1st Source (SRCE) Q4 2007 earnings summary

Executive summary

• 2007 net income declined as higher loan-loss provision, lower mortgage banking income, securities impairment and higher expenses more than offset net interest income growth.

• Assets reached $4.45B, loans and leases $3.19B, and deposits $3.47B at year-end; the May acquisition of FINA Bancorp expanded the regional banking footprint.

Financial highlights

• Net income was $30.54M in 2007 vs. $39.30M in 2006; diluted EPS was $1.28 vs. $1.72.

• Net interest income rose 11.72% to $118.91M; noninterest income fell 7.79% to $70.62M, while noninterest expense increased 11.17% to $140.31M.

• Income before taxes was $41.68M vs. $59.54M; income tax expense fell to $11.14M from $20.25M, with the effective tax rate declining to 26.74% from 34.00%.

• Q4 net income was $7.83M and diluted EPS $0.32, vs. $8.12M and $0.36 in Q4 2006.

Segment performance

• Management reported one principal operating segment, commercial banking; specialty finance product trends varied across equipment and lending categories.

• Aircraft financing grew 17.66% to $587.02M and construction equipment financing rose 23.47% to $377.79M; trucking and truck leasing represented 13.6% of loans and leases.

• Medium/heavy-duty truck financing declined 12.08% to $300.47M; auto, light truck and environmental financing fell 3.89% to $305.24M.

• Commercial/agricultural loans grew 24.15% to $593.81M and real estate loans rose 39.44% to $881.65M, partly reflecting the acquisition.