Market Overview

Record Quarterly Earnings at 1st Source Corporation, Company Grows to Over $6 Billion, Increase in Cash Dividend

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QUARTERLY HIGHLIGHTS

  • Net income improved to $19.12 million, up 17.96% over the first
    quarter of 2017. Diluted net income per common share improved to $0.73
    from the prior year's first quarter of $0.62.
  • Return on average assets increased to 1.31% and return on average
    common shareholders' equity increased to 10.67% from 1.21% and 9.61%,
    respectively in the first quarter of 2017.
  • Net charge-offs (recoveries) of $0.34 million and nonperforming assets
    to loans and leases of 0.74% compared to $(0.58) million and 0.63%,
    respectively in the first quarter of 2017.
  • Average loans and leases grew $401.55 million, up 9.59% from the first
    quarter of 2017.
  • Average deposits grew $409.48 million, up 9.52% from the first quarter
    of 2017.
  • Net interest income increased $6.81 million, up 15.56% from the first
    quarter of 2017.
  • Noninterest income increased $0.50 million, up 2.15% from the first
    quarter of 2017 (decreased 1.41% excluding leased equipment
    depreciation).
  • Noninterest expenses increased $4.44 million or 10.79% from the first
    quarter of 2017 (increased 10.41% excluding leased equipment
    depreciation).

1st Source Corporation (NASDAQ:SRCE), parent company of 1st Source
Bank, today reported a record high net income of $19.12 million for the
first quarter of 2018, an improvement of 17.96% compared to $16.21
million reported in the first quarter a year ago. Income before taxes
was $25.00 million compared to $24.92 million in the first quarter of
2017. The pretax income comparison was positively impacted by increased
net interest income of $6.81 million primarily due to rising lending
rates, higher average loan and lease balances and the recognition of a
$0.62 million unaccreted purchase discount from an early loan payoff.
These positives were offset by a $2.79 million increase in the provision
for loan and lease losses to support loan and lease growth and a $4.44
million rise in noninterest expense. Non-recurring first quarter 2018
costs were approximately $1.60 million.

Diluted net income per common share for the first quarter of 2018 was a
record high $0.73, versus $0.62 in the first quarter of 2017.

At its April 2018 meeting, the Board of Directors approved a cash
dividend of $0.24 per common share, up 9.09% from $0.22 per common share
in the prior quarter and up 26.32% from the $0.19 per common share
declared a year ago. The cash dividend is payable to shareholders of
record on May 7, 2018 and will be paid on May 15, 2018.

According to Christopher J. Murphy III, Chairman, "1st Source
Corporation had a strong first quarter and crested $6 billion in asset
size. We continue to achieve steady net income and see healthy growth in
loans, leases, and deposits. Credit quality remains favorable with
year-to-date net charge-offs of only $338,000 or 0.03% of average loans
and leases. Average loans and leases were up a strong 9.59% for the
quarter compared to the same period last year. Average deposits were
also up a solid 9.52% from this time last year. Net interest income has
increased 15.56% from the first quarter 2017, along with noninterest
income increasing 2.15%. Noninterest expenses increased 10.79% from the
same quarter of 2017."

"We have started out 2018 with strong loan growth. As we move deeper
into the year, we will continue our focus on organic, core deposit
growth to support further loan growth," added Murphy.

"As always, our mission each day is to help our clients achieve
security, build wealth and realize their dreams. We are looking forward
to carrying out this mission for the rest of 2018," Murphy concluded.

FIRST QUARTER 2018 FINANCIAL RESULTS

Loans

Average loans and leases of $4.59 billion increased $401.55 million, up
9.59% in the first quarter of 2018 from the year ago quarter and have
increased $141.99 million, up 3.19% from the fourth quarter of 2017.

Deposits

Average deposits of $4.71 billion grew $409.48 million, up 9.52% for the
quarter ended March 31, 2018 from the year ago quarter and have
increased $22.29 million compared to the fourth quarter of 2017.

Net Interest Income and Net Interest Margin

First quarter 2018 net interest income of $50.53 million increased $6.81
million, up 15.56% from the first quarter of 2017 and increased $1.72
million, up 3.52% from the fourth quarter of 2017.

First quarter 2018 net interest margin was 3.69%, an improvement of 20
basis points from the 3.49% for the same period in 2017 and increased 12
basis points from the fourth quarter. First quarter 2018 net interest
margin on a fully tax-equivalent basis was 3.71%, an increase of 18
basis points from the 3.53% for the same period in 2017 and increased 10
basis points from the fourth quarter.

Noninterest Income

Noninterest income for the first quarter of 2018 was $23.81 million, up
$0.50 million or 2.15% from the year ago quarter, and down $1.86 million
or 7.26% from the fourth quarter. The growth in noninterest income
during the first quarter compared to the same period a year ago was
mainly due to higher equipment rental income resulting from an increase
in the average lease portfolio, improved debit card income due to growth
in those transactions, higher customer swap fees and increased trust and
wealth advisory fees, which were offset by reduced gains on the sale of
available-for-sale equity securities.

The reduction in noninterest income from the fourth quarter was
primarily the result of lower gains on the sale of available-for-sale
equity securities, decreased equipment rental income and reduced
customer swap fees offset by the receipt of insurance contingent
commissions.

Noninterest Expense

Noninterest expense for the first quarter ended March 31, 2018 was
$45.56 million, up $4.44 million or 10.79% over the comparable period a
year ago and down $1.76 million or 3.71% from the fourth quarter.
Excluding depreciation on leased equipment, noninterest expenses were up
$3.69 million or 10.41% from the first quarter a year ago. The increase
in noninterest expense from the same quarter a year ago was primarily
due to higher salary expense as a result of normal merit increases and a
rise in incentive compensation and higher depreciation on leased
equipment as the lease portfolio grew. In addition, non-recurring first
quarter 2018 costs were approximately $1.60 million due to consulting
fees for a customer relationship management project and information
technology projects of $0.70 million, a repossessed asset valuation
adjustment of $0.60 million, and trust losses of $0.30 million.

The reduction in noninterest expense from the fourth quarter of 2017 was
mainly due to reduced charitable contributions, a decrease in provision
for unfunded loan commitments, and lower general collection and
repossession expenses offset by increased valuation adjustments on
repossessed assets.

Credit

The reserve for loan and lease losses as of March 31, 2018 was 2.10% of
total loans and leases compared to 2.10% at December 31, 2017 and 2.13%
at March 31, 2017. Net charge-offs of $0.34 million were recorded for
the first quarter of 2018 compared with net recoveries of $0.58 million
in the same quarter a year ago and down from the $2.11 million of net
charge-offs in the fourth quarter.

The provision for loan and lease losses for the first quarter of 2018
increased $2.79 million from the same quarter a year ago and increased
slightly from the fourth quarter.

The ratio of nonperforming assets to loans and leases was 0.74% as of
March 31, 2018, compared to the 0.63% on March 31, 2017 and the 0.67% on
December 31, 2017.

Capital

As of March 31, 2018, the common equity-to-assets ratio was 11.99%,
compared to 12.20% at December 31, 2017 and 12.47% a year ago. The
tangible common equity-to-tangible assets ratio was 10.75% at March 31,
2018 and 10.94% at December 31, 2017 compared to 11.11% a year earlier.
The Common Equity Tier 1 ratio, calculated under banking regulatory
guidelines, was 12.22% at March 31, 2018 compared to 12.35% at
December 31, 2017 and 12.69% a year ago.

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 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, 23 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
1st QUARTER 2018 FINANCIAL HIGHLIGHTS
(Unaudited - Dollars in thousands, except per share data)
Three Months Ended
March 31, December 31, March 31,
    2018   2017   2017
AVERAGE BALANCES
Assets $ 5,939,574 $ 5,818,837 $ 5,437,247
Earning assets 5,552,779 5,418,305 5,075,410
Investments 916,979 884,209 839,283
Loans and leases 4,588,782 4,446,794 4,187,231
Deposits 4,708,439 4,686,145 4,298,964
Interest bearing liabilities 4,154,214 3,985,709 3,747,752
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