form11-k.htm
 
 
 
 

 
 
 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

(Mark One)

 
    x  ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007


      o      TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________________ to ________________________

Commission File Number:  0-6233

                                                                           A.
Full title of the plan and the address of the plan, if different from that of the issuer named below:

1st SOURCE CORPORATION EMPLOYEES’ STOCK OWNERSHIP AND PROFIT SHARING PLAN 
 
B.        
Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:

 
     1st Source Corporation
    100 N. Michigan Street
     South Bend, Indiana  46601


 
 
 

 
SIGNATURES

The Plan.  Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
                                                                     1st SOURCE CORPORATION    
                                         EMPLOYEES’ STOCK OWNERSHIP AND PROFIT SHARING PLAN
                                                     

                                        By the Plan Administrator
                                        1st Source Corporation


                                                                     /s/TINA H. PERKINS
                                                                     Tina H. Perkins, Senior Vice President


Date:  June 30, 2008



 
 
 

 
 
Financial Statements and Supplemental Schedule
1st Source Corporation Employees’ Stock Ownership and Profit Sharing Plan
December 31, 2007 and 2006, and the Year Ended December 31, 2007
With Report of Independent Registered Public Accounting Firm


 
 
 

1st Source Corporation
Employees’ Stock Ownership and Profit Sharing Plan

Financial Statements and Supplemental Schedule

December 31, 2007 and 2006,
and the Year Ended December 31, 2007




Contents

 
Report of Independent Registered Public Accounting Firm                                                                        1

 
Financial Statements

 
Statements of Net Assets Available for Benefits                                                                              2
 
Statement of Changes in Net Assets Available for Benefits                                                                       3
 
Notes to Financial Statements                                                                                          4

 
Supplemental Schedule

 
Schedule H, Line 4i – Schedule of Assets (Held at End of Year)                                                                                                                                                                                                               13
 

 
 
 
 






Report of Independent Registered Public Accounting Firm

The Compensation and Human Resources Committee
of the Board of Directors
1st Source Corporation

We have audited the accompanying statements of net assets available for benefits of 1st Source Corporation Employees’ Stock Ownership and Profit Sharing Plan (the Plan) as of December 31, 2007 and 2006, and the related statement of changes in net assets available for benefits for the year ended December 31, 2007. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Plan’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 2007 and 2006, and the changes in its net assets available for benefits for the year ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.
 
Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2007, is presented for the purpose of additional analysis and is not a required part of the financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole.
 
/s/Ernst & Young LLP

Chicago, Illinois
June 27, 2008
 

 
-1-
 
 
 

 
Employees’ Stock Ownership and Profit Sharing Plan
  
             
Statements of Net Assets Available for Benefits
  
             
             
   
December 31
  
   
2007
    
2006
  
Assets
            
Cash
   $ 267,512     $ 42,834  
                 
Investments at fair value:
                
Mutual funds
     72,089,807       61,212,366  
1st Source Corporation common stock
     22,553,614       42,161,082  
1st Source Bank common trust fund
     7,292,603       6,750,955  
Participant notes receivable
     863,226       692,740  
Short-term investment fund
     102,358       96,693  
Total investments
     102,901,608       110,913,836  
                 
Employer contributions receivable
     3,862,048       3,376,602  
Accrued investment income
     421       426  
                 
Liabilities
                
Due to brokers, net
     –       15,598  
Net assets available for benefits, at fair value
     107,031,589       114,318,100  
Adjustment from fair value to contract value
                
for benefit-responsive investments contracts
     (18,186 )     29,159  
Net assets available for benefits
   $ 107,013,403     $ 114,347,259  
                 
See accompanying notes.
                
 

 
 
-2-
 



 
 
Employees’ Stock Ownership and Profit Sharing Plan
  
       
Statement of Changes in Net Assets Available for Benefits
  
       
Year Ended December 31, 2007
  
       
       
Additions
      
Investment income
   $ 2,355,766  
         
Contributions:
        
Employer
     3,878,164  
Employees
     4,651,880  
Rollover
     647,600  
      9,177,644  
         
Transfer of assets related to the Trustcorp plan merger
     4,278,287  
Net realized and unrealized (depreciation)/appreciation in fair
        
value of investments
     (15,632,528 )
Total additions
     179,169  
         
Deductions
        
Benefits paid to participants
     7,513,025  
Total deductions
     7,513,025  
Net (decrease)/increase in net assets available for benefits
     (7,333,856 )
         
Net assets available for benefits:
        
Beginning of year
     114,347,259  
End of year
   $ 107,013,403  
         
See accompanying notes.
        
 
 

 
-3-
 

 
1st Source Corporation
Employees’ Stock Ownership and Profit Sharing Plan

Notes to Financial Statements

December 31, 2007

 
1. Description of the Plan
 
General
 
The 1st Source Corporation Employees’ Stock Ownership and Profit Sharing Plan (the Plan) is a defined-contribution plan covering substantially all employees of 1st Source Corporation (1st Source) and its subsidiaries, with the exception of First National Bank, Valparaiso. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
 
Effective May 23, 2007, the Trustcorp Mortgage Company Employee Retirement Savings Plan was merged into the Plan.
 
Contributions and Vesting
 
Participants are permitted to designate up to $15,500 or 100% (25% prior to October 1, 2006) of their annual pretax compensation, as defined, as a salary reduction contribution to the Plan. In addition, participants age 50 or older may elect to defer up to an additional $5,000 (in 2007 and 2006 called catch-up contributions) to the Plan. Participants direct the investment of their contributions into various investment options offered by the Plan. The Plan currently offers eleven different fund options, one of which is the 1st Source Stock Fund, which primarily consists of 1st Source common stock.
 
The Plan provides for the following 1st Source contributions:
 
Matching contribution – amount is discretionary but may not exceed 100% of the first 4% of a participant’s compensation contributed to the Plan and 50% of the next 2% of a participant’s compensation contributed to the Plan.
 
Fixed profit sharing contribution – equals 2% of each eligible participant’s annual compensation.
 
Discretionary profit sharing contribution – amount is discretionary as determined annually by the Board of Directors.
 
Regular contribution – amount is discretionary as determined annually by the Board of Directors.
 
 
 
-4-

 
1st Source Corporation
Employees’ Stock Ownership and Profit Sharing Plan

Notes to Financial Statements (continued)

 
1. Description of the Plan (continued)
 
All 1st Source contributions may be made in either cash or shares of 1st Source common stock. Cash contributions are invested in a diversified portfolio of funds as directed by the 1st Source Retirement Plan Committee.
 
Effective October 1, 2006, the Plan was amended to provide participants with an ESOP account and a 401k account. The ESOP account is made up of participant and 1st Source contributions invested in 1st Source common stock and cash not yet invested in common stock. The 401k account consists of participant and 1st Source contributions not invested in 1st Source common stock, including amounts previously included in the ESOP account a participant elects to diversify. Participants may elect to have dividends paid on the 1st Source common stock held in their ESOP account either paid in cash or remain in the Plan and be reinvested in additional shares of 1st Source common stock.
 
Vesting of participant contributions is immediate upon contribution to the Plan. Vesting of 1st Source employer contributions, including matching discretionary profit sharing and discretionary 2%, is based on years of credited service. A participant is 100% vested after five years of credited service or upon reaching early retirement age, normal retirement age, or disability.
 
Forfeitures of nonvested terminated participants’ accounts are distributed among remaining participants. The forfeiture balance was $27,752 at December 31, 2007.
 
Each participant’s account is credited with the participant’s contribution and an allocation of: (a) 1st Source’s contribution, (b) the Plan’s earnings, and (c) forfeitures of terminated participants’ nonvested accounts. Allocations are based on participant compensation or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account balance.
 
 
 
-5-
 
1st Source Corporation
Employees’ Stock Ownership and Profit Sharing Plan

Notes to Financial Statements (continued)

 
1. Description of the Plan (continued)
 
Participant Loans
 
Participants may borrow from the Plan amounts not to exceed the lesser of one-half of the participant’s vested balance from his or her 401k account or $50,000. The loans are collateralized by the participant’s vested account balance and bear interest at fixed rates of 1% above 1st Source Bank’s (a wholly owned subsidiary of 1st Source) prime rate. The loans are repayable over five years except for loans used to acquire or construct a participant’s principal residence, in which case the repayment term may exceed five years.
 
Payment of Benefits
 
On termination of service, a participant generally receives a lump-sum amount equal to the value of his or her vested account balance. Prior to October 1, 2006, participants were permitted to receive periodic installments of their vested account balances. Benefits of money purchase account amounts are subject to joint and survivor and qualified preretirement survivor annuity requirements
 
Plan Termination
 
Although it has not expressed any intention to do so, 1st Source has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become fully vested in their accounts.
 
The foregoing description of the Plan provides only general information. Participants should refer to the Plan Agreement for a more complete description of the Plan’s provisions. Copies are available from the 1st Source Human Resources Division.
 
 
-6-
 
 
1st Source Corporation
Employees’ Stock Ownership and Profit Sharing Plan

Notes to Financial Statements (continued)
 
 

2. Summary of Significant Accounting Policies
 
Investment Valuation
 
Investments are stated at fair value. Securities traded on a national securities exchange are valued at the average of the reported sales prices for the last five business days of the plan year; securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the average of the last reported bid-and-ask prices. The fair value of mutual funds is stated at the net asset value as reported by the funds on the last business day of the plan year. Loans to participants are stated at cost, which approximates fair value.
 
As described in Financial Accounting Standards Board (FASB) Staff Position (FSP) AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (the FSP), investment contracts held by a defined-contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. The Plan invests in investment contracts through 1st Source Bank Employee Benefit Guaranteed Income Fund (Guaranteed Income Fund), a common/collective trust. As required by the FSP, the statements of net assets available for benefits present the fair value of the Guaranteed Income Fund and the adjustment from fair value to contract value. The fair value of the Plan’s interest in the Guaranteed Income Fund is based on information reported by 1st Source Bank, the issuer of the common collective trust fund, at year-end. The contract value of the Guaranteed Income Fund represents contributions plus earnings, less participant withdrawals and administrative expenses.

Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
 
Use of Estimates
 
The financial statements of the Plan are presented on the accrual basis and are prepared in conformity with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.
 
 
-7-
 

2. Summary of Significant Accounting Policies (continued)
 
New Accounting Pronouncement
 
In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 is effective for accounting periods beginning after November 15, 2007. 1st Source is currently evaluating the impact, if any, that the adoption of SFAS No. 157 will have on the Plan’s financial statements.
 
3. Investments
 
During 2007, the Plan’s investments (including investments purchased, sold, as well as held during the year) (depreciated)/appreciated in value as follows:
 
   
Net
(Depreciation)/
Appreciation
in Fair Value During the Year
  
       
1st Source Corporation common stock
   $ (20,017,612 )
Mutual funds
     4,120,142  
1st Source Bank common trust funds
     264,942  
    $ (15,632,528 )
 
 
 
-8-

 
1st Source Corporation
Employees’ Stock Ownership and Profit Sharing Plan

Notes to Financial Statements (continued)
 

 
3. Investments (continued)
 
The fair value of individual investments that represent 5% or more of the fair value of the Plan’s net assets are as follows:
 
   
2007
    
2006
  
             
1st Source Corporation common stock*
   $ 22,553,614     $ 42,161,082  
1st Source Monogram Income Fund*
     11,467,007       10,108,517  
1st Source Monogram Income Equity Fund*
     18,643,244       12,106,633  
Morgan Stanley Institutional International
Equity Fund A*
     13,813,474       11,329,135  
1st Source Bank Employee Benefit Guaranteed
Income Fund*
     7,292,603       6,750,955  
1st Source Bank Employee Benefit Balanced Fund*
     8,976,487       8,389,262  
1st Source Bank Employee Benefit Aggressive Fund*
     11,908,728       11,054,512  
 
*Includes non-participant-directed investments.
 
 
 
-9-
 
 
1st Source Corporation
Employees’ Stock Ownership and Profit Sharing Plan

Notes to Financial Statements (continued)


 
4. Non-Participant-Directed Investments
 
Non-participant-directed investments are the moneys put into employees accounts by the employer (match, profit sharing and 2%). Employees do not get to select or direct which funds or investments the employer contributions go into.
 
Information about the net assets and the significant components of the changes in net assets relating to the non-participant-directed investment is as follows:
 
   
December 31
  
   
2007
    
2006
  
Net assets
            
Cash
   $ 139     $ 14  
1st Source Corporation common stock
     18,112       35,020,339  
1st Source Corporation mutual funds
     25,000,885       21,790,675  
1st Source Bank Employee Benefit Guaranteed
Income Fund
     3,143,916       3,286,538  
Total net assets
   $ 28,163,052     $ 60,097,566  

 
   
Year Ended December 31, 2007
  
Changes in net assets
      
Contributions
   $ 2,768,137  
Investment income
     1,779,488  
Net realized/unrealized (depreciation)/appreciation
     (32,302,698 )
Benefits paid to participants
     (4,179,441 )
Total changes in net assets
   $ (31,934,514 )

 
 
-10-
 
 
1st Source Corporation
Employees’ Stock Ownership and Profit Sharing Plan

Notes to Financial Statements (continued)

 

5. Transactions With Parties in Interest
 
The Plan held the following party-in-interest investments at fair value at December 31:
 
   
2007
    
2006
  
             
1st Source Corporation common stock
   $ 22,553,614     $ 42,161,082  
1st Source Monogram Income Fund
     11,467,007       10,108,517  
1st Source Monogram Income Equity Fund
     18,643,244       12,106,633  
1st Source Monogram Diversified Equity Fund
     –       3,454,969  
1st Source Monogram Special Equity Fund
     –       2,118,425  
1st Source Bank Employee Benefit Guaranteed
Income Fund
     7,292,603       6,750,955  
1st Source Monogram Long/Short Fund
     3,301,933       2,648,908  
1st Source Bank Employee Benefit Balanced Fund
     8,976,487       8,389,262  
1st Source Bank Employee Benefit Aggressive Fund
     11,908,728       11,054,513  
1st Source Bank Employee Benefit Low Risk Fund
     –       2,004  
Loans to participants
     863,226       692,740  

All expenses incurred in administration of the Plan are paid by 1st Source.
 
6. Income Tax Status
 
The Plan has received a determination letter from the Internal Revenue Service (IRS) dated June 24, 2003, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (the Code), and therefore, the related trust is exempt from taxation. Subsequent to this determination by the IRS, the Plan was amended and restated. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The plan administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan, as amended and restated, is qualified and the related trust is tax-exempt.
 
 
-11-
 
 
1st Source Corporation
Employees’ Stock Ownership and Profit Sharing Plan

Notes to Financial Statements (continued)

 
7. Risks and Uncertainties
 
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risks associated with certain investment securities, it is likely that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits.
 
8. Reconciliation
 
The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500:
 
   
December 31
  
   
2007
    
2006
  
Net assets available for benefits per the financial statements
   $ 107,013,403     $ 114,347,259  
Adjustment from fair value to contract value for benefit- responsive investment contracts
     18,186       (29,159 )
Net assets available for benefits per the Form 5500
   $ 107,031,589     $ 114,318,100  

9. Subsequent Events
 
Effective January 1, 2008, the First National Bank, Valparaiso Employees’ Retirement and Savings Investment Plan was merged into the Plan.
 

 

 
-12-
 

 


Supplemental Schedule


 
 



Employees’ Stock Ownership and Profit Sharing Plan
               
Schedule H, Line 4i – Schedule of Assets
(Held at End of Year)
               
EIN: 35-1068133 Plan Number: 003
               
December 31, 2007
               
               
Identity of Issuer, Borrower,
Description of
            
Lessor, or Similar Party
Investment
  
Cost
    
Current Value
  
               
Common stock:
              
1st Source Corporation*
1,302,924 shares
   $ 18,727,900     $ 22,553,614  
Goldman Sachs Prime Obligation Fund
102,358 units
     102,358       102,358  
                   
Mutual funds:
                  
Morgan Stanley Institutional
                  
International Equity Fund A
730,099 shares
     14,522,098       13,813,474  
1st Source Monogram Long/Short Fund*
285,318 shares
     3,226,691       3,301,133  
1st Source Monogram Income Fund*
1,170,103 shares
     11,631,581       11,467,007  
1st Source Monogram Income Equity Fund*
1,216,128 shares
     16,449,107       18,643,244  
Stratton Small Cap Value Fund  STRF 120 Days
51,167 shares
     2,565,497       2,360,864  
Fidelity Contrafund #022
16,723 shares
     1,172,636       1,222,640  
1st Source Bank Employee Benefit Balanced Fund*
543,312 shares
     8,238,323       8,976,487  
1st Source Bank Employee Benefit Aggressive Fund*
702,067 shares
     10,747,613       11,908,728  
Vanguard 500 Index Fund
3,549 shares
     394,950       396,230  
        68,948,496       72,089,807  
                   
Common trust fund:
                  
1st Source Bank Employee Benefit
                  
 Guaranteed Income Fund*
263,383 units
     6,360,204       7,292,603  
                   
Loans to participants*
$863,226 principal
                
 
amount, interest rates
             .  
 
ranging 5.00%–11.50%,
                
 
maturities through 2020
     –       863,226  
      $ 94,138,958     $ 102,901,608  
                   
*Indicates party in interest to the Plan.
                  
 

 
 
-13-