,265,521 3,247,367 3,239,530 3,286,246
Common shareholders' equity 559,307 522,267 545,631 506,939
Net interest income $ 38,509









Net interest income - FTE 39,004 37,893 153,844 150,907
Provision for (recovery of) loan and lease losses 793 (396) 5,752 3,129
Noninterest income 20,574 20,265 81,192 80,872
Noninterest expense 39,717 40,787 151,536 152,354
Net income 12,346 11,182 49,633 48,195
Basic net income per common share $ 0.50









Diluted net income per common share 0.50 0.45 2.02 1.96
Common cash dividends declared 0.17 0.16 0.66 0.64
Book value per common share 23.04 21.64 23.04 21.64
Tangible book value per common share 19.43 18.02 19.43 18.02
Market value - High 23.15 26.06 26.79 26.06
Market value - Low 19.70 19.91 19.70 17.86
Basic weighted average common shares outstanding 24,270,198 24,213,834 24,267,471 24,237,924
Diluted weighted average common shares outstanding 24,279,465 24,224,751 24,277,328 24,247,456
Return on average assets 1.08 % 1.00





1.09 %
Return on average common shareholders' equity 8.78 8.49 9.10 9.51
Average common shareholders' equity to average assets 12.30 11.81 12.20 11.51
End of period tangible common equity to tangible assets 10.56 10.18 10.56 10.18
Risk-based capital - Tier 1 14.26 15.21 14.26 15.21
Risk-based capital - Total 15.57 16.51 15.57 16.51
Net interest margin 3.64 3.66 3.69 3.69
Efficiency: expense to revenue 65.95 68.60 63.33 64.35
Net charge-offs to average loans and leases 0.12 0.28 0.13 0.27
Loan and lease loss reserve to loans and leases 2.50 2.64 2.50 2.64
Nonperforming assets to loans and leases 1.25 2.28 1.25 2.28
Loans and leases past due 90 days or more






Nonaccrual loans and leases 36,417 56,440
Other real estate 4,311 7,621
Former bank premises held for sale 1,034 1,134
Repossessions 63 6,792
Equipment owned under operating leases - 29
Total nonperforming assets 42,267 72,476
(Unaudited - Dollars in thousands)
December 31, 2012 December 31, 2011


Cash and due from banks $ 83,232 $ 61,406
Federal funds sold and interest bearing deposits with other banks 702 52,921
Investment securities available-for-sale
(amortized cost of $849,139 and $853,204 at
December 31, 2012 and 2011, respectively) 880,764 883,000
Other investments 22,609 18,974
Trading account securities 146 132
Mortgages held for sale 10,879 12,644
Loans and leases, net of unearned discount:
Commercial and agricultural loans 639,069 545,570
Auto, light truck and environmental equipment 438,147 435,965
Medium and heavy duty truck 172,002 159,796
Aircraft financing 696,479 620,782
Construction equipment financing 278,974 261,204
Commercial real estate 554,968 545,457
Residential real estate 438,641 423,606
Consumer loans   109,273

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