1st Source Corporation Reports Fourth Consecutive Quarter of Record Results, Cash Dividend Increased

About this update from 1st Source Corporation

QUARTERLY HIGHLIGHTS Net income was a record $24.44 million , up 22.88% over the third quarter of 2018. Diluted net income per common share was also a record of $0.95 , up from the prior year’s third quarter of $0.76 . Cash dividend of $0.29 per common share approved, up 16% from the $0.25 per common share declared a year ago. Return on average assets of 1.46% and return on average common shareholders’ equity of 11.98% compared to 1.27% and 10.50%, respectively in the third quarter of 2018. Net recoveries of $0.31 million and nonperforming assets to loans and leases of 0.34% compared to net charge-offs of $10.86 million and 1.00%, respectively in the third quarter of 2018. Average loans and leases grew $268.93 million , up 5.58% from the third quarter of 2018. Average deposits grew $272.17 million , up 5.35% from the third quarter of 2018. Net interest income increased $2.83 million , up 5.21% from the third quarter of 2018. Noninterest income increased $1.71 million , up 7.09% from the third quarter of 2018 (increased 11.94% excluding leased equipment depreciation). Noninterest expenses decreased $0.24 million , down 0.50% from the third quarter of 2018 (increased 0.36% excluding leased equipment depreciation). SOUTH BEND, Ind. --(BUSINESS WIRE)-- 1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank , today reported a record high net income of $24.44 million for the third quarter of 2019, an improvement of 22.88% compared to $19.89 million reported in the third quarter a year ago. This brought the 2019 year-to-date net income to $70.02 million compared to $60.97 million in 2018, an increase of 14.85%. The year-to-date net income comparison was positively impacted by increased net interest income of $10.51 million primarily due to higher loan rates and higher average loan and lease balances. Non-recurring 2019 items included $1.41 million of negative valuation adjustments on repossessed assets, a $1.32 million gain on the sale of our former headquarters building, and a $0.43 million FDIC insurance premium credit. Diluted net income per common share for the third quarter of 2019 was up 25.00% to a record high of $0.95 , versus $0.76 in the third quarter of 2018. Diluted net income per common share for the first nine months of 2019 was $2.72 compared to $2.33 earned a year earlier, a 16.74% increase. At its October 2019 meeting, the Board of Directors approved a cash dividend of $0.29 per common share, up 16% from the $0.25 per common share declared a year ago. The cash dividend is payable to shareholders of record on November 5, 2019 and will be paid on November 15, 2019 . Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, “We are pleased to have achieved record earnings in the third quarter which marks four consecutive quarters of record net income for 1st Source Corporation ! We have been able to accomplish this through steady, organic growth in average loans and leases and deposits and continued credit quality discipline which is validated by a 0.34% ratio of nonperforming assets to loans and leases. Our net interest margin while increasing early in the year is now challenged with Federal Reserve reductions in interest rates and continued competitive pressure for deposits. “I am also very pleased to report we welcomed a new member to our Board of Directors for both the Bank and the Holding Company in early August. John Affleck-Graves , former Executive Vice President and Chief Financial Officer of the University of Notre Dame , was elected to a term ending April 2022 and will be subject to reelection at that time. John is a renowned finance Professor who has also managed people, processes and finances for a multi-market, multi-billion-dollar complex organization. He has also been a champion of regional economic development, having chaired the Regional Development Authority for northcentral Indiana . I have worked with John in community and regional development activities over many years and have often sought his economic and financial market advice when balancing the Bank’s assets and liabilities and managing our long-term pricing strategies. He has always been thoughtful, knowledgeable, insightful and often prescient. He will bring strong value to our Boards and to the future of 1st Source. “The third quarter of the year also saw continued investment in our banking centers. In late July, we held an official groundbreaking event for a new standalone banking center in Middlebury, Ind. Our current banking center in this community is in a rented space and does not feature many of the amenities our clients have come to expect from us. This new building will offer drive-up teller service, a drive-up ATM and our signature side-by-side banking model. We also plan to enter the Auburn, Ind. market later this year, as we have signed a lease to occupy the first-floor space of a new building currently under construction in its downtown. Auburn is a thriving community in northeast Indiana , supported by a sizable auto industry presence. These projects are part of our overall initiative to continue our investment in the communities where we live, do business and raise families. “As a Bank deeply rooted in our community, I’d be remiss to not mention the honorees of our twentieth Ernestine M. Raclin Community Leadership Award. This year, 11 individuals across the communities we serve were chosen for this award due to their commitment to volunteer leadership. These individuals, and the many other thousands of volunteers who serve good causes, are the backbone of our communities and weave a strong fabric that supports us all. It is important that we recognize and celebrate their contributions. Honorees were presented a globe of leadership award, a $1,000 personal cash award and a $1,000 award donated to the local charity of their choice.” THIRD QUARTER 2019 FINANCIAL RESULTS Loans Average loans and leases of $5.09 billion increased $268.93 million , up 5.58% in the third quarter of 2019 from the year ago quarter and have increased $89.97 million , up 1.80% from the second quarter. Seasonal reductions in the auto and light truck portfolio were offset by growth in commercial real estate loans and solar loans near the end of the third quarter. Recently, we have also seen a slight decrease in the demand for loans and leases as clients have become more concerned about trade issues and the continued strength of a record long economic expansion. Year-to-date average loans and leases of $4.98 billion increased $256.45 million , up 5.42% from the first nine months of 2018. Deposits Average deposits of $5.36 billion grew $272.17 million for the quarter ended September 30, 2019 , up 5.35% from the year ago quarter and have increased $98.48 million , up 1.87% compared to the second quarter. Average deposits for the first nine months of 2019 were $5.23 billion , an increase of $308.56 million , up 6.27% from the same period a year ago. Net Interest Income and Net Interest Margin Third quarter 2019 net interest income of $57.20 million increased $2.83 million , up 5.21% from the third quarter a year ago and increased $0.77 million , up 1.36% from the second quarter. For the first nine months of 2019, tax-equivalent net interest income was $169.10 million , an increase of $10.42 million , up 6.57% compared to the same period a year ago. Third quarter 2019 net interest margin was 3.67%, a decrease of two basis points from the 3.69% for the same period in 2018 and decreased six basis points from the second quarter. Third quarter 2019 net interest margin on a fully tax-equivalent basis was 3.68%, a decrease of three basis points from the 3.71% for the same period in 2018 and was lower by six basis points compared to the previous quarter. The margin continued to see pressure from deposit competition and Federal Reserve interest rate decreases. Net interest margin for the first nine months of 2019 was 3.72%, an increase of three basis points from the 3.69% for the same period in 2018. Net interest margin on a fully-taxable-equivalent basis for the first nine months of 2019 was 3.74%, an increase of three basis points from the 3.71% for the same period in 2018. Noninterest Income Third quarter 2019 noninterest income of $25.77 million increased $1.71 million , up 7.09% from the third quarter a year ago and increased $0.10 million , up 0.39% from the second quarter. For the first nine months of 2019, noninterest income was $75.55 million , an increase of $2.66 million , up 3.65% compared to the same period a year ago. The growth in noninterest income during 2019 compared to a year ago was mainly due to higher debit card income from increased customer use, improved mortgage banking income driven by gains on a higher volume of loan sales, higher insurance commissions primarily from increased business and higher contingent commissions, reduced losses on the sale of available-for-sale securities, increased customer swap fees and higher claim proceeds on bank owned life insurance. These positives were offset by reduced trust and wealth advisory fees resulting from a lower value of assets under management due to stock market movements and lower equipment rental income due to a reduction in the size of the average equipment rental portfolio. The increase in noninterest income from the second quarter of 2019 was primarily the result of higher mortgage banking income on improved loan production, increased claim proceeds on bank owned life insurance, and higher partnership investment gains. These positives were offset by lower equipment rental income due to a reduction in the size of the average equipment rental portfolio, reduced trust and wealth advisory fees as a result of seasonal tax fees in the second quarter, and decreased customer swap fees. Noninterest Expense Third quarter 2019 noninterest expense of $47.11 million decreased $0.24 million , down 0.50% from the third quarter a year ago and decreased $0.25 million , down 0.52% from the second quarter. Excluding depreciation on leased equipment, noninterest expenses were up 0.36% from the third quarter a year ago and down 0.11% from the second quarter. For the first nine months of 2019, noninterest expense was $139.66 million , an increase of $0.89 million , or 0.64% compared to the same period a year ago. The increase in noninterest expense during 2019 compared to a year ago was mainly due to higher salaries as a result of normal merit increases, increased group insurance costs, a rise in furniture and equipment expense due to increased software maintenance costs and equipment depreciation, and growth in the provision for unfunded loan commitments. These increases were offset by higher gains on the sale of fixed assets, fewer valuation adjustments on repossessed assets, reduced insurance expenses due to FDIC assessment credits, lower leased equipment depreciation resulting from a reduction in the average equipment rental portfolio, decreased incentive compensation from fewer vestings of share-based compensation arrangements, lower business development costs, and reduced professional fees from consulting services. The decrease in noninterest expense from the second quarter was primarily the result of a reduction in the provision for unfunded loan commitments, lower insurance costs due to FDIC assessment credits, decreased group insurance costs on lower claims, reduced leased equipment depreciation, lower furniture and equipment expense due to reduced computer processing charges and lower professional fees offset by higher salaries due to increased staffing levels related to a summer internship program, increased business development and marketing expenses due to marketing promotions, and higher repossessed asset valuation adjustments. Credit The reserve for loan and lease losses as of September 30, 2019 was 2.14% of total loans and leases compared to 2.05% at June 30, 2019 and 2.04% at September 30, 2018 . Net recoveries of $0.31 million were recorded for the third quarter of 2019 compared with net charge-offs of $10.86 million in the same quarter a year ago and down from the $1.19 million of net charge-offs in the second quarter. The provision for loan and lease losses was $3.72 million for the third quarter of 2019, a decrease of $2.44 million compared with the same period in 2018 and a decrease of $0.53 million from the second quarter. The ratio of nonperforming assets to loans and leases was an improved 0.34% as of September 30, 2019 , compared to 0.41% on June 30, 2019 and 1.00% on September 30, 2018 . Capital As of September 30, 2019 , the common equity-to-assets ratio was 12.15%, compared to 11.95% at June 30, 2019 and 11.92% a year ago. The tangible common equity-to-tangible assets ratio was 11.04% at September 30, 2019 compared to 10.82% at June 30, 2019 and 10.73% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 12.26% at September 30, 2019 compared to 11.83% at June 30, 2019 and 12.38% a year ago. During the first nine months of 2019, 325,787 shares were repurchased for treasury reducing common shareholders’ equity by $15.09 million . ABOUT 1ST SOURCE CORPORATION 1st Source common stock is traded on the NASDAQ Global Select Market under “SRCE” and appears in the National Market System tables in many daily newspapers under the code name “1st Src.” Since 1863, 1st Source has been committed to the success of its clients, individuals, businesses and the communities it serves. For more information, visit www.1stsource.com . 1st Source serves the northern half of Indiana and southwest Michigan and is the largest locally controlled financial institution headquartered in the area. While delivering a comprehensive range of consumer and commercial banking services through its community bank offices, 1st Source has distinguished itself with highly personalized services. 1st Source Bank also competes for business nationally by offering specialized financing services for new and used private and cargo aircraft, automobiles for leasing and rental agencies, medium and heavy duty trucks, and construction equipment. The Corporation includes 80 banking centers, 18 1st Source Bank Specialty Finance Group locations nationwide, eight Wealth Advisory Services locations and ten 1st Source Insurance offices. FORWARD LOOKING STATEMENTS Except for historical information contained herein, the matters discussed in this document express “forward-looking statements.” Generally, the words “believe,” “contemplate,” “seek,” “plan,” “possible,” “assume,” “expect,” “intend,” “targeted,” “continue,” “remain,” “estimate,” “anticipate,” “project,” “will,” “should,” “indicate,” “would,” “may” and similar expressions indicate forward-looking statements. Those statements, including statements, projections, estimates or assumptions concerning future events or performance, and other statements that are other than statements of historical fact, are subject to material risks and uncertainties. 1st Source cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. 1st Source may make other written or oral forward-looking statements from time to time. Readers are advised that various important factors could cause 1st Source’s actual results or circumstances for future periods to differ materially from those anticipated or projected in such forward-looking statements. Such factors, among others, include changes in laws, regulations or accounting principles generally accepted in the United States ; 1st Source’s competitive position within its markets served; increasing consolidation within the banking industry; unforeseen changes in interest rates; unforeseen downturns in the local, regional or national economies or in the industries in which 1st Source has credit concentrations; and other risks discussed in 1st Source’s filings with the Securities and Exchange Commission , including its Annual Report on Form 10-K, which filings are available from the SEC . 1st Source undertakes no obligation to publicly update or revise any forward-looking statements. NON-GAAP FINANCIAL MEASURES The accounting and reporting policies of 1st Source conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures are used by management to evaluate and measure the Company’s performance. Although these non-GAAP financial measures are frequently used by investors to evaluate a financial institution, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. These include taxable-equivalent net interest income (including its individual components), net interest margin (including its individual components), the efficiency ratio, tangible common equity-to-tangible assets ratio and tangible book value per common share. Management believes that these measures provide users of the Company’s financial information a more meaningful view of the performance of the interest-earning assets and interest-bearing liabilities and of the Company’s operating efficiency. Other financial holding companies may define or calculate these measures differently. Management reviews yields on certain asset categories and the net interest margin of the Company and its banking subsidiaries on a fully taxable-equivalent (“FTE”) basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a FTE basis is also used in the calculation of the Company’s efficiency ratio. The efficiency ratio, which is calculated by dividing non-interest expense by total taxable-equivalent net revenue (less securities gains or losses and lease depreciation), measures how much it costs to produce one dollar of revenue. Securities gains or losses and lease depreciation are excluded from this calculation to better match revenue from daily operations to operational expenses. Management considers the tangible common equity-to-tangible assets ratio and tangible book value per common share as useful measurements of the Company’s equity. See the table marked “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of certain non-GAAP financial measures used by the Company with their most closely related GAAP measures. # # # (charts attached) 1st SOURCE CORPORATION 3rd QUARTER 2019 FINANCIAL HIGHLIGHTS (Unaudited - Dollars in thousands, except per share data) Three Months Ended Nine Months Ended September 30 , June 30 , September 30 , September 30 , September 30 , 2019 2019 2018 2019 2018 AVERAGE BALANCES Assets $ 6,620,880 $ 6,487,744 $ 6,224,187 $ 6,467,547 $ 6,111,302 Earning assets 6,190,264 6,067,871 5,839,588 6,052,686 5,724,114 Investments 1,024,250 1,001,142 964,281 1,004,463 943,372 Loans and leases 5,091,358 5,001,392 4,822,431 4,984,498 4,728,047 Deposits 5,363,391 5,264,912 5,091,221 5,230,335 4,921,780 Interest bearing liabilities 4,493,376 4,468,591 4,323,467 4,426,489 4,283,411 Common shareholders’ equity 809,279 789,009 751,248 791,438 738,025 Total equity 819,734 792,884 751,248 796,767 738,025 INCOME STATEMENT DATA Net interest income $ 57,195 $ 56,427 $ 54,362 $ 168,570 $ 158,063 Net interest income - FTE(1) 57,362 56,604 54,559 169,096 158,675 Provision for loan and lease losses 3,717 4,247 6,157 12,882 14,760 Noninterest income 25,765 25,664 24,060 75,553 72,890 Noninterest expense 47,106 47,353 47,342 139,663 138,776 Net income 24,448 23,417 19,888 70,061 60,968 Net income available to common shareholders 24,438 23,385 19,888 70,019 60,968 PER SHARE DATA Basic net income per common share $ 0.95 $ 0.91 $ 0.76 $ 2.72 $ 2.33 Diluted net income per common share 0.95 0.91 0.76 2.72 2.33 Common cash dividends declared 0.27 0.27 0.25 0.81 0.71 Book value per common share(2) 31.88 31.12 28.90 31.88 28.90 Tangible book value per common share(1) 28.59 27.83 25.66 28.59 25.66 Market value - High 48.31 48.66 59.33 50.15 59.33 Market value - Low 42.31 43.34 50.34 39.11 48.26 Basic weighted average common shares outstanding 25,520,035 25,615,718 25,965,694 25,630,771 25,958,125 Diluted weighted average common shares outstanding 25,520,035 25,615,718 25,965,694 25,630,771 25,958,125 KEY RATIOS Return on average assets 1.46 % 1.45 % 1.27 % 1.45 % 1.33 % Return on average common shareholders’ equity 11.98 11.89 10.50 11.83 11.04 Average common shareholders’ equity to average assets 12.22 12.16 12.07 12.24 12.08 End of period tangible common equity to tangible assets(1) 11.04 10.82 10.73 11.04 10.73 Risk-based capital - Common Equity Tier 1(3) 12.26 11.83 12.38 12.26 12.38 Risk-based capital - Tier 1(3) 13.33 12.94 13.41 13.33 13.41 Risk-based capital - Total(3) 14.59 14.20 14.66 14.59 14.66 Net interest margin 3.67 3.73 3.69 3.72 3.69 Net interest margin - FTE(1) 3.68 3.74 3.71 3.74 3.71 Efficiency ratio: expense to revenue 56.78 57.68 60.37 57.21 60.09 Efficiency ratio: expense to revenue - adjusted(1) 53.44 54.07 56.71 53.57 56.28 Net (recoveries) charge offs to average loans and leases (0.02 ) 0.10 0.89 0.12 0.32 Loan and lease loss reserve to loans and leases 2.14 2.05 2.04 2.14 2.04 Nonperforming assets to loans and leases 0.34 0.41 1.00 0.34 1.00 September 30 , June 30 , March 31 , December 31 , September 30 , 2019 2019 2019 2018 2018 END OF PERIOD BALANCES Assets $ 6,691,070 $ 6,650,105 $ 6,379,086 $ 6,293,745 $ 6,293,169 Loans and leases 5,099,546 5,109,337 4,926,187 4,835,464 4,825,553 Deposits 5,391,679 5,403,845 5,124,091 5,122,322 5,061,977 Reserve for loan and lease losses 108,941 104,911 101,852 100,469 98,300 Goodwill and intangible assets 83,978 83,985 83,992 83,998 84,097 Common shareholders’ equity 813,167 794,662 778,422 762,082 750,437 Total equity 833,042 804,686 781,101 763,590 750,437 ASSET QUALITY Loans and leases past due 90 days or more $ 311 $ 156 $ 178 $ 366 $ 125 Nonaccrual loans and leases 10,188 12,212 13,622 27,859 36,028 Other real estate 629 543 417 299 432 Repossessions 6,610 8,799 10,411 6,666 13,041 Equipment owned under operating leases — — 64 126 48 Total nonperforming assets $ 17,738 $ 21,710 $ 24,692 $ 35,316 $ 49,674 (1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio. (2) Calculated as common shareholders’ equity divided by common shares outstanding at the end of the period. (3) Calculated under banking regulatory guidelines. 1st SOURCE CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited - Dollars in thousands) September 30 , June 30 , December 31 , September 30 , 2019 2019 2018 2018 ASSETS Cash and due from banks $ 94,160 $ 71,910 $ 94,907 $ 68,362 Federal funds sold and interest bearing deposits with other banks 33,325 24,578 4,172 45,514 Investment securities available-for-sale 1,032,185 1,021,786 990,129 972,172 Other investments 28,404 28,404 28,404 28,159 Mortgages held for sale 28,654 19,178 11,290 11,149 Loans and leases, net of unearned discount: Commercial and agricultural 1,175,936 1,173,000 1,073,205 1,062,907 Auto and light truck 612,921 635,100 559,987 562,546 Medium and heavy duty truck 289,925 300,042 283,544 271,601 Aircraft 805,568 811,163 803,111 836,458 Construction equipment 685,696 686,633 645,239 654,605 Commercial real estate 858,402 835,919 809,886 781,093 Residential real estate and home equity 531,630 529,749 523,855 523,391 Consumer 139,468 137,731 136,637 132,952 Total loans and leases 5,099,546 5,109,337 4,835,464 4,825,553 Reserve for loan and lease losses (108,941 ) (104,911 ) (100,469 ) (98,300 ) Net loans and leases 4,990,605 5,004,426 4,734,995 4,727,253 Equipment owned under operating leases, net 119,171 126,502 134,440 137,492 Net premises and equipment 51,680 51,570 52,139 53,479 Goodwill and intangible assets 83,978 83,985 83,998 84,097 Accrued income and other assets 228,908 217,766 159,271 165,492 Total assets $ 6,691,070 $ 6,650,105 $ 6,293,745 $ 6,293,169 LIABILITIES Deposits: Noninterest-bearing demand $ 1,246,063 $ 1,238,604 $ 1,217,120 $ 1,151,573 Interest-bearing deposits: Interest-bearing demand 1,605,602 1,665,456 1,614,959 1,606,462 Savings 820,409 810,122 822,477 822,246 Time 1,719,605 1,689,663 1,467,766 1,481,696 Total interest-bearing deposits 4,145,616 4,165,241 3,905,202 3,910,404 Total deposits 5,391,679 5,403,845 5,122,322 5,061,977 Short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 139,417 119,781 113,627 124,630 Other short-term borrowings 57,734 66,228 85,717 166,077 Total short-term borrowings 197,151 186,009 199,344 290,707 Long-term debt and mandatorily redeemable securities 71,520 71,542 71,123 70,919 Subordinated notes 58,764 58,764 58,764 58,764 Accrued expenses and other liabilities 138,914 125,259 78,602 60,365 Total liabilities 5,858,028 5,845,419 5,530,155 5,542,732 SHAREHOLDERS’ EQUITY Preferred stock; no par value Authorized 10,000,000 shares; none issued or outstanding — — — — Common stock; no par value Authorized 40,000,000 shares; issued 28,205,674 shares at September 30, 2019 , June 30, 2019 , December 31, 2018 , and September 30, 2018 , respectively 436,538 436,538 436,538 436,538 Retained earnings 448,715 431,091 398,980 383,943 Cost of common stock in treasury (2,696,918, 2,670,462, 2,421,946, and 2,239,928 shares at September 30, 2019 , June 30, 2019 , December 31, 2018 , and September 30, 2018 , respectively) (76,716 ) (75,380 ) (62,760 ) (54,369 ) Accumulated other comprehensive income (loss) 4,630 2,413 (10,676 ) (15,675 ) Total shareholders’ equity 813,167 794,662 762,082 750,437 Noncontrolling interests 19,875 10,024 1,508 — Total equity 833,042 804,686 763,590 750,437 Total liabilities and equity $ 6,691,070 $ 6,650,105 $ 6,293,745 $ 6,293,169 1st SOURCE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited - Dollars in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30 , June 30 , September 30 , September 30 , September 30 , 2019 2019 2018 2019 2018 Interest income: Loans and leases $ 66,807 $ 65,599 $ 59,961 $ 195,089 $ 172,172 Investment securities, taxable 5,056 5,186 4,912 15,757 13,993 Investment securities, tax-exempt 316 353 432 1,054 1,438 Other 497 499 391 1,434 1,196 Total interest income 72,676 71,637 65,696 213,334 188,799 Interest expense: Deposits 13,524 12,978 9,405 37,972 24,286 Short-term borrowings 293 540 518 1,764 2,120 Subordinated notes 914 928 918 2,770 2,709 Long-term debt and mandatorily redeemable securities 750 764 493 2,258 1,621 Total interest expense 15,481 15,210 11,334 44,764 30,736 Net interest income 57,195 56,427 54,362 168,570 158,063 Provision for loan and lease losses 3,717 4,247 6,157 12,882 14,760 Net interest income after provision for loan and lease losses 53,478 52,180 48,205 155,688 143,303 Noninterest income: Trust and wealth advisory 4,982 5,583 5,109 15,423 16,097 Service charges on deposit accounts 2,892 2,785 2,567 8,175 7,676 Debit card 3,727 3,669 3,377 10,616 9,907 Mortgage banking 1,362 999 925 3,297 2,882 Insurance commissions 1,603 1,518 1,580 5,295 5,025 Equipment rental 7,578 7,809 7,977 23,369 23,836 Losses on investment securities available-for-sale — — — — (345 ) Other 3,621 3,301 2,525 9,378 7,812 Total noninterest income 25,765 25,664 24,060 75,553 72,890 Noninterest expense: Salaries and employee benefits 24,434 23,787 23,164 71,716 69,391 Net occupancy 2,635 2,481 2,523 7,888 7,504 Furniture and equipment 6,027 6,289 5,769 18,340 16,942 Depreciation – leased equipment 6,198 6,400 6,580 19,122 19,692 Professional fees 1,603 1,706 1,883 4,907 5,628 Supplies and communication 1,643 1,608 1,635 4,744 4,687 FDIC and other insurance 260 608 855 1,513 2,267 Business development and marketing 1,844 1,678 1,663 4,471 4,921 Loan and lease collection and repossession 697 230 1,563 2,288 3,079 Other 1,765 2,566 1,707 4,674 4,665 Total noninterest expense 47,106 47,353 47,342 139,663 138,776 Income before income taxes 32,137 30,491 24,923 91,578 77,417 Income tax expense 7,689 7,074 5,035 21,517 16,449 Net income 24,448 23,417 19,888 70,061 60,968 Net (income) loss attributable to noncontrolling interests (10 ) (32 ) — (42 ) — Net income available to common shareholders $ 24,438 $ 23,385 $ 19,888 $ 70,019 $ 60,968 Per common share: Basic net income per common share $ 0.95 $ 0.91 $ 0.76 $ 2.72 $ 2.33 Diluted net income per common share $ 0.95 $ 0.91 $ 0.76 $ 2.72 $ 2.33 Cash dividends $ 0.27 $ 0.27 $ 0.25 $ 0.81 $ 0.71 Basic weighted average common shares outstanding 25,520,035 25,615,718 25,965,694 25,630,771 25,958,125 Diluted weighted average common shares outstanding 25,520,035 25,615,718 25,965,694 25,630,771 25,958,125 1st SOURCE CORPORATION DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY INTEREST RATES AND INTEREST DIFFERENTIAL (Unaudited - Dollars in thousands) Three Months Ended September 30, 2019 June 30, 2019 September 30, 2018 Average Balance Interest Income Expense Yield/ Rate Average Balance Interest Income Expense Yield/ Rate Average Balance Interest Income Expense Yield/ Rate ASSETS Investment securities available-for-sale: Taxable $ 959,104 $ 5,056 2.09 % $ 929,264 $ 5,186 2.24 % $ 879,882 $ 4,912 2.21 % Tax exempt(1) 65,146 388 2.36 % 71,878 437 2.44 % 84,399 533 2.51 % Mortgages held for sale 19,888 190 3.79 % 12,014 127 4.24 % 9,016 93 4.09 % Loans and leases, net of unearned discount(1) 5,091,358 66,712 5.20 % 5,001,392 65,565 5.26 % 4,822,431 59,964 4.93 % Other investments 54,768 497 3.60 % 53,323 499 3.75 % 43,860 391 3.54 % Total earning assets(1) 6,190,264 72,843 4.67 % 6,067,871 71,814 4.75 % 5,839,588 65,893 4.48 % Cash and due from banks 66,046 67,448 64,622 Reserve for loan and lease losses (106,559 ) (102,787 ) (102,790 ) Other assets 471,129 455,212 422,767 Total assets $ 6,620,880 $ 6,487,744 $ 6,224,187 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing deposits $ 4,174,746 $ 13,524 1.29 % $ 4,137,118 $ 12,978 1.26 % $ 3,986,576 $ 9,405 0.94 % Short-term borrowings 188,562 293 0.62 % 201,401 540 1.08 % 207,225 518 0.99 % Subordinated notes 58,764 914 6.17 % 58,764 928 6.33 % 58,764 918 6.20 % Long-term debt and mandatorily redeemable securities 71,304 750 4.17 % 71,308 764 4.30 % 70,902 493 2.76 % Total interest-bearing liabilities 4,493,376 15,481 1.37 % 4,468,591 15,210 1.37 % 4,323,467 11,334 1.04 % Noninterest-bearing deposits 1,188,645 1,127,794 1,104,645 Other liabilities 119,125 98,475 44,827 Shareholders’ equity 809,279 789,009 751,248 Noncontrolling interests 10,455 3,875 — Total liabilities and equity $ 6,620,880 $ 6,487,744 $ 6,224,187 Less: Fully tax-equivalent adjustments (167 ) (177 ) (197 ) Net interest income/margin (GAAP-derived)(1) $ 57,195 3.67 % $ 56,427 3.73 % $ 54,362 3.69 % Fully tax-equivalent adjustments 167 177 197 Net interest income/margin - FTE(1) $ 57,362 3.68 % $ 56,604 3.74 % $ 54,559 3.71 % (1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio. 1st SOURCE CORPORATION DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY INTEREST RATES AND INTEREST DIFFERENTIAL (Unaudited - Dollars in thousands) Nine Months Ended September 30, 2019 September 30, 2018 Average Balance Interest Income Expense Yield/ Rate Average Balance Interest Income/ Expense Yield/ Rate ASSETS Investment securities available-for-sale: Taxable $ 932,779 $ 15,757 2.26 % $ 850,454 $ 13,993 2.20 % Tax exempt(1) 71,684 1,297 2.42 % 92,918 1,777 2.56 % Mortgages held for sale 13,616 418 4.10 % 7,911 265 4.48 % Loans and leases, net of unearned discount(1) 4,984,498 194,954 5.23 % 4,728,047 172,180 4.87 % Other investments 50,109 1,434 3.83 % 44,784 1,196 3.57 % Total earning assets(1) 6,052,686 213,860 4.72 % 5,724,114 189,411 4.42 % Cash and due from banks 65,801 63,983 Reserve for loan and lease losses (103,699 ) (99,284 ) Other assets 452,759 422,489 Total assets $ 6,467,547 $ 6,111,302 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing deposits 4,083,140 37,972 1.24 % 3,881,040 24,286 0.84 % Short-term borrowings 213,551 1,764 1.10 % 272,813 2,120 1.04 % Subordinated notes 58,764 2,770 6.30 % 58,764 2,709 6.16 % Long-term debt and mandatorily redeemable securities 71,034 2,258 4.25 % 70,794 1,621 3.06 % Total interest-bearing liabilities 4,426,489 44,764 1.35 % 4,283,411 30,736 0.96 % Noninterest-bearing deposits 1,147,195 1,040,740 Other liabilities 97,096 49,126 Shareholders’ equity 791,438 738,025 Noncontrolling interests 5,329 — Total liabilities and equity $ 6,467,547 $ 6,111,302 Less: Fully tax-equivalent adjustments (526 ) (612 ) Net interest income/margin (GAAP-derived)(1) $ 168,570 3.72 % $ 158,063 3.69 % Fully tax-equivalent adjustments 526 612 Net interest income/margin - FTE(1) $ 169,096 3.74 % $ 158,675 3.71 % (1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio. 1st SOURCE CORPORATION RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited - Dollars in thousands, except per share data) Three Months Ended Nine Months Ended September 30 , June 30 , September 30 , September 30 , September 30 , 2019 2019 2018 2019 2018 Calculation of Net Interest Margin (A) Interest income (GAAP) $ 72,676 $ 71,637 $ 65,696 $ 213,334 $ 188,799 Fully tax-equivalent adjustments: (B) – Loans and leases 95 93 96 283 273 (C) – Tax exempt investment securities 72 84 101 243 339 (D) Interest income – FTE (A+B+C) 72,843 71,814 65,893 213,860 189,411 (E) Interest expense (GAAP) 15,481 15,210 11,334 44,764 30,736 (F) Net interest income (GAAP) (A-E) 57,195 56,427 54,362 168,570 158,063 (G) Net interest income - FTE (D-E) 57,362 56,604 54,559 169,096 158,675 (H) Annualization factor 3.967 4.011 3.967 1.337 1.337 (I) Total earning assets $ 6,190,264 $ 6,067,871 $ 5,839,588 $ 6,052,686 $ 5,724,114 Net interest margin (GAAP-derived) (F*H)/I 3.67 % 3.73 % 3.69 % 3.72 % 3.69 % Net interest margin – FTE (G*H)/I 3.68 % 3.74 % 3.71 % 3.74 % 3.71 % Calculation of Efficiency Ratio (F) Net interest income (GAAP) $ 57,195 $ 56,427 $ 54,362 $ 168,570 $ 158,063 (G) Net interest income – FTE 57,362 56,604 54,559 169,096 158,675 (J) Plus: noninterest income (GAAP) 25,765 25,664 24,060 75,553 72,890 (K) Less: gains/losses on investment securities and partnership investments (374 ) (131 ) (155 ) (521 ) (263 ) (L) Less: depreciation – leased equipment (6,198 ) (6,400 ) (6,580 ) (19,122 ) (19,692 ) (M) Total net revenue (GAAP) (F+J) 82,960 82,091 78,422 244,123 230,953 (N) Total net revenue – adjusted (G+J–K–L) 76,555 75,737 71,884 225,006 211,610 (O) Noninterest expense (GAAP) 47,106 47,353 47,342 139,663 138,776 (L) Less:depreciation – leased equipment (6,198 ) (6,400 ) (6,580 ) (19,122 ) (19,692 ) (Q) Noninterest expense – adjusted (O–L) 40,908 40,953 40,762 120,541 119,084 Efficiency ratio (GAAP-derived) (O/M) 56.78 % 57.68 % 60.37 % 57.21 % 60.09 % Efficiency ratio – adjusted (Q/N) 53.44 % 54.07 % 56.71 % 53.57 % 56.28 % End of Period September 30 , June 30 , September 30 , 2019 2019 2018 Calculation of Tangible Common Equity-to-Tangible Assets Ratio (R) Total common shareholders’ equity (GAAP) $ 813,167 $ 794,662 $ 750,437 (S) Less: goodwill and intangible assets (83,978 ) (83,985 ) (84,097 ) (T) Total tangible common shareholders’ equity (R–S) $ 729,189 $ 710,677 $ 666,340 (U) Total assets (GAAP) 6,691,070 6,650,105 6,293,169 (S) Less: goodwill and intangible assets (83,978 ) (83,985 ) (84,097 ) (V) Total tangible assets (U–S) $ 6,607,092 $ 6,566,120 $ 6,209,072 Common equity-to-assets ratio (GAAP-derived) (R/U) 12.15 % 11.95 % 11.92 % Tangible common equity-to-tangible assets ratio (T/V) 11.04 % 10.82 % 10.73 % Calculation of Tangible Book Value per Common Share (R) Total common shareholders’ equity (GAAP) $ 813,167 $ 794,662 $ 750,437 (W) Actual common shares outstanding 25,508,756 25,535,212 25,965,746 Book value per common share (GAAP-derived) (R/W)*1000 $ 31.88 $ 31.12 $ 28.90 Tangible common book value per share (T/W)*1000 $ 28.59 $ 27.83 $ 25.66 The NASDAQ Stock Market National Market Symbol: “SRCE” (CUSIP #336901 10 3) Please contact us at [email protected] View source version on businesswire.com : https://www.businesswire.com/news/home/20191017005922/en/ Andrea Short 574-235-2000 Source: 1st Source Corporation

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