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<SEC-DOCUMENT>0000034782-01-500026.txt : 20020410
<SEC-HEADER>0000034782-01-500026.hdr.sgml : 20020410
ACCESSION NUMBER:		0000034782-01-500026
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20010930
FILED AS OF DATE:		20011109

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			1ST SOURCE CORP
		CENTRAL INDEX KEY:			0000034782
		STANDARD INDUSTRIAL CLASSIFICATION:	STATE COMMERCIAL BANKS [6022]
		IRS NUMBER:				351068133
		STATE OF INCORPORATION:			IN
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-06233
		FILM NUMBER:		1780469

	BUSINESS ADDRESS:	
		STREET 1:		100 NORTH MICHIGAN STREET
		CITY:			SOUTH BEND
		STATE:			IN
		ZIP:			46601
		BUSINESS PHONE:		2192352702

	MAIL ADDRESS:	
		STREET 1:		P O BOX 1602
		STREET 2:		P O BOX 1602
		CITY:			SOUTH BEND
		STATE:			IN
		ZIP:			46634

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	FBT BANCORP INC
		DATE OF NAME CHANGE:	19820818
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>form10q-0901.txt
<DESCRIPTION>10-Q OF 3RD QUARTER, 2001
<TEXT>
                                    FORM 10-Q
                        SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


     X    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

          For the quarterly period ended    September 30, 2001
                                            ------------------
                                       OR
          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

          For the transition period from       to
          Commission file number 0-6233
                                --------

                             1st SOURCE CORPORATION
                             ----------------------
             (Exact name of registrant as specified in its charter)

     INDIANA                                        35-1068133
     -------                                        ----------
(State of other jurisdiction of                  (I.R.S. Employer
incorporation or organization)                   Identification No.)

100 North Michigan Street     South Bend, Indiana          46601
- -------------------------------------------------------------------
(Address of principal executive offices)                 (Zip Code)

                                 (219) 235-2702
                                 --------------
              (Registrant's telephone number, including area code)


                                 Not Applicable
                                 --------------
            (Former name, former address and former fiscal year, if
                          changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                    Yes   X    No
                                        -----     -----

Number of shares of common stock  outstanding  as of September 30, 2001 -
20,778,459 shares.



<PAGE>
                                     INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
                                                                       Page

        Consolidated statements of financial condition --                3
        September 30, 2001, and December 31, 2000

        Consolidated statements of income --                             4
        three months and nine months ended September 30, 2001 and 2000

        Consolidated statements of cash flows --                         5
        nine months ended September 30, 2001 and 2000

        Notes to the Consolidated Financial Statements                   6


Item 2. Management's Discussion and Analysis of Financial
          Condition and Results of Operations                            8


Item 3. Quantitative and Qualitative Disclosures About Market Risk      14


PART II. OTHER INFORMATION                                               15


SIGNATURES                                                              16

                                     - 2 -

<PAGE>



CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
1st Source Corporation and Subsidiaries
(Unaudited - Dollars in thousands)
                                                     September 30,  December 31,
                                                         2001           2000
                                                     -----------    -----------
ASSETS
Cash and due from banks ..........................   $   109,064    $   118,123
Federal funds sold and
  interest bearing deposits with other banks .....           871            901
Investment securities:
  Securities available-for-sale, at fair value
    (amortized cost of $594,075 and $503,238
    at September 30, 2001 and December 31, 2000)..       603,785        503,910
  Securities held-to-maturity, at amortized cost
    (fair value of $0 and $60,332 at
    September 30, 2001 and December 31, 2000) ....           --          59,212
                                                     -----------    -----------

Total investment securities ......................       603,785        563,122

Loans - net of unearned discount .................     2,530,023      2,309,062
  Reserve for loan losses ........................       (55,091)       (44,644)
                                                     -----------    -----------

Net loans ........................................     2,474,932      2,264,418

Equipment owned under operating leases,
   net of accumulated depreciation ...............       103,419         84,892
Premises and equipment,
   net of accumulated depreciation ...............        36,309         33,583
Other assets .....................................       118,214        117,142
                                                     -----------    -----------

Total assets .....................................   $ 3,446,594    $ 3,182,181
                                                     ===========    ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
  Noninterest bearing ............................   $   303,806    $   293,564
  Interest bearing ...............................     2,391,561      2,169,160
                                                     -----------    -----------

Total deposits ...................................     2,695,367      2,462,724

Federal funds purchased and securities
  sold under agreements to repurchase ............       253,469        192,307
Other short-term borrowings ......................        84,461        141,083
Other liabilities ................................        56,278         58,685
Long-term debt ...................................        11,992         12,060
                                                     -----------    -----------

Total liabilities ................................     3,101,567      2,866,859

Guaranteed preferred beneficial interests
  in 1st Source's subordinated debentures ........        44,750         44,750

Shareholders' equity:
  Common stock-no par value ......................         7,227          7,227
  Capital surplus ................................       195,197        195,197
  Retained earnings ..............................       103,696         80,881
  Less cost of common stock in treasury ..........       (12,922)       (14,954)
  Accumulated other comprehensive income .........         7,079          2,221
                                                     -----------    -----------

Total shareholders' equity .......................       300,277        270,572
                                                     -----------    -----------

Total liabilities and shareholders' equity .......   $ 3,446,594    $ 3,182,181
                                                     ===========    ===========

The accompanying notes are a part of the consolidated financial statements.

                                     - 3 -

<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
1st Source Corporation and Subsidiaries
(Unaudited - Dollars in thousands, except per share amounts)
                                                                     Three Months Ended                    Nine Months Ended
                                                                        September 30                         September 30
                                                                     ------------------                    ----------------
                                                                    2001            2000               2001            2000
                                                                ------------    ------------        ------------    ------------
<S>                                                             <C>             <C>                <C>             <C>
Interest and fee income:
 Loans ......................................................   $     52,939    $     53,133        $    161,592    $    149,558
   Investment securities:
     Taxable ................................................          5,570           5,696              17,289          16,149
     Tax-exempt .............................................          1,716           2,020               5,220           6,014
     Other ..................................................            132             281                 410             523
                                                                ------------    ------------        ------------    ------------
Total interest income .......................................         60,357          61,130             184,511         172,244

Interest expense:
   Deposits .................................................         26,707          29,243              84,605          78,928
   Short-term borrowings ....................................          3,476           5,362              12,467          14,659
   Long-term debt ...........................................            218             225                 655             670
                                                                ------------    ------------        ------------    ------------
Total interest expense ......................................         30,401          34,830              97,727          94,257
                                                                ------------    ------------        ------------    ------------
Net interest income .........................................         29,956          26,300              86,784          77,987
Provision for loan losses ...................................          9,807           1,292              21,566           9,888
                                                                ------------    ------------        ------------    ------------
Net interest income after
   provision for loan losses ................................         20,149          25,008              65,218          68,099

Noninterest income:
   Trust fees ...............................................          2,428           2,315               7,359           7,145
   Service charges on deposit accounts ......................          2,969           1,984               8,245           5,708
   Loan servicing and sale income ...........................          4,519           3,632              24,999          15,459
   Equipment rental income ..................................          6,922           5,810              18,970          14,913
   Other income .............................................          3,094           2,759               9,357           7,950
   Investment securities and other investment gains .........              0               0               1,084             497
                                                                ------------    ------------        ------------    ------------
Total noninterest income ....................................         19,932          16,500              70,014          51,672
                                                                ------------    ------------        ------------    ------------
Noninterest expense:
   Salaries and employee benefits ...........................         15,923          14,076              46,519          41,378
   Net occupancy expense ....................................          1,508           1,433               4,547           4,140
   Furniture and equipment expense ..........................          2,344           2,123               6,930           6,378
   Depreciation - leased equipment ..........................          5,543           4,389              15,200          12,213
   Supplies and communications ..............................          1,376           1,298               4,023           3,809
   Business development and marketing expense ...............          1,078             885               3,160           2,714
   Other expense ............................................          2,463           2,511               7,743           6,512
                                                                ------------    ------------        ------------    ------------
Total noninterest expense ...................................         30,235          26,715              88,122          77,144
                                                                ------------    ------------        ------------    ------------

Income before income taxes and subsidiary trust distributions          9,846          14,793              47,110          42,627
Income taxes ................................................          3,131           4,967              16,144          14,024
Distribution on preferred securities of
  subsidiary trusts, net of income tax benefit ..............            541             600               1,702           1,786
                                                                ------------    ------------        ------------    ------------

Net income ..................................................   $      6,174    $      9,226        $     29,264    $     26,817
                                                                ============    ============        ============    ============
Other comprehensive income, net of tax:
  Change in unrealized appreciation (depreciation) of
    available-for-sale securities ...........................            132           1,998               4,858           2,853
                                                                ------------    ------------        ------------    ------------

Total comprehensive income ..................................   $      6,306    $     11,224        $     34,122    $     29,670
                                                                ============    ============        ============    ============

Per common share: (1)
  Basic net income per common share .........................   $       0.30    $       0.45        $       1.41    $       1.29
                                                                ============    ============        ============    ============
  Diluted net income per common share .......................   $       0.29    $       0.44        $       1.38    $       1.27
                                                                ============    ============        ============    ============
  Dividends .................................................   $       0.09    $      0.086        $      0.261    $      0.249
                                                                ============    ============        ============    ============
Basic weighted average common shares outstanding ............     20,779,292      20,735,966          20,762,987      20,792,063
                                                                ============    ============        ============    ============
Diluted weighted average common shares outstanding ..........     21,224,446      20,947,066          21,160,166      21,022,767
                                                                ============    ============        ============    ============

(1)  The  computation  of per share data gives  retroactive  recognition to a 5% stock dividend  declared on April 24, 2001.

The accompanying notes are a part of the consolidated financial statements.
</TABLE>
                                     - 4 -
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
1st Source Corporation and Subsidiaries
(Unaudited - Dollars in thousands)

                                                  Nine Months Ended September 30
                                                       2001         2000
                                                    ---------    ---------
Operating activities:
  Net income ....................................   $  29,264    $  26,817
  Adjustments to reconcile net income to net cash
    provided by operating activities:
  Provision for loan losses .....................      21,566        9,888
  Depreciation of premises and equipment ........      18,647       15,411
  Amortization of investment security premiums
    and accretion of discounts, net .............         885          759
  Amortization of mortgage servicing rights .....       3,164        4,199
  Deferred income taxes .........................        (738)       2,042
  Realized investment securities gains ..........      (1,084)        (497)
  Realized gains on securitized loans ...........      (6,012)      (6,916)
  Decrease (increase) in interest receivable ....         439       (4,628)
  (Decrease) increase in interest payable .......      (6,845)      12,255
  Other .........................................     (15,418)      (7,876)
                                                    ---------    ---------

Net cash provided by operating activities .......      43,868       51,454

Investing activities:
  Proceeds from sales and maturities
    of investment securities ....................     254,914      148,225
  Purchases of investment securities ............    (286,491)    (132,056)
  Net decrease (increase) in short-term
    investments .................................          30      (19,837)
  Loans sold or participated to others ..........     148,100      225,749
  Increase in loans net of
    principal collections .......................    (351,206)    (448,077)
  Purchase of loans .............................     (29,054)          --
  Net increase in equipment owned
    under operating leases ......................     (15,016)     (14,448)
  Purchases of premises and equipment ...........      (4,778)      (2,324)
  Decrease (increase) in other assets ............       7,671       (1,784)
  Net cash paid in purchase acquisition .........      (6,208)          --
  Other .........................................      (1,523)        (646)
                                                    ---------    ---------

Net cash used in investing activities ...........    (283,561)    (245,198)

Financing activities:
  Net (increase) decrease in demand deposits, NOW
    accounts and savings accounts ...............     (90,506)      40,423
  Purchase of demand deposits and
    savings accounts ............................      32,386           --
  Net increase in certificates of deposit .......     263,135      278,866
  Purchase of certificates of deposits ..........      27,628           --
  Net increase (decrease) in
  short-term borrowings .........................       4,540      (92,067)
  Proceeds from issuance of long-term debt ......         217          255
  Payments on long-term debt ....................        (205)        (307)
  Acquisition of treasury stock .................      (1,125)      (4,601)
  Cash dividends ................................      (5,436)      (5,189)
                                                    ---------    ---------

Net cash provided by financing activities .......     230,634      217,380

Increase in cash and cash equivalents ...........      (9,059)      23,636

Cash and cash equivalents, beginning of period ..     118,123      101,911
                                                    ---------    ---------

Cash and cash equivalents, end of period ........   $ 109,064    $ 125,547
                                                    =========    =========

The accompanying notes are a part of the consolidated financial statements.

                                     - 5 -

<PAGE>
                             1ST SOURCE CORPORATION
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Note 1.    Basis of Presentation

     The  unaudited   consolidated  condensed  financial  statements  have  been
prepared in accordance with the  instructions for Form 10-Q and therefore do not
include all  information  and  footnotes  necessary for a fair  presentation  of
financial  position,  results of operations  and cash flows in  conformity  with
generally  accepted  accounting  principles.  The information  furnished  herein
reflects all adjustments (all of which are normal and recurring in nature) which
are, in the opinion of  management,  necessary  for a fair  presentation  of the
results for the interim periods for which this report is submitted. The 2000 1st
Source Corporation Annual Report on Form 10-K should be read in conjunction with
these statements.


Note 2.    New Accounting Pronouncements

     On January 1, 2001,  1st Source adopted  Statement of Financial  Accounting
Standards No. 133 ("SFAS No. 133"),  "Accounting for Derivative  Instruments and
Hedging  Activities",  as  amended.  SFAS No.  133  establishes  accounting  and
reporting  standards for derivative  instruments and for hedging  activities and
requires  that all  derivative  instruments  be recorded on the balance sheet at
their fair value.  Changes in the fair value of  derivatives  are recorded  each
period in current  earnings  or other  comprehensive  income,  depending  on the
intended use of the derivative and its resulting designation.

     On adoption, it was permitted to transfer  held-to-maturity debt securities
to  available-for-sale  or trading  securities without calling into question the
intent of management to hold other debt securities to maturity in the future. In
conjunction  with the  adoption  of SFAS No.  133,  1st Source  transferred  the
held-to-maturity  portfolio  with an amortized cost of $59.2 million and a gross
unrealized gain of $1.1 million into the available-for-sale portfolio at January
1, 2001.

     In September 2000, the FASB issued SFAS No. 140,  "Accounting for Transfers
and Servicing of Financial Assets and  Extinguishments  of  Liabilities",  which
replaces SFAS No. 125. This  statement  revises the standards for accounting for
securitizations  and other  transfers of  financial  assets and  collateral  and
requires  certain  disclosures,  but carries over most of the provisions of SFAS
No. 125  without  reconsideration.  SFAS No.  140 was  effective  for  transfers
occurring  after March 31, 2001 and for disclosures  relating to  securitization
transactions  and  collateral  for fiscal years ending after  December 15, 2000.
This statement did not have a material effect on 1st Source's financial position
or results of operations.

     In  September  2001,  the  Financial   Accounting  Standards  Board  issued
Statements of Financial Accounting  Standards No. 141, "Business  Combinations",
and No. 142, "Goodwill and Other Intangible Assets",  effective for fiscal years
beginning  after  December 15, 2001.  Under the new rules,  goodwill  (and other
intangible  assets deemed to have indefinite  lives) will no longer be amortized
but  will  be  subject  to  annual  impairment  tests  in  accordance  with  the
Statements.  Other  intangible  assets will continue to be amortized  over their
useful lives.

                                     - 6 -

<PAGE>


     1st Source  Corporation will apply the new rules on accounting for goodwill
and other intangible assets beginning in the first quarter of 2002.  Application
of the  nonamortization  provisions of the Statement is expected to result in an
increase in net income of  approximately  $220,000  ($0.01 per common share) per
year. During 2002, 1st Source Corporation will perform the first of the required
impairment  tests of  goodwill  and  indefinite  lived  intangible  assets as of
January 1, 2002 and has not yet  determined  what the effect of these tests will
be on the earnings and financial position of the Company.

                                      -7-

<PAGE>

                                    ITEM 2.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


     The following management's discussion and analysis are presented to provide
information concerning the financial condition of 1st Source as of September 30,
2001, as compared to September  30, 2000 and December 31, 2000,  and the results
of operations for the nine months ended September 30, 2001 and 2000.

     This  discussion  and  analysis  should  be read in  conjunction  with  1st
Source's  consolidated  condensed  financial  statements  and the  financial and
statistical  data  appearing  elsewhere  in this  report and the 2000 1st Source
Corporation Annual Report on Form 10-K.

     Except for historical  information  contained herein, the matters discussed
in this document,  and other information  contained in 1st Source's SEC filings,
may express "forward-looking  statements." Those statements may involve risk and
uncertainties,  including statements  concerning future events,  performance and
assumptions  and other  statements  that are other than statements of historical
facts.  1st  Source  cautions  readers  not  to  place  undue  reliance  on  any
forward-looking  statements,  which speak only as of the date made.  Readers are
advised that various  factors - including,  but not limited to, changes in laws,
regulations  or  generally   accepted   accounting   principles;   1st  Source's
competitive position within the markets served;  increasing consolidation within
the banking industry; unforeseen changes in interest rates; unforeseen downturns
in the local,  regional or national  economies - could cause 1st Source's actual
results or  circumstances  for future  periods to differ  materially  from those
anticipated or projected.

     1st Source does not undertake,  and specifically  disclaims any obligation,
to  publicly  release  the  result  of any  revisions  that  may be  made to any
forward-looking  statements to reflect the occurrence of unanticipated events or
circumstances after the date of such statements.

                                     - 8 -
<PAGE>
                               FINANCIAL CONDITION

     1st Source's assets at September 30, 2001 were $3.45 billion, up 10.0% from
the same time last year. Total loans were up 11.3% and total deposits  increased
10.2%  over the  comparable  figures  at the end of the third  quarter  of 2000.
Shareholders'  equity was $300.3  million,  up 15.1% from the $260.8 million one
year ago. As of September 30, 2001,  the 1st Source  equity-to-assets  ratio was
8.7%, compared to 8.3% a year ago.

     Nonperforming  assets at September 30, 2001, were  $35,315,000  compared to
$24,462,000  at December 31, 2000, a increase of 44.37%.  At September 30, 2001,
nonperforming  assets were 1.40% of net loans  compared to 1.06% at December 31,
2000.

     Loans are reported at the  principal  amount  outstanding,  net of unearned
income.  Loans identified as  held-for-sale  are carried at the lower of cost or
market determined on an aggregate basis. Loans held-for-sale were $142.2 million
and $66.8 million at September 30, 2001 and 2000, respectively.

     Included in Other Assets are capitalized  mortgage  servicing  rights.  The
costs of purchasing the rights to service  mortgage  loans  originated by others
are deferred and amortized as  reductions of mortgage  servicing fee income over
the estimated  servicing period in proportion to the estimated  servicing income
to be received.  SFAS No. 140 allows companies that sell originated or purchased
loans and retain the  related  servicing  rights,  to  allocate a portion of the
total costs of the loans to servicing  rights,  based on  estimated  fair value.
Fair value is estimated based on market prices,  when available,  or the present
value of future net servicing income,  adjusted for such factors as discount and
prepayment rates.

     In the first quarter of 2001, 1st Source completed the sale of $1.0 billion
in  principal  value of its  mortgage  servicing  rights  held by its  Trustcorp
Mortgage  Company  subsidiary.  This  servicing  sale was in  addition to normal
quarterly sales levels,  and was made possible by favorable  market  conditions.
Pre-tax income of $11.06 million ($6.87 million, net of tax) was recorded in the
first quarter, 2001 on this transaction.  As of September 30, 2001 and 2000, the
carrying value of mortgage servicing rights was $16.5 million and $20.4 million,
respectively.

     On July 27, 1st Source  closed the retail branch  purchases in St.  Joseph,
Michigan from Old Kent Financial  Corporation  pursuant to an agreement  reached
during the first quarter,  2001.  Those branches hold approximate $29 million in
loans and $60 million in deposits.  In  addition,  1st Source  Corporation  also
completed  the  purchase of two branches in Michigan  City and LaPorte,  Indiana
from Citizens Financial  Services,  F.S.B.,  with  appproximately $39 million in
deposits. This transaction was closed on September 28, 2001.

     1st Source also reached an agreement to purchase 13 retail  banking  center
locations  in the Fort Wayne,  Indiana  area from  Standard  Federal  Bank.  The
transaction is expected to be completed in mid-November.  1st Source will assume
the deposits,  approximately  $200 million,  while Standard  Federal will retain
substantially all loans associated with the transaction.


CAPITAL RESOURCES

     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.  These
guidelines  require all banks to maintain a minimum  leverage  capital  ratio of
4.00% for adequately capitalized banks and 5.00% for well-capitalized banks. 1st
Source's leverage capital ratio was 9.76% at September 30, 2001.

                                     - 9 -
<PAGE>

     The Federal Reserve Board has established risk-based capital guidelines for
U.S. banking  organizations.  The guidelines  established a conceptual framework
calling for risk  weights to be assigned  to on and  off-balance  sheet items in
arriving at risk-adjusted  total assets,  with the resulting ratio compared to a
minimum standard to determine whether a bank has adequate  capital.  The minimum
standard  risk-based  capital ratios  effective in 2001 are 4.00% for adequately
capitalized  banks and 6.00% for  well-capitalized  banks for Tier 1  risk-based
capital and 8.00% and 10.00%,  respectively,  for total risk-based capital.  1st
Source's  Tier 1 risk-based  capital  ratio on September 30, 2001 was 11.78% and
the total risk-based capital ratio was 13.04%.


LIQUIDITY AND INTEREST RATE SENSITIVITY

     Asset and  liability  management  includes the  management of interest rate
sensitivity and the maintenance of an adequate liquidity  position.  The purpose
of liquidity management is to match the sources and uses of funds to anticipated
customers' deposits and withdrawals, to anticipate borrowing requirements and to
provide  for the cash flow needs of 1st Source.  The  purpose of  interest  rate
sensitivity  management  is to stabilize net interest  income during  periods of
changing interest rates.

     Close  attention is given to various  interest  rate  sensitivity  gaps and
interest rate spreads.  Maturities of rate sensitive  assets are relative to the
maturities  of rate  sensitive  liabilities  and  interest  rate  forecasts.  At
September 30, 2001, the consolidated  statement of financial  condition was rate
sensitive by  $326,223,000  more  liabilities  than assets  scheduled to reprice
within one year or approximately  84.00%.  Management adjusts the composition of
its assets and  liabilities  to manage the interest rate  sensitivity  gap based
upon its expectations of interest rate fluctuations.

                                     - 10 -

<PAGE>
                              RESULTS OF OPERATIONS

NET INCOME

     Net income for the three-month  and nine-month  periods ended September 30,
2001, was $6,174,000 and  $29,264,000  respectively,  compared to $9,226,000 and
$26,817,000 for the equivalent periods in 2000. The decrease for the three-month
period  ended  September  30, 2001 was  attributed  to the increase in loan loss
provision and noninterest expense,  offset by an increase in net interest income
and noninterest  income. For the nine-month period ended September 30, 2001, the
primary  reasons for the increase were an increase in net interest  income,  the
gain on the sale of the $1.0  billion  mortgage  servicing  rights  in the first
quarter, 2001, offset by increased loan loss provisions and noninterest expense.

     Diluted net income per common share was $0.29 and $1.38, respectively,  for
the  three-month and nine-month  periods ended  September 30, 2001,  compared to
$0.44  and  $1.27  for the  same  periods  in 2000.  Return  on  average  common
shareholders'  equity was 13.51% for the nine months ended  September  30, 2001,
compared to 14.41% in 2000. The return on total average assets was 1.18% for the
nine months ended September 30, 2001, compared to 1.20% in 2000.


NET INTEREST INCOME

     The taxable equivalent net interest income for the three-month period ended
September 30, 2001, was $30,795,000,  an increase of 13.15% over the same period
in 2000. The net interest margin on a fully taxable  equivalent  basis was 3.95%
for the three-month  period ended September 30, 2001,  compared to 3.83% for the
three-month  period ended  September 30, 2000. The fully taxable  equivalent net
interest  income  for the  nine-month  period  ended  September  30,  2001,  was
$89,275,000, an increase of 10.55% over 2000, resulting in a net yield of 3.96%,
which remained unchanged compared to the same period in 2000.

     Total average earning assets increased 9.34% and 10.65%, respectively,  for
the  three-month  and  nine-month  periods ended  September  30, 2001,  over the
comparative periods in 2000. Total average investment securities increased 5.31%
and 3.59%,  respectively for the three-month and the nine-month periods over one
year  ago  primarily  due to an  increase  of  investments  in  U.S.  Government
Securities. Average loans increased by 10.37% and 12.35% for the three-month and
nine-month periods,  compared to the same periods in 2000, due to growth in loan
volume in consumer,  commercial loans secured by transportation and construction
equipment and loans  secured by real estate.  The taxable  equivalent  yields on
total average  earning assets were 7.85% and 8.73% for the  three-month  periods
ended  September  30,  2001,  and 2000,  and 8.30% and 8.58% for the  nine-month
periods ended September 30, 2001, and 2000, respectively.

     Average  deposits  increased  9.94%  and  11.11%  for the  three-month  and
nine-month  periods over the same  periods  from 2000.  The cost rate on average
interest-bearing  funds was 4.46% and 5.63% for the three months ended September
30,  2001,  and 2000,  and 4.99% and  5.31%  for the  nine-month  periods  ended
September  30, 2001 and 2000.  The majority of the growth in deposits  from last
year has occurred in jumbo certificates of deposits.

     The following table sets forth consolidated  information  regarding average
balances and rates.

                                     - 11 -

<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(Dollars in thousands)
                                             Three Months Ended September 30
                                        ------------------------------------
                                           2001                       2000
                             --------------------------------------------------------
                                         Interest                    Interest
                               Average   Income/  Yield/   Average   Income/  Yield/
                               Balance   Expense   Rate    Balance   Expense   Rate
                               -------   -------   ----    -------   -------   ----
ASSETS:
<S>                            <C>         <C>     <C>     <C>         <C>     <C>
Investment securities:
  Taxable .................   $  409,423  $ 5,569  5.40%  $  363,281  $ 5,696  6.24%
  Tax exempt (1)...........      152,330    2,486  6.47%     170,147    2,888  6.75%
Net loans (2)(3)...........    2,512,027   53,008  8.37%   2,275,988   53,181  9.30%
Other investments .........       17,411      133  3.03%      17,797      281  6.28%
                              ----------  -------- -----  ----------  -------- -----

Total earning assets           3,091,191   61,196  7.85%   2,827,213   62,046  8.73%

Cash and due from banks ...      102,521                      95,995
Reserve for loan losses ...      (52,160)                    (42,210)
Other assets ..............      257,376                     219,669
                              ----------                  ----------

Total .....................   $3,398,928                  $3,100,667
                              ==========                  ==========

LIABILITIES AND SHAREHOLDERS' EQUITY:

  Interest bearing deposits   $2,341,770  $26,706  4.52%  $2,111,164  $29,243  5.51%
  Short-term borrowings ...      349,573    3,477  3.95%     339,863    5,362  6.28%
  Long-term debt ..........       12,035      218  7.19%      12,167      225  7.35%
                              ----------  -------  -----  ----------  -------  -----
Total interest bearing
  liabilities .............    2,703,378   30,401  4.46%   2,463,194   34,830  5.63%


  Noninterest bearing deposits   295,012                     287,252
  Other liabilities .......      101,286                      94,328
  Shareholders' equity ....      299,252                     255,893
                              ----------                  ----------

Total .....................   $3,398,928                  $3,100,667
                              ==========                  ==========
                                          -------                     -------
Net interest income .......               $30,795                     $27,216
                                          =======                     =======
Net yield on earning assets on a taxable           -----                       -----
  equivalent basis ........                        3.95%                       3.83%
                                                   =====                       =====

                                             Nine Months Ended September 30
                                        ------------------------------------
                                           2001                       2000
                             --------------------------------------------------------
                                         Interest                    Interest
                               Average   Income/  Yield/   Average   Income/  Yield/
                               Balance   Expense   Rate    Balance   Expense   Rate
                               -------   -------   ----    -------   -------   ----
ASSETS:

Investment securities:
  Taxable .................   $  397,082  $17,289  5.82%  $  362,253  $16,149  5.95%
  Tax exempt (1)...........      152,803    7,516  6.58%     168,569    8,643  6.85%
Net loans (2)(3)...........    2,449,950  161,787  8.83%   2,180,714  149,696  9.17%
Other investments .........       13,609      410  4.03%      11,823      522  5.90%
                              ----------  -------- -----  ----------  -------- -----

Total earning assets           3,013,444  187,002  8.30%   2,723,359  175,010  8.58%

Cash and due from banks ...       97,603                      97,861
Reserve for loan losses ...      (49,216)                    (40,855)
Other assets ..............      248,252                     213,468
                              ----------                  ----------

Total .....................   $3,310,083                  $2,993,833
                              ==========                  ==========

LIABILITIES AND SHAREHOLDERS' EQUITY:

  Interest bearing deposits   $2,270,193  $84,605  4.98%  $2,026,156  $78,928  5.20%
  Short-term borrowings ...      338,315   12,467  4.93%     330,879   14,659  5.92%
  Long-term debt ..........       12,118      655  7.23%      12,224      670  7.32%
                              ----------  -------  -----  ----------  -------  -----
Total interest bearing
  liabilities .............    2,620,626   97,727  4.99%   2,369,259   94,257  5.31%


  Noninterest bearing deposits   296,063                     283,536
  Other liabilities .......      103,826                      92,528
  Shareholders' equity ....      289,568                     248,510
                              ----------                  ----------

Total .....................   $3,310,083                  $2,993,833
                              ==========                  ==========
                                          -------                     -------
Net interest income .......               $89,275                     $80,753
                                          =======                     =======
Net yield on earning assets on a taxable           -----                       -----
  equivalent basis ........                        3.96%                       3.96%
                                                   =====                       =====

(1)  Interest  income  includes the effects of taxable  equivalent  adjustments,
     using a 35% rate for 2001 and  2000.  Tax  equivalent  adjustments  for the
     three-month  periods  were  $769 in  2001  and  $868  in  2000  and for the
     nine-month periods were $2,296 in 2001 and $2,629 in 2000.

(2)  Loan income includes fees on loans for the three-month periods of $1,359 in
     2001 and $1,299 in 2000 and for the nine-month periods of $4,346 in 2001 and
     $4,504 in 2000. Loan income also includes the effects of taxable equivalent
     adjustments,  using a 35%  rate  for  2001  and  2000.  The tax  equivalent
     adjustments  for the  three-month  periods were $70 in 2001 and $48 in 2000
     and for the  nine-month  periods  were $195 in 2001 and $137 in 2000.

(3)  For purposes of this  computation,  non-accruing  loans are included in the
     daily average loan amounts outstanding.

</TABLE>

                                     - 12 -

<PAGE>
PROVISION AND RESERVE FOR LOAN LOSSES

     The provision for loan losses for the  three-month  periods ended September
30,  2001,  and 2000,  was  $9,807,000  and  $1,292,000,  respectively,  and was
$21,566,000  and $9,888,000 for the nine-month  periods ended September 30, 2001
and  2000.  Net  Charge-offs  of  $5,882,000  have been  recorded  for the third
quarter,  compared to $1,004,000  for the second quarter 2001 and $3,065,000 for
the first quarter 2001.  Year-to-date  Net  Charge-offs of $9,951,000  have been
recorded in 2001,  compared to Net Charge-offs of $5,198,000  through  September
2000.  Loan  delinquencies  have  increased  to 2.90% on  September  30,2001  as
compared to 1.16% on September  30,2000 and 1.03% at the end of 2000. The recent
terrorist  attacks had a strong impact on the slowing  economy and  particularly
hampered durable goods manufacturing,  travel and entertainment businesses, auto
rental agencies and the  transportation  and air cargo industry.  As a result of
the September 11 events accelerating negative trends in the economy, the Company
added  substantially  to the loan loss  reserves and has increased the reserve's
percentage to total loans. Simultaneously, as has been the Company's policy, 1st
Source  aggressively  wrote down loans that are likely to be in serious  trouble
from a cash flow or collateral  coverage viewpoint.  Unfortunately,  the Company
does not  believe  the  economy  has  reflected  the full  effects of the recent
layoffs on business  across the country,  and believes it prudent to assume that
the present  economic  slump will deepen and will last  through  2002 into early
2003. A summary of loan loss  experience  during the three and nine months ended
September 30, 2001 and 2000 is provided below.
<TABLE>
<CAPTION>
                                                          Summary of Allowance for Loan Losses
                                                          ------------------------------------
                                                    Three Months Ended           Nine Months Ended
                                                       September 30                September 30
                                                    2001          2000          2001          2000
                                                  ---------     ---------     ---------     ---------
 <S>                                              <C>           <C>           <C>           <C>
 Reserve for loan losses - beginning balance     $   50,901    $   42,205    $   44,644    $   40,210
    Charge-offs                                      (6,068)         (731)      (10,734)       (5,994)
    Recoveries                                          186           484           783           496
                                                  ---------     ---------     ---------     ---------
 Net charge-offs                                     (5,882)         (247)       (9,951)       (5,198)

 Provision for loan losses                            9,807         1,292        21,566         9,888
 Recaptured reserve due to loan securitizations        (331)         (706)       (1,764)       (2,356)
 Acquired reserves from acquisitions                    596            --           596            --
                                                  ---------     ---------     ---------     ---------
 Reserve for loan losses - ending balance       $    55,091    $   42,544    $   55,091     $  42,544
                                                  =========     =========     =========     =========

 Loans outstanding at end of period               2,530,023     2,272,574     2,530,023     2,272,574
 Average loans outstanding during period          2,512,027     2,275,988     2,449,950     2,180,714

 Reserve for loan losses as a percentage of
    loans outstanding at end of period                 2.18%         1.87%         2.18%         1,87%
 Ratio of net charge-offs during period to
    average loans outstanding                          0.93%         0.04%         0.54%         0.32%
 </TABLE>

     It is management's  opinion that the reserve for loan losses is adequate to
absorb losses inherent in the loan portfolio as of September 30, 2001.


NONINTEREST INCOME

     Noninterest  income for the  three-month  periods ended September 30, 2001,
and 2000 was $19,932,000 and $16,500,000,  respectively, and was $70,014,000 and
$51,672,000  for the  nine-month  periods  ended  September  30,  2001 and 2000,
respectively.  For the nine-month  period,  trust fees increased 3.00%,  service
charges on deposit  accounts  increased  44.45%,  loan servicing and sale income
increased  61.71%,  equipment  rental income  increased  27.20% and other income
increased 17.70% over last year. For both the three-month and nine-month periods
ended  September  30, 2001,  service  charges on deposits  increased  due to the
implementation  of new deposit  products,  and equipment rental income increased
due to growth in operating leases. For the nine-month period ended September 30,
2001, servicing and sale income increased due to the $1 billion sale of mortgage
servicing rights in the first quarter,  2001.  Investment Security and other net
gains for the  nine-month  period  ended  September  30,  2001 were  $1,084,000,
compared to net gains of $497,000 for the same period in 2000. The net gains for
both years were primarily  attributed to certain partnership and venture capital
investments.

                                     - 13 -
<PAGE>

NONINTEREST EXPENSE

     Noninterest expense for the three-month period ended September 30, 2001 and
2000 was  $30,235,000  and  $26,715,000,  respectively,  and was $88,122,000 and
$77,144,000  for the  nine-month  period  ended  September  30,  2001 and  2000,
respectively.  For the nine-month period ended September 30, 2001,  salaries and
employee  benefits  increased  12.42%,  net occupancy  expense  increased 9.83%,
furniture  and  equipment  expense  increased  8.65%,   depreciation  on  leased
equipment increased 24.46%, supplies and communications expense increased 5.62%,
and business  development and marketing  expense  increased 16.43% over the same
period in 2000.  Salaries and employee  benefits  increased  primarily due to an
increase  in base  salaries,  mortgage  loan  commissions  and  group  insurance
expense.  The increase in depreciation of leased  equipment is due to the growth
in operating lease portfolio from the prior year.

INCOME TAXES

     The provision for income taxes for the three-month  and nine-month  periods
ended September 30, 2001, was $3,131,000 and $16,144,000, respectively, compared
to $4,967,000 and $14,024,000 for the comparable  periods in 2000. The provision
for income taxes for the nine months ended September 30, 2001, and 2000, is at a
rate which management believes approximates the effective rate for the year.


                                     ITEM 3.
           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     There have been no material  changes in market risk  exposures  that affect
the "Quantitative and Qualitative  Disclosures" presented in 1st Source's annual
report on Form 10-K for the year ended  December 31, 2000. See the discussion of
interest  rate  sensitivity  beginning  on  page  13 of  the  Annual  Report  to
Shareholders.

                                     - 14 -

<PAGE>
                           PART II. OTHER INFORMATION

ITEM 1.  Legal Proceedings.

         None

ITEM 2.  Changes in Securities.

         None

ITEM 3.  Defaults Upon Senior Securities.

         None

ITEM 4.  Submission of Matters to a Vote of Security Holders

         None

ITEM 5.  Other Information.

         None

ITEM 6.  Exhibits and Reports on Form 8-K.

         None


                                     - 15 -

<PAGE>
                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                      1st Source Corporation
                                        -------------------


DATE   11/10/01                       /s/ Christopher J. Murphy III
     ----------                     ----------------------------------------
                                    (Signature)
                                    Christopher J. Murphy III
                                    Chairman of the Board, President and CEO


DATE   11/10/01                       /s/ Larry E. Lentych
     ----------                     ----------------------------------------
                                     (Signature)
                                    Larry E. Lentych
                                    Treasurer and Chief Financial Officer



                                     - 16 -



</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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