1ST SOURCE CORP, DEF 14A, 1999-03-08

1ST SOURCE CORP
DEF 14A, 1999-03-08
STATE COMMERCIAL BANKS

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<PAGE> 1

SCHEDULE 14A
(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the registrant [ ]

Filed by a party other than the registrant [ ]

Check the appropriate box:

[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))

[X] Definitive proxy statement

[ ] Definitive additional materials

[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
1ST SOURCE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
1ST SOURCE CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of filing fee (Check the appropriate box):

[ ] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.

(1) Title of each class of securities to which transaction applies:

- --------------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

- --------------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):

- --------------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

- --------------------------------------------------------------------------------

(5) Total fee paid:

- --------------------------------------------------------------------------------

[ ] Fee paid previously with preliminary materials.

- --------------------------------------------------------------------------------

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.

(1) Amount previously paid:

- --------------------------------------------------------------------------------

(2) Form, schedule or registration statement no.:

- --------------------------------------------------------------------------------

(3) Filing party:

- --------------------------------------------------------------------------------

(4) Date filed:

- --------------------------------------------------------------------------------
<PAGE> 2
[1st Source Corporation Logo]
Post Office Box 1602
100 North Michigan Street
South Bend, Indiana 46634

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
AND PROXY STATEMENT

TO THE SHAREHOLDERS OF 1ST SOURCE CORPORATION

The Annual Meeting of the Shareholders of 1st Source Corporation will be
held at the 1st Source Center, 4th Floor Boardroom, 100 North Michigan Street,
South Bend, Indiana, on April 15, 1999, at 10:00 a.m. local time, for the
purpose of considering and voting upon the following matters:

1. ELECTION OF DIRECTORS. Election of one Director and reelection of three
Directors for terms expiring in 2002.

2. OTHER BUSINESS. Such other matters as may properly come before the
meeting or any adjournment thereof.

Shareholders of record at the close of business on February 16, 1999, are
entitled to vote at the meeting.

By Order of the Board of Directors

Vincent A. Tamburo
Secretary

South Bend, Indiana
March 8, 1999

- --------------------------------------------------------------------------------

PLEASE DATE AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE. IF YOU DO ATTEND THE MEETING, YOU MAY, NEVERTHELESS, VOTE
IN PERSON.

- --------------------------------------------------------------------------------

<PAGE> 3

[1st Source Corporation Logo]
Post Office Box 1602
100 North Michigan Street
South Bend, Indiana 46634

PROXY STATEMENT

This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of proxies to be voted at the Annual Meeting of
Shareholders of 1st Source Corporation ("1st Source"), to be held on April 15,
1999, at 10:00 a.m. local time, at the 1st Source Center, 4th Floor Boardroom,
100 North Michigan Street, South Bend, Indiana. Only Shareholders of record at
the close of business on February 16, 1999, will be eligible to vote at the
Annual Meeting. The voting securities of 1st Source consist only of Common
Stock, of which 19,069,575 shares were outstanding on the record date. Each
Shareholder of record on the record date will be entitled to one vote for each
share. Cumulative voting is not authorized. The approximate date for making
available this Proxy Statement and the form of proxy to Shareholders is March 8,
1999. With respect to each matter to be acted upon at the meeting, abstentions
on properly executed proxy cards will be counted for determining a quorum at the
meeting; however, such abstentions and shares not voted by brokers and other
entities holding shares on behalf of beneficial owners will not be counted in
calculating voting results on those matters for which the shareholder has
abstained or the broker has not voted.

The cost of solicitation of proxies will be borne by 1st Source. In
addition to the use of mails, proxies may be solicited through personal
interview, telephone, and telegraph by directors, officers and regular employees
of 1st Source without additional remuneration therefor.

REVOCABILITY

Shareholders may revoke their proxies at any time prior to the meeting by
giving written notice to Vincent A. Tamburo, Secretary, 1st Source Corporation,
Post Office Box 1602, South Bend, Indiana 46634, or by voting in person at the
meeting.

PERSONS MAKING THE SOLICITATION

This solicitation is being made by the Board of Directors of 1st Source.

<PAGE> 4

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

Ownership of beneficial owners of more than 5% of the Common Stock
outstanding at February 16, 1999:

<TABLE>
<CAPTION>
NAME AND ADDRESS TYPE OF OWNERSHIP AMOUNT % OF CLASS
- ---------------- ----------------- ------ ----------
<S> <C> <C> <C>
Ernestine M. Raclin (1) Indirect(2) 6,064,730 31.80%
========= =====
100 North Michigan Street
South Bend, IN 46601

Christopher J. Murphy III Direct 593,876 3.11%
100 North Michigan Street
South Bend, IN 46601 Indirect(3) 1,275,429 6.69%
--------- ----
Total 1,869,305 9.80%
========= ====

1st Source Bank as Trustee Direct 1,142,795 5.99%
========= ====
for the 1st Source
Corporation Employees'
Profit Sharing Plan and Trust
</TABLE>

(1) Mrs. Raclin is the mother-in-law of Mr. Murphy.
(2) Owned indirectly by Mrs. Raclin who disclaims beneficial ownership
thereof. Most of these securities are held in trust. While Mrs. Raclin is an
income beneficiary of many of these trusts, the ultimate benefit and ownership
will reside in her children and grandchildren.
(3) Owned indirectly by Mr. Murphy who disclaims beneficial ownership
thereof. The securities are held by Mr. Murphy's wife and children, or in trust
for the benefit of his wife and children. Mr. Murphy is not a current income
beneficiary of most of the trusts.

INTEREST OF CERTAIN PERSONS IN MATTERS
TO BE ACTED UPON

The Board of Directors knows of no matters to come before the Annual
Meeting other than the matters referred to in this Proxy Statement. However, if
any other matters should properly come before the meeting, the persons named in
the enclosed proxy intend to vote in accordance with their best judgment. No
director, nominee for election as director, nor officer of 1st Source has any
special interest in any matter to be voted upon other than election to the Board
of Directors. Directors, officers, and voting trustees have indicated that they
intend to vote for all directors as listed in Proposal Number 1.

PROPOSAL NUMBER 1: ELECTION OF DIRECTORS
DIRECTORS AND EXECUTIVE OFFICERS

The last Shareholders' meeting at which directors were elected was held on
April 16, 1998. At that meeting, 90.6% of the shares outstanding were
represented in person or by proxy. Directors were voted upon separately. All
directors received a majority of the votes cast.

The Board of Directors is divided into three (3) groups of directors whose
terms expire at different times. At this meeting, one (1) director is to be
elected and three (3) directors are to be reelected to hold office until April,
2002, or until the qualification and election of a successor. Directors will be
elected by a plurality of the votes cast. The following information is submitted
for each nominee as well as each director and each non-director executive
officer continuing in office.

<PAGE> 5

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF EQUITY SECURITIES(1)
-----------------------
YEAR
IN WHICH
DIRECTORSHIP COMMON % OF
NAME AGE PRINCIPAL OCCUPATION(3) ASSUMED STOCK (2) CLASS
- ---- --- ----------------------- ------- --------- -----
<S> <C> <C> <C> <C> <C>

NOMINEE FOR ELECTION TO THE BOARD OF DIRECTORS

Term Expiring in April, 2002

Timothy K. Ozark 49 Chairman and Chief Executive 1,500 *
Officer, Aim Financial
Corporation (mezzanine
funding and leasing);
President and Chief
Executive Officer, TKO
Finance Corporation
(lender to financial
services and
manufacturing companies)

NOMINEES FOR REELECTION TO THE BOARD OF DIRECTORS

Terms Expiring in April, 2002

Lawrence E. Hiler 53 Chairman, 1992 1,966 *
Hiler Industries
(metal castings)

Rex Martin 47 Chairman, President and 1996 1,513 *
Chief Executive Officer,
NIBCO, Inc. (copper
and plastic plumbing parts
manufacturer)

Christopher J. Murphy III 52 Chairman of the Board, 1972 1,869,305 9.80%
President, and Chief
Executive Officer, 1st
Source Corporation;
Chairman of the Board
and Chief Executive
Officer, 1st Source
Bank; prior thereto,
President and Chief
Executive Officer, 1st
Source Corporation and
1st Source Bank;
Director, Comair, Inc.
and Quality Dining, Inc.
</TABLE>

<PAGE> 6

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF EQUITY SECURITIES(1)
-----------------------
YEAR
IN WHICH
DIRECTORSHIP COMMON % OF
NAME AGE PRINCIPAL OCCUPATION(3) ASSUMED STOCK (2) CLASS
- ---- ---- ----------------------- ------- --------- -----
<S> <C> <C> <C> <C> <C>
DIRECTORS CONTINUING IN OFFICE

Terms Expiring in April, 2000
Rev. E. William Beauchamp, 56 Executive Vice President, 1989 557 *
C.S.C University of Notre Dame

Paul R. Bowles 61 Former Vice President, 1988 9,900 *
Corporate Development,
Clark Equipment Company
(off-highway components
and construction machinery
manufacturing)

William P. Johnson 56 Chairman and Chief 1996 880 *
Executive Officer,
Goshen Rubber Co., Inc.
(rubber and plastic parts
manufacturer); Director,
Coachman Industries, Inc.

Richard J. Pfeil 66 Chairman and President, 1971 31,303 *
Koontz-Wagner Electric
Company, Inc. (electrical
equipment installer and
supplier)

Terms Expiring in April, 2001
Philip J. Faccenda 69 General Counsel Emeritus, 1983 849,424 4.45%
University of Notre Dame;
Director, Hilb, Rogal &
Hamilton

Daniel B. Fitzpatrick 41 Chairman, President, 1995 20,744 *
Chief Executive Officer
and Director, Quality
Dining, Inc. (quick
service and casual dining
restaurant operator)
</TABLE>

<PAGE> 7

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF EQUITY SECURITIES(1)
-----------------------
YEAR
IN WHICH
DIRECTORSHIP COMMON % OF
NAME AGE PRINCIPAL OCCUPATION(3) ASSUMED STOCK (2) CLASS
- ---- ---- ----------------------- ------- --------- -----
<S> <C> <C> <C> <C> <C>

Wellington D. Jones III 54 Executive Vice President, 1998 185,885 *
1st Source Corporation, and
President and Chief Operat-
ing Officer, 1st Source Bank;
prior thereto, Executive
Vice President, 1st Source
Corporation and 1st Source
Bank

Dane A. Miller, Ph.D. 53 President, Chief Executive 1987 17,056 *
Officer and Director,
Biomet, Inc. (medical
products and technology)

NON-DIRECTOR EXECUTIVE OFFICERS

Richard Q. Stifel 57 Executive Vice President, 77,261 *
1st Source Bank

Allen R. Qualey 46 President and Chief Operating 49,732 *
Officer, Specialty Finance
Group, 1st Source Bank;
prior thereto, Executive Vice
President and Senior Vice
President

Vincent A. Tamburo 64 Senior Vice President, 57,875 *
General Counsel and Secre-
tary, 1st Source Corporation
and 1st Source Bank

Larry E. Lentych 52 Senior Vice President, 49,244 *
Treasurer and Chief Financial
Officer, 1st Source Corpo-
ration and 1st Source Bank

All Directors and Executive Officers as a Group (16 persons) 3,224,145 16.91%
</TABLE>

<PAGE> 8

* Represents holdings of less than 1%.

(1) Based on information furnished by the directors and executive officers as of
February 16, 1999.

(2) The amounts shown include shares of Common Stock held directly or indirectly
in the following amounts by the spouse and other family members of the
immediate household of the following director, who disclaims beneficial
ownership of such securities: Christopher J. Murphy III, 1,275,429 shares.
Voting authority for 893,603 shares owned beneficially by Mr. Murphy is
vested in 1st Source Bank as Trustee for various family trusts. Investment
authority for those shares is held by 1st Source Bank as Trustee of the
underlying trusts. Mr. Faccenda holds 820,462 shares in fiduciary capacity
as Trustee of two (2) trusts for the benefit of Mrs. Raclin.

(3) The principal occupation represents the employment for the last five years
for each of the named directors and executive officers. Directorships
presently held in other registered corporations are also disclosed.

Directors and officers of 1st Source and their associates were customers of
and had transactions with 1st Source and its subsidiaries in the ordinary course
of business during 1998; additional transactions are expected to take place in
the ordinary course of business in the future. All outstanding loans and
commitments were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risk of collectibility,
or present other unfavorable features. Credit underwriting procedures followed
were no less stringent than those for comparable transactions with other
borrowers.

BOARD COMMITTEES

1st Source and its major subsidiary, 1st Source Bank, share the following
permanent committees made up of board members of both organizations. Executive,
Audit, Human Resources and Executive Compensation Committee members are
appointed annually after the Annual Meeting of Shareholders.

Executive Committee -- Members of the Executive Committee are Christopher J.
Murphy III, Chairman; Paul R. Bowles, Philip J. Faccenda, Daniel B. Fitzpatrick,
Rex Martin, and Richard J. Pfeil. The committee met one (1) time in 1998. The
committee has the power to act for the Board of Directors between Board meetings
subject to certain statutory limitations. The committee also carries out the
functions of the Nominating Committee and will consider nominees for election to
the Board of Directors recommended by Shareholders, if submitted in writing at
least 120 days prior to the next Annual Meeting to be held on or about April 15,
2000. Nominations should be addressed to the attention of the Chairman,
Executive Committee, c/o 1st Source Corporation.

Audit Committee -- Members of the Audit Committee are William P. Johnson,
Chairman; Rev. E. William Beauchamp, Philip J. Faccenda, Rex Martin, Dane A.
Miller and Richard J. Pfeil, 1st Source Directors; H. Thomas Jackson, John T.
Phair and Elmer H. Tepe, 1st Source Bank Directors. The committee held four (4)
meetings in 1998. The function of the Audit Committee is to review the scope and
results of the audits by the internal audit staff and the

<PAGE> 9

independent accountants. The committee also reviews the adequacy of the
accounting and financial controls and presents the results to the Board of
Directors with respect to accounting practices and internal procedures. It also
makes recommendations for improvements in such procedures.

HUMAN RESOURCES COMMITTEE -- Members of the Human Resources Committee are
Terry L. Gerber, 1st Source Bank Director, Chairman, Paul R. Bowles, Daniel B.
Fitzpatrick, Lawrence E. Hiler and Richard J. Pfeil, 1st Source Directors; Ann
M. Hillman, Hollis E. Hughes, Jr., David L. Lerman, Craig A. Kapson and Mark D.
Schwabero, 1st Source Bank Directors. The committee held four (4) meetings in
1998. The purpose of the committee is to establish wage and benefit policies for
1st Source and its subsidiaries and to approve individual salary and benefit
plans for the senior officers of 1st Source Bank.

EXECUTIVE COMPENSATION COMMITTEE -- Members of the Executive Compensation
Committee are Philip J. Faccenda, Chairman; Paul R. Bowles, Rex Martin and
Richard J. Pfeil. The committee held one (1) meeting in 1998. The Executive
Compensation Committee determines compensation for senior management personnel,
reviews the Chief Executive Officer and manages the company's stock plans.

MEETINGS OF THE BOARD OF DIRECTORS AND DIRECTORS' COMPENSATION -- The Board of
Directors held five (5) meetings in 1998. Incumbent directors who attended fewer
than 75% of the aggregate total meetings of the Board of Directors and all
committees of the board of 1st Source on which they served were Rev. E. William
Beauchamp and William P. Johnson. Directors receive fees in the amount of $6,000
per year, and $350 per board meeting and committee meeting attended. Committee
chairpersons receive $400 per meeting. Total fees paid in 1998 were $160,310.

REMUNERATION OF EXECUTIVE OFFICERS

The following tables set forth all aggregate remuneration accrued by 1st
Source and its subsidiaries for 1998 for 1st Source's chief executive officer
and each of 1st Source's other four most highly compensated executive officers.

<PAGE> 10

SUMMARY COMPENSATION TABLE

ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------------------------------------------ -------------------------
(A) (B) (C) (D) (E) (F) (G) (H)
SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR SALARY BONUS(3) COMPENSATION OPTIONS (#SH) PAYOUTS(3) COMPENSATION(4)
- ------------------------------ ---- ------ -------- ------------ ------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Christopher J. Murphy III 1998 $461,592 $891,780 $25,680 110,000 $243,151 $133,716
Chairman, President & CEO, 1997 414,515 633,405 25,190 - 217,463 13,989
1st Source, and Chairman 1996 389,077 105,300 24,114 53,543 169,936 13,080
& CEO, 1st Source Bank

Wellington D. Jones III 1998 249,335 59,500 10,953 55,000 78,120 14,544
Executive Vice President 1997 202,145 656,613 6,190 - 70,826 13,989
1st Source, and President 1996 188,500 33,750 6,633 20,722 55,805 13,080
& COO, 1st Source Bank

Allen R. Qualey(2) 1998 173,077 46,350 2,809 55,000 41,787 14,544
President and COO, 1997 145,385 34,050 2,536 12,100 36,278 13,989
Specialty Finance Group,
1st Source Bank

Richard Q. Stifel 1998 169,610 24,875 4,246 33,000 47,549 14,544
Executive Vice President 1997 152,461 207,505 4,133 - 43,771 13,989
1st Source Bank 1996 144,154 12,000 4,869 14,823 36,185 13,080

Larry E. Lentych 1998 135,890 26,850 1,634 33,000 47,354 12,968
Senior Vice President,
Treasurer and CFO,
1st Source and
1st Source Bank
</TABLE>

<PAGE> 11

(1) Mr. Murphy, Mr. Jones, Mr. Qualey, Mr. Stifel, and Mr. Lentych (the
"Executives") signed Employment Agreements (the "Agreements") in April 1998.
Mr. Murphy's Agreement provides for a $450,000 base salary, increasing to
$500,000 effective March 1, 1999, with annual increases thereafter of not
less than 5% and cash bonus payments based on a formula computed in a manner
similar to the awards to executives under the Executive Incentive Plan and
Long-Term Executive Award Program. Under the other four Agreements Mr.
Jones, Mr. Qualey, Mr. Stifel and Mr. Lentych will receive base salaries of
$250,000, $175,000, $165,000 and $135,000, respectively, with annual
increases as may be determined by 1st Source, and cash and stock bonuses
determined under the Executive Incentive Plan and the Long-Term Executive
Award Program. The Agreements permit gross-up payments necessary to cover
possible excise tax payments by the Executives and to reimburse the
Executives for legal fees that might be expended in enforcing the
Agreements' provisions or contesting tax issues relating to the Agreements'
parachute provisions. Mr. Murphy's Agreement is a five-year agreement which
is extended from year to year unless either party gives notice not to
extend. The Agreements for Mr. Jones, Mr. Qualey, Mr. Stifel, and Mr.
Lentych expire on December 31 of the years 2003, 2003, 2001, and 2001,
respectively. In each case their Agreement will be extended from year to
year thereafter unless either party gives notice not to extend. In the event
of disability, the Executives will receive their base salary for up to one
year, in addition to other disability programs in effect for all officers of
1st Source. Additionally, 1st Source has eliminated death benefits
previously provided to Mr. Murphy and instead has entered into a
split-dollar life insurance agreement with Mr. Murphy which insures the
lives of Mr. Murphy and his wife for $10.2 million. If any of the Executives
terminate employment because of any adverse change in their status, he will
continue to receive his base salary for a period of twelve months after his
termination. If any of the Executives terminate employment within one year
of a change in control (which term includes any third party which becomes
beneficial owner of 50%, or in the case of Mr. Murphy, 20%, or more of the
outstanding stock of 1st Source, the election of a majority of new directors
in connections with a sale, merger, other business combination or contested
Board of Directors election, or any approval of any transaction which
results in a disposition of substantially all of the assets of 1st Source),
he will receive severance pay in cash equal to 2.99 times his "Annualized
Includable Compensation" (as defined under the Internal Revenue Code of
1986, as amended.) The Agreements also include restrictive covenants which
provide, among other things, that the Executives not compete with 1st Source
in bank or bank-related services within certain designated counties of
Indiana or divulge confidential information or trade secrets for a
twenty-four month period after termination of employment.

(2) Mr. Qualey became an executive officer in 1997.

(3) 1st Source has an Executive Incentive Plan (the "Plan") which is
administered by the Executive Compensation Committee (the "Committee") of
the Board. Awards under the Plan consist of cash and "Book Value" shares of
Common Stock. "Book Value" shares are awarded annually on a discretionary
basis and are subject to forfeiture over a period of five (5) years. The
Plan shares may only be sold to 1st Source, and such sale is mandatory in
the event of death, retirement, disability or termination of employment. 1st
Source may terminate or extend the Plan at any time.

<PAGE> 12

During February 1996 and March 1991, 1st Source granted special long-term
incentive awards (the "Awards") to participants in the Executive Incentive
Plan administered by the Committee. The 1996 Award was granted for the
attainment of the company's long-term goals for 1995 which were set in
1990. The 1991 Award was granted for the attainment of the company's
long-term return on assets goal for 1990, set in 1986. Both Awards were
split between cash and 1st Source Common Stock valued at the market price
at the time of the award. Such shares are subject to forfeiture over a
period of ten (10) years. The first 10% of these shares was vested at the
grant of the Award. Subsequent vesting requires (i) the participant to
remain an employee of 1st Source and (ii) that 1st Source be profitable on
an annual basis based on the determination of the Committee.

1st Source also has a Restricted Stock Award Plan (the "Restricted Plan")
for key employees. Awards under the Restricted Plan are made to employees
recommended by the Chief Executive Officer and approved by the Committee.
Shares awarded under the Restricted Plan are subject to forfeiture over a
ten (10) year period. Vesting is based upon meeting certain criteria,
including continued employment by 1st Source.

The bonus amounts represent the annual cash awards under the Plan, the 1998
Performance Compensation Plan and other cash bonuses. Vested stock under
the Plan, the Awards and the Restricted Plan is included in the LTIP
column. The value placed on "Book Value" shares is the book value per share
as of December 31 of each year. The value placed on market value shares is
market value as of December 31 of each year. Mr. Murphy receives this
vested amount in cash.

Unvested stock holdings under the Plan, the Awards and the Restricted Plan
as of December 31, 1998, are as follows:

Book Value Market Value Calculated
Name Shares Shares Value
---- ------ ------ -----
Christopher J. Murphy III 34,487 8,627 $651,400
Wellington D. Jones III 12,848 2,555 222,608
Allen R. Qualey 10,419 1,236 155,064
Richard Q. Stifel 6,301 1,638 120,897
Larry E. Lentych 5,066 1,069 89,650

(4) For 1998 Mr. Murphy's amount in the "All Other Compensation" column
includes $119,172 for the current value on an actuarial basis of his
split-dollar life insurance agreement. All other amounts reported in the
"All Other Compensation" column represent 1st Source contributions to
defined contribution retirement plans.

EXECUTIVE INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR

Number of Performance
Book Value Period Until
Name Shares(1) Payout(2)
---------- ------------
Christopher J. Murphy III 10,318 5 years
Wellington D. Jones III 5,280 5 years
Allen R. Qualey 4,113 5 years
Richard Q. Stifel 2,207 5 years
Larry E. Lentych 2,382 5 years

<PAGE> 13

(1) Mr. Murphy will receive his vested awards in cash.

(2) Vesting of awards is tied to 1st Source achieving an 8% annual increase
in net income over the next five years. Twenty percent (20%) of the award
vests each year based on attaining the performance.

PENSION PLAN BENEFITS

Annual pension benefits payable to executive officers under annuity contracts
received from the terminated Pension Plan are as follows:
Annual Pension
Name Benefits
---- --------
Christopher J. Murphy III $17,078
Wellington D. Jones III 6,694
Richard Q. Stifel 3,879
Larry E. Lentych 4,827

COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION

During 1998, Mr. Murphy served as a member of the compensation committee of
Quality Dining, Inc. Director Fitzpatrick is an executive officer of Quality
Dining, Inc.

EXECUTIVE COMPENSATION COMMITTEE REPORT

1st Source officers are reviewed once a year by their immediate supervisor.
The review covers a variety of management and professional characteristics and
performance relative to individual, group, and company goals.

The performance review is an integral part of 1st Source's Salary
Administration Program. All positions are rated and placed in a salary range.
Annually, with our approval, management establishes a salary performance grid
that sets the range of merit increases that may be given to officers depending
on their review and their respective position (lower, middle or upper third) in
their respective salary range.

The categories of performance under the Company's review program are:

- Substantially and consistently exceeds job requirements;
- Often exceeds job requirements;
- Meets and sometimes exceeds job requirements;
- Meets some job requirements, improvement is required; and
- Does not meet minimal job requirements.

Management awards salary increases as determined under the guidelines of the
Salary Administration Program in conformance with the salary performance grid
and the annual budget.

All of the officers reported herein, including Mr. Murphy, are under the 1st
Source Salary Administration Program. In his case, he is evaluated by us against
a series of objectives set in the Company's annual budget plan and in its
long-term strategic plan as annually approved by our full Board. Under the
Company's Salary Administration Program, Mr. Murphy was due for a review in
September 1997. This was postponed, and in February 1998, we reviewed Mr.
Murphy's salary in connection with his promotion to Chairman. We reviewed his
performance relative to achieving 1997's goals and his progress toward 1998's.
The Company had again exceeded its quantitative objectives in 1997 and again met
most of its qualitative objectives as

<PAGE> 14

well. We determined that Mr. Murphy's performance "substantially and
consistently exceeds job requirements," and he was therefore eligible to receive
a 6% to 8% base salary increase. He also was eligible for a promotional increase
of 10% to 15%.

In addition to using the company's Salary Administration Program, we compared
Mr. Murphy's compensation, both base salary and bonus, with compensation levels
for CEO's of bank holding companies of comparable size and performance in the
Midwest and nationally. We reviewed compensation comparisons and bank
performance data prepared by Ben S. Cole Financial Corporation, the Bank
Administration Institute, Sheshunoff and Company, Wyatt Company, and the Indiana
Bankers Association. Based on these factors, we determined it to be in the best
interest of the Company to increase Mr. Murphy's salary to $450,000 at the time
of his promotion in April 1998 and to $500,000 effective March 1, 1999.

Bonuses under 1st Source's Executive Incentive Plan are determined annually
following the close of the year. The bonus is calculated based on the officer's
"partnership level" adjusted for the Company's performance relative to plan and
for the individual's performance relative to weighted objectives set at the
beginning of the year. In Mr. Murphy's case, the base bonus calculation is 25%
of his salary. For each 1% that the company varies from its profit plan for the
year, the base bonus is adjusted up or down by 2.5%.

Once the base bonus is calculated, an officer can receive 100% to 300% of the
amount depending on their individual performance. As with all Executive
Incentive Plan participants, the reviewer assesses performance relative to an
agreed upon set of objectives. In Mr. Murphy's case, these are the annual
business objectives and the Company's long-term goals as approved by the Board.
In 1998, the Company continued the expansion of its branch network, generally
exceeded its annual financial and credit quality goals and generally met its
qualitative goals. Accordingly, Mr. Murphy was awarded a bonus of $232,560 for
1998's performance.

Under the Company's Executive Incentive Plan, 50% of the Executive Incentive
Plan bonus will be paid in cash in March 1999 to Mr. Murphy. The other 50% is
subject to forfeiture over the next five (5) years. The forfeiture lapses
ratably for each year Mr. Murphy remains with the Company and for each year or
period of years the Company grows its net income by a minimum of 8% per year.
During this period, the "at risk" portion of the bonus is delineated in book
value stock but is paid in cash to Mr. Murphy as the forfeiture lapses. The
Company's Executive Incentive Program limits bonuses, at time of award, to 75%
of salary.

In addition, the Executive Compensation Committee awarded Mr. Murphy a cash
bonus of $775,500 under the 1998 Performance Compensation Plan approved by the
shareholders and based on goals established by us at the beginning of 1998. This
bonus was awarded in recognition of 1st Source's achievement of those goals, as
well as 1st Source's continued excellent stock and financial performance in
comparison to its peer bank holding companies.

The executive officers were granted stock options during 1998 in conjunction
with their promotions and their assumption of additional responsibilities.

EXECUTIVE COMPENSATION COMMITTEE

Philip J. Faccenda, Chairman
Paul R. Bowles
Rex Martin
Richard J. Pfeil

<PAGE> 15

OPTIONS GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
Individual Grants

(a) (b) (c) (d) (e) (f)
Number of % of Total
Securities Options
Underlying Granted to Exercise Grant
Options Employees Price Expiration Date
Name Granted (1) in Fiscal Year ($/Share) Date Value(2)
- ---- ----------- -------------- --------- ---- --------
<S> <C> <C> <C> <C> <C>
Christopher J. Murphy III 110,000 33% $34.32 7/21/2008 $1,194,000
Wellington D. Jones III 55,000 17 34.32 7/21/2008 597,000
Allen R. Qualey 55,000 17 34.32 7/21/2008 597,000
Richard Q. Stifel 33,000 10 34.32 7/21/2008 358,200
Larry E. Lentych 33,000 10 34.32 7/21/2008 358,200
</TABLE>

(1) The date the options are first exercisable is July 21, 1999. Options are
subject to a three-year holding period after exercise.

(2) Grant date values have been determined using the Black-Scholes option
pricing model. The assumptions used in calculating the Black-Scholes present
value for these grants were as follows: dividend yield of .74%; expected
volatility of 19.61%; risk-free interest rate of 5.50%; and expected life of
6.47 years.

<PAGE> 16

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 1998 OPTION VALUES

(a) (b) (c) (d) (e)
Number of Value of Unexercised
Securities Underlying In-the-Money
Unexercised Options at Options at
December 31, 1998 December 31, 1998
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Christopher J. Murphy III - - 340,806 142,126 $7,907,431 $537,673

Wellington D. Jones III 1,361 $21,554 6,504 67,857 108,842 215,180

Allen R. Qualey 1,650 28,205 33,835 73,755 664,990 272,685

Richard Q. Stifel - - 21,513 41,894 421,725 148,847

Larry E. Lentych 550 12,277 22,199 39,534 446,313 109,357
</TABLE>

14
<PAGE> 17

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG 1ST SOURCE, NASDAQ MARKET INDEX
AND PEER GROUP INDEX**

[GRAPH]

<TABLE>
<CAPTION>
31-DEC-93 31-DEC-94 31-DEC-95 31-DEC-96 31-DEC-97 31-DEC-98
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1st Source 100 118 168 187 308 359
NASDAQ Index 100 105 136 169 207 292
Peer Group 100 93 136 181 285 314
</TABLE>

* Assumes $100 invested on December 31, 1993, in 1st Source Corporation
common stock, NASDAQ market index, and peer group index

** The peer group is a market-capitalization-weighted stock index of banking
companies in Indiana, Illinois, Michigan, Ohio, and Wisconsin

NOTE: Total return assumes reinvestment of dividends

<PAGE> 18

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

The Securities Exchange Act of 1934 requires executive officers and
directors to file reports of ownership and changes in ownership of 1st Source
Corporation stock with the Securities and Exchange Commission and to furnish 1st
Source with copies of all reports filed. Based solely on a review of the copies
of such reports furnished to 1st Source and written representations from the
executive officers and directors that no other reports were required, 1st Source
believes that all filing requirements were complied with during the last fiscal
year, except that Mr. Pfeil, Mr. Qualey and Mr. Lentych each filed late one
report covering a single transaction.

RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS

The financial statements of 1st Source are audited annually by independent
accountants. For the year ended December 31, 1998, and the nine (9) preceding
years, the audit was performed by PricewaterhouseCoopers LLP, South Bend,
Indiana. Representatives of the firm of PricewaterhouseCoopers LLP will be
available to respond to questions during the Annual Meeting. These
representatives have indicated that they do not presently intend to make a
statement at the Annual Meeting. 1st Source plans to select its independent
accountants for the year ending December 31, 1999 in July 1999.

PROPOSALS OF SECURITY HOLDERS

Proposals submitted by security holders for presentation at the next Annual
Meeting must be submitted in writing to the Secretary, 1st Source Corporation,
on or before November 5, 1999.

<PAGE> 19

ADDITIONAL INFORMATION

As to the proposals presented for approval, a plurality of the shares voted
is required for approval.

COPIES OF 1ST SOURCE'S MOST RECENT FORM 10-K WILL BE PROVIDED, WITHOUT
CHARGE, ON WRITTEN REQUEST TO: TREASURER, 1ST SOURCE CORPORATION, POST OFFICE
BOX 1602, SOUTH BEND, INDIANA 46634.

A copy of 1st Source's Annual Report is furnished herewith to Shareholders
for the calendar year ended December 31, 1998, containing financial statements
for such year. The financial statements and the Report of Independent
Accountants are incorporated by reference in this Proxy Statement.

By order of the Board of Directors,

Vincent A. Tamburo
Secretary

Dated March 8, 1999

17
<PAGE> 20

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Christopher J. Murphy III, Larry E. Lentych and
Vincent A. Tamburo and each of them Proxies; to represent the undersigned, with
full power of substitution, at the Annual Meeting of Shareholders of 1st Source
Corporation to be held on April 15, 1999 and at any and all adjournments
thereof.

1. ELECTION OF DIRECTORS.

<S> <C> <C>
[ ] FOR all nominees listed below (except as marked to the contrary) [ ] WITHHOLD AUTHORITY to vote for all nominees listed below.

INSTRUCTION: to withhold authority to vote for any individual nominee, strike a line through or otherwise strike the nominee's name
in the list below.

TERMS EXPIRE APRIL, 2002: Lawrence E. Hiler Rex Martin Christopher J. Murphy III Timothy K. Ozark
</TABLE>

- --------------------------------------------------------------------------------
2. SUCH OTHER BUSINESS AS MAY BE PROPERLY BROUGHT BEFORE THE MEETING.
- --------------------------------------------------------------------------------

In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.

[LOGO OF 1ST SOURCE CORPORATION]
[LETTERHEAD OF 1ST SOURCE CORPORATION]

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES LISTED IN PROPOSAL 1.

Please sign exactly as shares are registered. When shares are held by joint
tenants, both should sign. When signing as attorney, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in
full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.

--------------------------------------------
Please mark, sign, date and return the Proxy
promptly using the enclosed envelope.
--------------------------------------------

--------------------------------------------
Signature

--------------------------------------------
Signature If Held Jointly

Dated: -------------------------------, 1999