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. We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. We may make other written or oral forward-looking statements from time to time. Readers are advised that various important factors could cause our actual results or circumstances for future periods to differ materially from those anticipated or projected in such forward-looking statements. Such factors include, but are not limited to, changes in law, regulations or U. S. generally accepted accounting principles; our competitive position within the markets we serve; increasing consolidation within the banking industry; unforeseen changes in interest rates; unforeseen changes in loan prepayment assumptions; unforeseen downturns in or major events affecting the local, regional or national economies or the industries in which we have credit concentrations; and other matters discussed in our filings with the SEC, including our Annual Report on Form 10-K for 2008, which filings are available from the SEC. We undertake no obligation to publicly update or revise any forward-looking statements.

The following management's discussion and analysis is presented to provide information concerning our financial condition as of March 31, 2009, as compared to December 31, 2008, and the results of operations for the three months ended March 31, 2009 and 2008. This discussion and analysis should be read in conjunction with our consolidated financial statements and the financial and statistical data appearing elsewhere in this report and our 2008 Annual Report.

Our total assets at March 31, 2009, were $4.60 billion, an increase of $137.11 million or 3.07% from December 31, 2008. Total loans and leases were $3.21 billion, a decrease of $83.49 million or 2.53% from December 31, 2008. Total investment securities, available for sale were $929.98 million which represented an increase of $205.23 million or 28.32% and total deposits increased $33.33 million or 0.95% over the comparable figures at the end of 2008.

(Dollars in Thousands)

                                                 March 31,       December 31,
                                                    2009             2008
Accrued income and other assets:
Bank owned life insurance cash surrender value   $   39,066     $       38,837
Accrued interest receivable                          18,912             17,910
Mortgage servicing assets                             5,219              4,635
Other real estate                                     1,495              1,381
Former bank premises held for sale                    3,356              3,356
Repossessions                                         2,919              1,669
All other assets                                     44,504             45,832
Total accrued income and other assets            $  115,471     $      113,620

As of March 31, 2009, total shareholders' equity was $567.20 million, up $113.54 million or 25.03% from the $453.66 million at December 31, 2008. In addition to net income of $6.25 million, other significant changes in shareholders' equity during the first three months of 2009 included $111.00 million from the issuance of preferred stock and common stock warrants to the Treasury as part of the Treasury's Capital Purchase Program and $4.43 million of dividends paid and/or accrued. The accumulated other comprehensive income/(loss) component of shareholders' equity totaled $4.97 million at March 31, 2009, compared to $5.82 million at December 31, 2008. The decline in accumulated other comprehensive income/(loss) for the first quarter of 2009 was primarily a result of changes in unrealized gain/(loss) on securities in the available-for-sale portfolio. Our equity-to-assets ratio was 12.33% as of March 31, 2009, compared to 10.16% at December 31, 2008. Book value per common share rose to $19.15 at March 31, 2009, up from $18.82 at December 31, 2008.

We declared and paid dividends per common share of $0.14 during the first quarter of 2009. The trailing four quarters dividend payout ratio, representing dividends per share divided by diluted earnings per share, was 48.74%. The dividend payout is continually reviewed by management and the Board of Directors.

The banking regulators have established guidelines for leverage capital requirements, expressed in terms of Tier 1 or core capital as a percentage of average assets, to measure the soundness of a financial institution. In addition, banking regulators have established risk-based capital guidelines for U.S. banking organizations. The actual capital amounts and ratios of 1st Source Corporation and 1st Source Bank as of March 31, 2009, are presented in the table below:

                                                                                       To Be Well
                                                                                   Capitalized Under
                                                        Minimum Capital            Prompt Corrective
                                Actual                     Adequacy                Action Provisions
(Dollars in
thousands)               Amount         Ratio        Amount         Ratio         Amount         Ratio
Total Capital (To
Risk-Weighted
Assets):
1st Source
Corporation             $ 604,831         16.48 %   $ 293,661          8.00 %   $  367,076         10.00
1st Source Bank           569,249         15.56       292,656          8.00        365,820         10.00
Tier 1 Capital (to
Risk-Weighted
Assets):
1st Source
Corporation               557,743         15.19       146,830          4.00        220,245          6.00
1st Source Bank           523,026         14.30       146,328          4.00        219,492          6.00
Tier 1 Capital (to
Average Assets):
1st Source
Corporation               557,743         12.55       177,799          4.00        222,249          5.00
1st Source Bank           523,026         11.81       177,113          4.00        221,391          5.00

Effective liquidity management ensures that the cash flow requirements of depositors and borrowers, as well as the operating cash needs of 1st Source Corporation, are met. Funds are available from a number of sources, including the securities portfolio, the core deposit base, Federal Home Loan Bank borrowings, and the capability to package loans for sale. Our loan to asset ratio was 69.87% at March 31, 2009 compared to 73.88% at December 31, 2008 and 71.48% at March 31, 2008. Cash and cash equivalents totaled $60.44 million at March 31, 2009 compared to $119.77 million at December 31, 2008 and $118.84 million at March 31, 2008. At March 31, 2009, the consolidated statement of financial condition was rate sensitive by $63.00 million more assets than liabilities scheduled to reprice within one year, or approximately 1.02%. Management believes that the present funding sources provide adequate liquidity to meet our cash flow needs.

Net income for the three-month period ended March 31, 2009, was $6.25 million, compared to $9.35 million for the same period in 2008. Diluted net income per common share was $0.20 for the three month period ended March 31, 2009, compared to $0.38 for the same period in 2008. Return on average common shareholders' equity was 4.31% for the three months ended March 31, 2009, compared to 8.56% in 2008. The return on total average assets was 0.56% for the three months ended March 31, 2009, compared to 0.86% in 2008.

The decrease in net income for the three months ended March 31, 2009, over the first three months of 2008, was primarily the result of an increase in provision for loan and leases losses. This negative impact to net income was partially offset by a decrease in income taxes. Details of the changes in the various components of net income are discussed further below.

The taxable equivalent net interest income for the three months ended March 31, 2009, was $31.64 million, a decrease of 4.74% over the same period in 2008. The net interest margin on a fully taxable equivalent basis was 3.03% for the three months ended March 31, 2009, compared to 3.33% for the three months ended March 31, 2008.

During the first quarter of 2009, average earning assets increased $219.05 million or 5.46% while average interest-bearing liabilities increased $34.47 million or 0.99% over the comparable period one year ago. The yield on average earning assets decreased 137 basis points to 4.95% for the first quarter of 2009 from 6.32% for the first quarter of 2008. The rate earned on assets decreased due to the decrease in short-term market interest rates from a year ago. Total cost of average interest-bearing liabilities decreased 114 basis points to 2.31% for the first quarter 2009 from 3.45% for the first quarter 2008, as liabilities were also affected by short-term market interest rate decreases. The result was a decrease of 30 basis points to the net interest margin, or the difference between interest income on earning assets and interest expense on interest-bearing liabilities.

The largest contributor to the decrease in the yield on average earning assets for the first three months of 2009 compared to the first three months of 2008 was a decline in the yield on net loans and leases of 123 basis points. Total average investment securities increased 1.87% for the three month period over one year ago. Average mortgages held for sale increased 135.43% primarily due to an increase in refinance activity. Average other investments, which include federal funds sold, time deposits with other banks and commercial paper, increased 259.07% for the three month period over one year ago as excess funds were invested.

Average interest-bearing deposits increased $173.50 million or 5.77% for the first three months of 2009 over the same period in 2008. The effective rate paid on average interest-bearing deposits decreased 112 basis points to 2.24% for the first quarter 2009 compared to 3.36% for the first quarter 2008. The decrease in the average cost of interest-bearing deposits during the first three months of 2009 as compared to the first three months of 2008 was primarily the result of decreases in interest rates offered on deposit products due to decreases in market interest rates.

Average short-term borrowings decreased $121.66 million or 35.86% for the first quarter of 2009, compared to the same period in 2008. The decrease in average short-term borrowings was primarily due to lower repurchase agreements and lower Federal Home Loan Bank borrowings. Interest paid on short-term borrowings decreased 217 basis points due to the interest rate decrease in adjustable rate borrowings. Average subordinated notes decreased $5.10 million for the first quarter of 2009, compared to the same period in 2008. Average long-term debt decreased $12.27 million or 36.01% during the first three months of 2009 as compared to the first three months of 2008. The majority of the decrease in long-term debt was made up of Federal Home Loan Bank borrowings.

Average demand deposits increased $35.85 million during the first quarter of 2009, compared to the same period one year ago.