1st Source Corporation Reports Second Quarter Results, a Record Quarter Adjusted for PPP Income Due to Government Response to COVID-19; Cash Dividend Increased

About this update from 1st Source Corporation

QUARTERLY HIGHLIGHTS Net income was $29.31 million for the quarter, down $0.91 million or 3.01% from the second quarter of 2021. Excluding tax-effected PPP income, net income was a record $28.47 million for the quarter, up $1.06 million or 3.87% from the second quarter of 2021. Diluted net income per common share was $1.18 , down $0.01 from the prior year’s second quarter of $1.19 . Cash dividend of $0.32 per common share was approved, up 3.22% from the cash dividend declared a year ago. Small Business Administration (SBA) forgiveness and customer pay downs of Paycheck Protection Program (PPP) loans amounted to $29.84 million during the quarter which contributed to the recognition of $1.03 million in PPP-related loan fees in the quarter down from $158.41 million in forgiveness and $2.59 million in fees in the second quarter of 2021. Average loans and leases net PPP loans grew $168.96 million in the second quarter, up 3.20% (12.8% annualized growth) from the previous quarter and $335.87 million , up 6.58% from the second quarter of 2021. Tax-equivalent net interest margin was 3.32%, up 17 basis points from the second quarter a year ago. Mortgage banking income was $1.06 million , down $1.80 million , or 62.85% from the second quarter a year ago. SOUTH BEND, Ind. --(BUSINESS WIRE)-- 1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank , today reported quarterly net income of $29.31 million for the second quarter of 2022, down 3.01% from the $30.22 million reported in the second quarter a year ago, bringing the 2022 year-to-date net income to $56.70 million compared to $58.33 million in 2021. Excluding tax-effected PPP income, net income was a record $28.47 million for the quarter, up $1.06 million or 3.87% from the second quarter of 2021. Diluted net income per common share for the second quarter of 2022 was $1.18 versus $1.19 in the second quarter of 2021. Diluted net income per common share for the first half of 2022 was $2.28 compared to $2.29 a year earlier. At its July 2022 meeting, the Board of Directors approved a cash dividend of $0.32 per common share, up 3.22% from the $0.31 per common share declared a year ago. The cash dividend is payable to shareholders of record on August 2, 2022 and will be paid on August 12, 2022 . Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, “We are pleased to announce another strong quarter. Average loans grew $335.87 million or 6.58% net of Paycheck Protection Program (PPP) loans from the second quarter last year. Average deposits increased $517.14 million , up 8.24% from the prior year second quarter. At the end of the second quarter, we had helped clients submit PPP loan forgiveness to the SBA for over 99% of all PPP loans we originated. Our tax-equivalent net interest margin for the quarter was 3.32% compared to 3.15% in the prior year second quarter. The increase in margin this quarter helped defray the expected reduction in PPP loan fees and mortgage banking income since the same period last year. It remains to be seen whether the numerous Federal Reserve rate hikes during the first half of 2022 and any future adjustments can successfully tame runaway inflation as we move further into 2022 and beyond. “We were very pleased to learn during the second quarter that 1st Source was the recipient of multiple honors that recognize our commitment to our clients, shareholders and team members. 1st Source was named among the Keefe, Bruyette & Woods, Inc. (KBW) Bank Honor Roll for the fourth consecutive year. We are proud to be one of the 17 honorees, placing us among the top 5% of eligible banks in the country. To be considered, banks must be publicly traded institutions with more than $500 million in total assets and 10 consecutive years of increased earnings per share. It is our focus on quality earnings, investing for the future, building a strong balance sheet, capital, and reserves that earned 1st Source this recognition and allowed us to continue to meet the challenges the pandemic presented. Receiving this recognition for the fourth year in a row is a great honor, and welcome confirmation of the success of our continued focus on the long-term has been successful. “1st Source was also recognized by Forbes twice in recent months. We were named to the Forbes ‘Best Employers for Diversity’ list. We were also included on the Forbes ‘Best In State Banks’ list, ranking #3 in Indiana . Both lists were compiled in partnership with market research firm Statista, and both were the result of surveys conducted of our employees and clients, respectively. First and foremost, an inclusive culture that welcomes and values all people as part of our workforce is extremely important to us and to our future success as a financial institution and employer. Being named to this list signals to us that our momentum in the vital area of diversity, equity and inclusion is being felt, embraced, and celebrated by our team. Additionally, being named among the ‘Best In State Banks’ in Indiana by our clients is an equally important and gratifying recognition for us. We strive every day to show our clients they have made the right choice for their financial future by entrusting us to be their partner. Being named one of the best banks in Indiana by our clients lets us know that hard work is paying off, and that we are living our mission to help people achieve security, build wealth and realize their dreams in all that we do. “In addition, 1st Source was recognized by the Business Development Corporation (BDC) as the top lender of SBA 504 loans for the years 2020 and 2021 and one of the top long term small business lenders in the state. In both years, 1st Source had the highest number of SBA 504 loan approvals, as well as the highest dollar amount in approvals with the BDC. This honor as top SBA 504 lender by the BDC is our latest recognition for small business lending. We have also received the Community Lender ‘Gold Level Award’ by the Indiana District of the U.S. Small Business Administration as the top SBA lender of banks our size in the state nine years in a row (which was detailed in a previous earning release). Small businesses have been challenged greatly throughout the pandemic, and we made it our focus to serve small businesses in any way we were able. This recognition shows the positive impact of our laser-like focus on small businesses, and we’re proud of the dedication and superior service our business banking and support teams have provided along the way. “Lastly, we announced in April the election of Isaac P. Torres to our Board of Directors. Mr. Torres is President and Chief Executive Officer of InterCambio Express, Inc. , an internet-based money transfer service with a U.S.A. headquarters in Elkhart, Ind. and a Mexican subsidiary located in Puebla, Mexico . Mr. Torres has expertise in internet-based industries and international payment systems as well as extensive skills in finance, accounting, compliance and international business. We are pleased our shareholders voted to add such a strong leader to our Board of Directors and we are certain Mr. Torres will help the Company deliver on its mission to help our clients achieve security, build wealth and realize their dreams by living our values and keeping our clients’ best interest in mind for the long-term. His background and experience blend well with our already strong Board, and his strategic guidance and unique perspective will add value to the future of our organization. At the time of this election, three current board members - John F. Affleck-Graves , Chaired Professor of Finance, and former Executive Vice President and Chief Financial Officer of the University of Notre Dame , Daniel B. Fitzpatrick , founder, Chairman and Chief Executive Officer of Quality Dining, Inc. , and Christopher J. Murphy IV, co-founder, owner and Chief Executive Officer of Catharsis Productions, LLC - were also re-elected to continue their service on the 1st Source Corporation Board of Directors. All four above mentioned directors have been elected to terms that end April 2025 and will be subject to re-election at that time,” Mr. Murphy concluded. SECOND QUARTER 2022 FINANCIAL RESULTS Loans Second quarter average loans and leases of $5.47 billion increased $335.87 million , up 6.58% net of PPP loans from the year ago quarter and increased $168.96 million , up 3.20% net of PPP loans from the previous quarter. Year-to-date average loans and leases of $5.40 billion increased $261.18 million , up 5.12% net of PPP loans from the first six months of 2021. PPP forgiveness and customer payments totaled $29.84 million in the second quarter of 2022 and $66.44 million in the first half of 2022. PPP loans of $9.13 million remained outstanding which is net of $0.21 million in unearned fees as of June 30, 2022 . The solar, auto and light truck, aircraft and construction equipment portfolios all grew in the second quarter of 2022 compared to the second quarter of 2021 and the previous quarter. Deposits Average deposits of $6.80 billion grew $517.14 million for the quarter ended June 30, 2022 , up 8.24% from the year ago quarter and increased $178.92 million , up 2.70% from the previous quarter. Average deposits for the first six months of 2022 were $6.71 billion , an increase of $576.44 million , up 9.40% from the same period a year ago. Deposit growth over the last year came from business and consumer clients while brokered deposits have declined. The second quarter increase over the linked quarter was primarily attributable to seasonal public fund deposit inflows. Net Interest Income and Net Interest Margin Second quarter 2022 tax-equivalent net interest income of $63.59 million increased $6.53 million , up 11.45% from the second quarter a year ago and grew $3.86 million , up 6.46% from the previous quarter. For the first six months of 2022, tax-equivalent net interest income was $123.31 million , an increase of $8.73 million , up 7.61% from the first half of 2021. We recognized $1.03 million in PPP loan fees during the quarter and $2.50 million during the first half of 2022 compared to $2.59 million in the previous year quarter and $6.57 million during the first half of 2021. Second quarter 2022 net interest margin was 3.31%, an increase of 17 basis points from the 3.14% for the same period in 2021 and an increase of 14 basis points from the previous quarter. On a fully tax-equivalent basis, second quarter 2022 net interest margin was 3.32%, an increase of 17 basis points from the 3.15% for the same period in 2021 and was higher by 14 basis points compared to the previous quarter. Non-recurring items during the quarter contributed 11 basis points of the 17-basis point increase. Those items include PPP loans of two basis points, lower interest expense on mandatorily redeemable securities due to book value adjustments of four basis points and net interest recoveries of five basis points. Net interest margin for the first six months of 2022 was 3.24% which was equal to the first six months of 2021. Similarly, net interest margin on a fully-tax-equivalent basis for the first half of 2022 was 3.25% which was equal to the prior year. PPP loans had a positive impact on the net margin of six basis points for the first half of 2022 and the first half of 2021. Multiple Federal Reserve rate increases during 2022 contributed to net interest margin expansion as loans repriced faster than deposits during the second quarter of 2022 following significant compression after rate decreases during the first quarter of 2020 in response to the COVID-19 pandemic. Noninterest Income Second quarter 2022 noninterest income of $22.83 million decreased $2.07 million , or 8.31% from the second quarter a year ago and decreased $0.32 million , or 1.36% from the first quarter of 2022. For the first six months of 2022, noninterest income was $45.98 million , a decrease of $4.79 million , or 9.44% from the same period a year ago. The reduction for both periods is mainly from reduced mortgage banking volumes resulting in lower income from loans retained and those originated and sold in the secondary market. Demand for mortgages has continued to decline as refinancing slowed and the number of homes for sale remains low. Equipment rental income continued to shrink as demand for leases declined. This was offset by a rise in service charges on deposit accounts and the absence of losses on the sale of investment securities. In addition to these, the decrease in noninterest income from the prior quarter was mainly due to decreased insurance commissions due to seasonal contingent commissions and this was offset by increased debit card income from a higher volume of debit card transactions. Noninterest Expense Second quarter 2022 noninterest expense of $45.66 million increased $0.46 million , or 1.01% from the second quarter a year ago and increased $0.32 million , or 0.70% from the prior quarter. For the first six months of 2022, noninterest expense was $90.99 million , an increase of $1.65 million , or 1.85% compared to the same period in 2021. The increase in noninterest expense from the second quarter a year ago was mainly the result of a higher loan loss provision for unfunded loan commitments, increased data processing charges for technology projects, and higher business development costs tied to fewer COVID-19 restrictions and offset by decreased leased equipment depreciation as the average equipment rental portfolio continues to decline and lower collection and repossession expense. The increase in noninterest expense from the prior quarter was primarily the result of increased legal and professional consulting fees, a rise in business development and marketing expense tied to marketing campaigns and higher data processing charges offset by a decrease in collection and repossession expense, lower net occupancy expense from snow removal costs during the previous quarter and decreased leased equipment depreciation. Credit The allowance for loan and lease losses as of June 30, 2022 was 2.39% of total loans and leases compared to 2.41% at March 31, 2022 and 2.49% at June 30, 2021 . The allowance calculation includes PPP loans which are guaranteed by the SBA. Excluding these loans from the calculation results in an allowance of 2.40% at June 30, 2022 , compared to 2.43% at March 31, 2022 and 2.63% at June 30, 2021 . Net recoveries of $0.40 million were recorded for the second quarter of 2022 compared with net charge-offs of $0.16 million in the same quarter a year ago and $0.23 million of net recoveries in the prior quarter. The majority of recoveries during the quarter were related to the aircraft and consumer portfolios. The provision for credit losses was $2.50 million for the second quarter of 2022, an increase of $5.53 million compared with the same period in 2021 and an increase of $0.27 million from the previous quarter. The ratio of nonperforming assets to loans and leases was 0.60% as of June 30, 2022 , compared to 0.66% on March 31, 2022 and 1.06% on June 30, 2021 . Excluding PPP loans, the ratio of non-performing assets to loans and leases was unchanged at June 30, 2022 , 0.67% at March 31, 2021 and 1.13% at June 30, 2021 . While nonperforming assets showed improvement during the quarter, the allowance for loan and lease losses increased at June 30, 2022 due to loan growth, economic uncertainty stemming from the war in Ukraine , inflationary pressures and prolonged supply chain disruptions. Capital As of June 30, 2022 , the common equity-to-assets ratio was 10.66%, compared to 10.79% at March 31, 2022 and 11.68% a year ago. The tangible common equity-to-tangible assets ratio was 9.72% at June 30, 2022 compared to 9.85% at March 31, 2022 and 10.70% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 13.79% at June 30, 2022 compared to 13.88% at March 31, 2022 and 13.62% a year ago. During the second quarter of 2022, 104,400 shares were repurchased for treasury reducing common shareholders’ equity by $4.66 million . Book value per share declined to $34.74 primarily due to non-credit-related, negative market value adjustments to our investment securities available-for-sale portfolio during the quarter. Market value adjustments were the result of changes in interest rates, market spreads and market conditions subsequent to purchase. 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 79 banking centers, 18 1st Source Bank Specialty Finance Group locations nationwide, nine Wealth Advisory Services locations and 10 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,” “hope,” “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. Category: Earnings 1st SOURCE CORPORATION 2nd QUARTER 2022 FINANCIAL HIGHLIGHTS (Unaudited - Dollars in thousands, except per share data) Three Months Ended Six Months Ended June 30 , March 31 , June 30 , June 30 , June 30 , 2022 2022 2021 2022 2021 AVERAGE BALANCES Assets $ 8,092,316 $ 8,008,738 $ 7,657,276 $ 8,050,758 $ 7,504,692 Earning assets 7,685,631 7,620,248 7,264,886 7,653,120 7,113,559 Investments 1,835,974 1,887,055 1,339,551 1,861,374 1,285,564 Loans and leases 5,467,808 5,324,344 5,515,387 5,396,472 5,507,243 Deposits 6,795,793 6,616,869 6,278,654 6,706,826 6,130,386 Interest bearing liabilities 5,049,145 4,913,453 4,785,800 4,981,675 4,682,307 Common shareholders’ equity 861,134 910,793 898,388 885,826 896,481 Total equity 915,714 964,156 942,821 939,801 940,648 INCOME STATEMENT DATA Net interest income $ 63,462 $ 59,618 $ 56,935 $ 123,080 $ 114,347 Net interest income - FTE(1) 63,585 59,726 57,053 123,311 114,586 Provision (recovery of provision) for credit losses 2,503 2,233 (3,025 ) 4,736 (627 ) Noninterest income 22,830 23,145 24,898 45,975 50,767 Noninterest expense 45,655 45,336 45,198 90,991 89,338 Net income 29,330 27,401 30,235 56,731 58,341 Net income available to common shareholders 29,314 27,390 30,223 56,704 58,328 PER SHARE DATA Basic net income per common share $ 1.18 $ 1.10 $ 1.19 $ 2.28 $ 2.29 Diluted net income per common share 1.18 1.10 1.19 2.28 2.29 Common cash dividends declared 0.31 0.31 0.30 0.62 0.59 Book value per common share(2) 34.74 34.97 36.05 34.74 36.05 Tangible book value per common share(1) 31.33 31.57 32.69 31.33 32.69 Market value - High 48.42 52.70 51.02 52.70 51.02 Market value - Low 42.29 45.78 45.22 42.29 38.73 Basic weighted average common shares outstanding 24,691,747 24,743,790 25,143,712 24,717,625 25,231,789 Diluted weighted average common shares outstanding 24,691,747 24,743,790 25,143,712 24,717,625 25,231,789 KEY RATIOS Return on average assets 1.45 % 1.39 % 1.58 % 1.42 % 1.57 % Return on average common shareholders’ equity 13.65 12.20 13.49 12.91 13.12 Average common shareholders’ equity to average assets 10.64 11.37 11.73 11.00 11.95 End of period tangible common equity to tangible assets(1) 9.72 9.85 10.70 9.72 10.70 Risk-based capital - Common Equity Tier 1(3) 13.79 13.88 13.62 13.79 13.62 Risk-based capital - Tier 1(3) 15.53 15.67 15.32 15.53 15.32 Risk-based capital - Total(3) 16.79 16.93 16.58 16.79 16.58 Net interest margin 3.31 3.17 3.14 3.24 3.24 Net interest margin - FTE(1) 3.32 3.18 3.15 3.25 3.25 Efficiency ratio: expense to revenue 52.91 54.78 55.23 53.82 54.11 Efficiency ratio: expense to revenue - adjusted(1) 51.72 53.29 52.89 52.49 51.94 Net (recoveries) charge offs to average loans and leases (0.03 ) (0.02 ) 0.01 (0.02 ) 0.13 Loan and lease loss allowance to loans and leases 2.39 2.41 2.49 2.39 2.49 Nonperforming assets to loans and leases 0.60 0.66 1.06 0.60 1.06 June 30 , March 31 , December 31 , September 30 , June 30 , 2022 2022 2021 2021 2021 END OF PERIOD BALANCES Assets $ 8,029,359 $ 8,012,463 $ 8,096,289 $ 7,964,092 $ 7,718,694 Loans and leases 5,551,216 5,394,003 5,346,214 5,358,797 5,483,045 Deposits 6,744,896 6,673,092 6,679,065 6,522,505 6,345,410 Allowance for loan and lease losses 132,865 129,959 127,492 133,755 136,361 Goodwill and intangible assets 83,916 83,921 83,926 83,931 83,937 Common shareholders’ equity 856,251 864,850 916,255 911,333 901,226 Total equity 910,667 919,470 969,464 956,397 945,457 ASSET QUALITY Loans and leases past due 90 days or more $ 50 $ 274 $ 249 $ 96 $ 44 Nonaccrual loans and leases 33,490 35,435 38,706 43,166 55,864 Repossessions 102 73 861 690 1,213 Equipment owned under operating leases 43 343 1,518 1,598 1,728 Total nonperforming assets $ 33,685 $ 36,125 $ 41,334 $ 45,550 $ 58,849 (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) June 30 , March 31 , December 31 , June 30 , 2022 2022 2021 2021 ASSETS Cash and due from banks $ 116,915 $ 69,195 $ 54,420 $ 69,101 Federal funds sold and interest bearing deposits with other banks 164,848 347,697 470,767 400,346 Investment securities available-for-sale 1,836,389 1,857,431 1,863,041 1,413,022 Other investments 25,538 25,538 27,189 27,429 Mortgages held for sale 5,525 4,757 13,284 6,453 Loans and leases, net of unearned discount: Commercial and agricultural 842,618 869,093 918,712 1,125,965 Solar 350,472 337,485 348,302 305,250 Auto and light truck 708,720 629,780 603,775 595,326 Medium and heavy duty truck 278,334 255,277 259,740 256,169 Aircraft 959,876 957,040 898,401 883,559 Construction equipment 803,734 775,972 754,273 729,055 Commercial real estate 931,058 920,807 929,341 966,171 Residential real estate and home equity 535,589 510,537 500,590 492,552 Consumer 140,815 138,012 133,080 128,998 Total loans and leases 5,551,216 5,394,003 5,346,214 5,483,045 Allowance for loan and lease losses (132,865 ) (129,959 ) (127,492 ) (136,361 ) Net loans and leases 5,418,351 5,264,044 5,218,722 5,346,684 Equipment owned under operating leases, net 36,579 41,792 48,433 56,011 Net premises and equipment 45,250 45,960 47,038 47,617 Goodwill and intangible assets 83,916 83,921 83,926 83,937 Accrued income and other assets 296,048 272,128 269,469 268,094 Total assets $ 8,029,359 $ 8,012,463 $ 8,096,289 $ 7,718,694 LIABILITIES Deposits: Noninterest-bearing demand $ 2,032,566 $ 2,061,111 $ 2,052,981 $ 1,851,932 Interest-bearing deposits: Interest-bearing demand 2,644,590 2,430,979 2,455,580 2,318,210 Savings 1,282,791 1,328,981 1,286,367 1,182,643 Time 784,949 852,021 884,137 992,625 Total interest-bearing deposits 4,712,330 4,611,981 4,626,084 4,493,478 Total deposits 6,744,896 6,673,092 6,679,065 6,345,410 Short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 162,649 193,798 194,727 167,097 Other short-term borrowings 5,190 5,360 5,300 5,247 Total short-term borrowings 167,839 199,158 200,027 172,344 Long-term debt and mandatorily redeemable securities 48,459 69,563 71,251 81,330 Subordinated notes 58,764 58,764 58,764 58,764 Accrued expenses and other liabilities 98,734 92,416 117,718 115,389 Total liabilities 7,118,692 7,092,993 7,126,825 6,773,237 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 June 30, 2022 , March 31, 2022 , December 31, 2021 , and June 30, 2021 , respectively 436,538 436,538 436,538 436,538 Retained earnings 646,600 624,503 603,787 558,795 Cost of common stock in treasury (3,555,267, 3,473,139, 3,466,162, and 3,204,947 shares at June 30, 2022 , March 31, 2022 , December 31, 2021 , and June 30, 2021 , respectively) (119,876 ) (115,654 ) (114,209 ) (101,711 ) Accumulated other comprehensive (loss) income (107,011 ) (80,537 ) (9,861 ) 7,604 Total shareholders’ equity 856,251 864,850 916,255 901,226 Noncontrolling interests 54,416 54,620 53,209 44,231 Total equity 910,667 919,470 969,464 945,457 Total liabilities and equity $ 8,029,359 $ 8,012,463 $ 8,096,289 $ 7,718,694 1st SOURCE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited - Dollars in thousands, except per share amounts) Three Months Ended Six Months Ended June 30 , March 31 , June 30 , June 30 , June 30 , 2022 2022 2021 2022 2021 Interest income: Loans and leases $ 60,415 $ 55,208 $ 57,144 $ 115,623 $ 115,008 Investment securities, taxable 6,289 6,344 4,155 12,633 8,143 Investment securities, tax-exempt 157 134 154 291 328 Other 1,168 363 317 1,531 583 Total interest income 68,029 62,049 61,770 130,078 124,062 Interest expense: Deposits 3,553 2,376 3,202 5,929 6,728 Short-term borrowings 23 24 29 47 65 Subordinated notes 851 823 814 1,674 1,632 Long-term debt and mandatorily redeemable securities 140 (792 ) 790 (652 ) 1,290 Total interest expense 4,567 2,431 4,835 6,998 9,715 Net interest income 63,462 59,618 56,935 123,080 114,347 Provision (recovery of provision) for credit losses 2,503 2,233 (3,025 ) 4,736 (627 ) Net interest income after provision for credit losses 60,959 57,385 59,960 118,344 114,974 Noninterest income: Trust and wealth advisory 6,087 5,914 6,466 12,001 11,947 Service charges on deposit accounts 2,942 2,792 2,508 5,734 4,955 Debit card 4,561 4,194 4,754 8,755 8,936 Mortgage banking 1,062 1,377 2,859 2,439 6,760 Insurance commissions 1,568 1,905 1,684 3,473 3,836 Equipment rental 3,295 3,662 4,255 6,957 8,884 Losses on investment securities available-for-sale — — (680 ) — (680 ) Other 3,315 3,301 3,052 6,616 6,129 Total noninterest income 22,830 23,145 24,898 45,975 50,767 Noninterest expense: Salaries and employee benefits 25,562 25,467 25,510 51,029 50,706 Net occupancy 2,524 2,811 2,527 5,335 5,246 Furniture and equipment 1,384 1,295 1,420 2,679 2,894 Data processing 5,402 5,208 4,917 10,610 9,901 Depreciation – leased equipment 2,664 3,015 3,550 5,679 7,323 Professional fees 2,094 1,608 2,146 3,702 3,759 FDIC and other insurance 893 850 772 1,743 1,437 Business development and marketing 1,669 1,268 1,351 2,937 2,348 Loan and lease collection and repossession (265 ) 134 486 (131 ) 615 Other 3,728 3,680 2,519 7,408 5,109 Total noninterest expense 45,655 45,336 45,198 90,991 89,338 Income before income taxes 38,134 35,194 39,660 73,328 76,403 Income tax expense 8,804 7,793 9,425 16,597 18,062 Net income 29,330 27,401 30,235 56,731 58,341 Net (income) loss attributable to noncontrolling interests (16 ) (11 ) (12 ) (27 ) (13 ) Net income available to common shareholders $ 29,314 $ 27,390 $ 30,223 $ 56,704 $ 58,328 Per common share: Basic net income per common share $ 1.18 $ 1.10 $ 1.19 $ 2.28 $ 2.29 Diluted net income per common share $ 1.18 $ 1.10 $ 1.19 $ 2.28 $ 2.29 Cash dividends $ 0.31 $ 0.31 $ 0.30 $ 0.62 $ 0.59 Basic weighted average common shares outstanding 24,691,747 24,743,790 25,143,712 24,717,625 25,231,789 Diluted weighted average common shares outstanding 24,691,747 24,743,790 25,143,712 24,717,625 25,231,789 1st SOURCE CORPORATION DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY INTEREST RATES AND INTEREST DIFFERENTIAL (Unaudited - Dollars in thousands) Three Months Ended June 30, 2022 March 31, 2022 June 30, 2021 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 $ 1,805,044 $ 6,289 1.40 % $ 1,857,557 $ 6,344 1.39 % $ 1,305,988 $ 4,156 1.28 % Tax exempt(1) 30,930 195 2.53 % 29,498 165 2.27 % 33,563 192 2.29 % Mortgages held for sale 4,889 52 4.27 % 8,791 67 3.09 % 7,208 54 3.00 % Loans and leases, net of unearned discount(1) 5,467,808 60,448 4.43 % 5,324,344 55,218 4.21 % 5,515,387 57,169 4.16 % Other investments 376,960 1,168 1.24 % 400,058 363 0.37 % 402,740 317 0.32 % Total earning assets(1) 7,685,631 68,152 3.56 % 7,620,248 62,157 3.31 % 7,264,886 61,888 3.42 % Cash and due from banks 90,101 77,063 76,198 Allowance for loan and lease losses (132,020 ) (128,647 ) (142,056 ) Other assets 448,604 440,074 458,248 Total assets $ 8,092,316 $ 8,008,738 $ 7,657,276 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing deposits $ 4,753,331 $ 3,553 0.30 % $ 4,587,242 $ 2,376 0.21 % $ 4,458,915 $ 3,202 0.29 % Short-term borrowings: Securities sold under agreements to repurchase 176,994 23 0.05 % 192,108 23 0.05 % 180,613 28 0.06 % Other short-term borrowings 5,394 — — % 5,372 1 0.08 % 5,992 1 0.07 % Subordinated notes 58,764 851 5.81 % 58,764 823 5.68 % 58,764 814 5.56 % Long-term debt and mandatorily redeemable securities 54,662 140 1.03 % 69,967 (792 ) (4.59 ) % 81,516 790 3.89 % Total interest-bearing liabilities 5,049,145 4,567 0.36 % 4,913,453 2,431 0.20 % 4,785,800 4,835 0.41 % Noninterest-bearing deposits 2,042,462 2,029,627 1,819,739 Other liabilities 84,995 101,502 108,916 Shareholders’ equity 861,134 910,793 898,388 Noncontrolling interests 54,580 53,363 44,433 Total liabilities and equity $ 8,092,316 $ 8,008,738 $ 7,657,276 Less: Fully tax-equivalent adjustments (123 ) (108 ) (118 ) Net interest income/margin (GAAP-derived)(1) $ 63,462 3.31 % $ 59,618 3.17 % $ 56,935 3.14 % Fully tax-equivalent adjustments 123 108 118 Net interest income/margin - FTE(1) $ 63,585 3.32 % $ 59,726 3.18 % $ 57,053 3.15 % (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) Six Months Ended June 30, 2022 June 30, 2021 Average Balance Interest Income/ Expense Yield/ Rate Average Balance Interest Income/ Expense Yield/ Rate ASSETS Investment securities available-for-sale: Taxable $ 1,831,156 $ 12,633 1.39 % $ 1,250,096 $ 8,143 1.31 % Tax exempt(1) 30,218 360 2.40 % 35,468 406 2.31 % Mortgages held for sale 6,829 119 3.51 % 10,727 140 2.63 % Loans and leases, net of unearned discount(1) 5,396,472 115,666 4.32 % 5,507,243 115,029 4.21 % Other investments 388,445 1,531 0.79 % 310,025 583 0.38 % Total earning assets(1) 7,653,120 130,309 3.43 % 7,113,559 124,301 3.52 % Cash and due from banks 83,618 75,691 Allowance for loan and lease losses (130,343 ) (142,628 ) Other assets 444,363 458,070 Total assets $ 8,050,758 $ 7,504,692 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing deposits 4,670,746 5,929 0.26 % 4,360,607 6,728 0.31 % Short-term borrowings: Securities sold under agreements to repurchase 184,509 46 0.05 % 174,928 63 0.07 % Other short-term borrowings 5,383 1 0.04 % 6,765 2 0.06 % Subordinated notes 58,764 1,674 5.74 % 58,764 1,632 5.60 % Long-term debt and mandatorily redeemable securities 62,273 (652 ) (2.11 ) % 81,243 1,290 3.20 % Total interest-bearing liabilities 4,981,675 6,998 0.28 % 4,682,307 9,715 0.42 % Noninterest-bearing deposits 2,036,080 1,769,779 Other liabilities 93,202 111,958 Shareholders’ equity 885,826 896,481 Noncontrolling interests 53,975 44,167 Total liabilities and equity $ 8,050,758 $ 7,504,692 Less: Fully tax-equivalent adjustments (231 ) (239 ) Net interest income/margin (GAAP-derived)(1) $ 123,080 3.24 % $ 114,347 3.24 % Fully tax-equivalent adjustments 231 239 Net interest income/margin - FTE(1) $ 123,311 3.25 % $ 114,586 3.25 % (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 Six Months Ended June 30 , March 31 , June 30 , June 30 , June 30 , 2022 2022 2021 2022 2021 Calculation of Net Interest Margin (A) Interest income (GAAP) $ 68,029 $ 62,049 $ 61,770 $ 130,078 $ 124,062 Fully tax-equivalent adjustments: (B) – Loans and leases 85 77 80 162 161 (C) – Tax exempt investment securities 38 31 38 69 78 (D) Interest income – FTE (A+B+C) 68,152 62,157 61,888 130,309 124,301 (E) Interest expense (GAAP) 4,567 2,431 4,835 6,998 9,715 (F) Net interest income (GAAP) (A-E) 63,462 59,618 56,935 123,080 114,347 (G) Net interest income - FTE (D-E) 63,585 59,726 57,053 123,311 114,586 (H) Annualization factor 4.011 4.056 4.011 2.017 2.017 (I) Total earning assets $ 7,685,631 $ 7,620,248 $ 7,264,886 $ 7,653,120 $ 7,113,559 Net interest margin (GAAP-derived) (F*H)/I 3.31 % 3.17 % 3.14 % 3.24 % 3.24 % Net interest margin – FTE (G*H)/I 3.32 % 3.18 % 3.15 % 3.25 % 3.25 % Calculation of Efficiency Ratio (F) Net interest income (GAAP) $ 63,462 $ 59,618 $ 56,935 $ 123,080 $ 114,347 (G) Net interest income – FTE 63,585 59,726 57,053 123,311 114,586 (J) Plus: noninterest income (GAAP) 22,830 23,145 24,898 45,975 50,767 (K) Less: gains/losses on investment securities and partnership investments (636 ) (444 ) 348 (1,080 ) (112 ) (L) Less: depreciation – leased equipment (2,664 ) (3,015 ) (3,550 ) (5,679 ) (7,323 ) (M) Total net revenue (GAAP) (F+J) 86,292 82,763 81,833 169,055 165,114 (N) Total net revenue – adjusted (G+J–K–L) 83,115 79,412 78,749 162,527 157,918 (O) Noninterest expense (GAAP) 45,655 45,336 45,198 90,991 89,338 (L) Less: depreciation – leased equipment (2,664 ) (3,015 ) (3,550 ) (5,679 ) (7,323 ) (P) Noninterest expense – adjusted (O–L) 42,991 42,321 41,648 85,312 82,015 Efficiency ratio (GAAP-derived) (O/M) 52.91 % 54.78 % 55.23 % 53.82 % 54.11 % Efficiency ratio – adjusted (P/N) 51.72 % 53.29 % 52.89 % 52.49 % 51.94 % End of Period June 30 , March 31 , June 30 , 2022 2022 2021 Calculation of Tangible Common Equity-to-Tangible Assets Ratio (Q) Total common shareholders’ equity (GAAP) $ 856,251 $ 864,850 $ 901,226 (R) Less: goodwill and intangible assets (83,916 ) (83,921 ) (83,937 ) (S) Total tangible common shareholders’ equity (Q–R) $ 772,335 $ 780,929 $ 817,289 (T) Total assets (GAAP) 8,029,359 8,012,463 7,718,694 (R) Less: goodwill and intangible assets (83,916 ) (83,921 ) (83,937 ) (U) Total tangible assets (T–R) $ 7,945,443 $ 7,928,542 $ 7,634,757 Common equity-to-assets ratio (GAAP-derived) (Q/T) 10.66 % 10.79 % 11.68 % Tangible common equity-to-tangible assets ratio (S/U) 9.72 % 9.85 % 10.70 % Calculation of Tangible Book Value per Common Share (Q) Total common shareholders’ equity (GAAP) $ 856,251 $ 864,850 $ 901,226 (V) Actual common shares outstanding 24,650,407 24,732,535 25,000,727 Book value per common share (GAAP-derived) (Q/V)*1000 $ 34.74 $ 34.97 $ 36.05 Tangible common book value per share (S/V)*1000 $ 31.33 $ 31.57 $ 32.69 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/20220721005643/en/ Brett Bauer 574-235-2000 Source: 1st Source Corporation

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