Market Overview

1st Source Corporation Reports Record First Quarter Results, Increased Cash Dividend Declared

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QUARTERLY HIGHLIGHTS

  • Net income was a record $22.20 million, up 16.11% over the first
    quarter of 2018. Diluted net income per common share was also a record
    of $0.86, up from the prior year's first quarter of $0.73.
  • Return on average assets increased to 1.43% and return on average
    common shareholders' equity increased to 11.61% from 1.31% and 10.67%,
    respectively in the first quarter of 2018.
  • Net charge-offs of $3.54 million and nonperforming assets to loans and
    leases of 0.49% compared to $0.34 million and 0.74%, respectively in
    the first quarter of 2018.
  • Average loans and leases grew $269.40 million, up 5.87% from the first
    quarter of 2018.
  • Average deposits grew $350.92 million, up 7.45% from the first quarter
    of 2018.
  • Net interest income increased $4.42 million, up 8.74% from the first
    quarter of 2018.
  • Noninterest income increased $0.32 million, up 1.33% from the first
    quarter of 2018 (increased 1.27% excluding leased equipment
    depreciation).
  • Noninterest expenses decreased $0.35 million, down 0.77% from the
    first quarter of 2018 (decreased 1.15% excluding leased equipment
    depreciation).

1st Source Corporation (NASDAQ:SRCE), parent company of 1st Source
Bank, today reported a record high net income of $22.20 million for the
first quarter of 2019, an improvement of 16.11% compared to $19.12
million reported in the first quarter a year ago. The net income
comparison was positively impacted by increased net interest income of
$4.42 million primarily due to higher loan rates and higher average loan
and lease balances. It was negatively impacted by a $1.13 million
increase in the provision for loan and lease losses to cover loan and
lease growth along with higher net charge-offs. Non-recurring 2019 items
included a negative $1.10 million valuation adjustment on a repossessed
asset and $1.32 million gain on the sale of our former headquarters
building.

Diluted net income per common share for the first quarter of 2019 was a
record high of $0.86, versus $0.73 in the first quarter of 2018.

At its April 2019 meeting, the Board of Directors approved a cash
dividend of $0.27 per common share, up 12.5% from the $0.24 per common
share declared a year ago. The cash dividend is payable to shareholders
of record on May 6, 2019 and will be paid on May 15, 2019.

According to Christopher J. Murphy III, Chairman, "1st Source
Corporation had a strong first quarter. We continue to achieve steady
growth in net income and see healthy increases in loans, leases, and
deposits. Our biggest credit challenge in the quarter was due to a
further charge-off of $3.0 million on the large syndicated aircraft
account which I have mentioned previously. The remaining balance is less
than $1 million, payment of which is anticipated to come from a final
settlement of escrowed funds. The cost of resolving the complex issues
of this bankruptcy from legal, investment banking, and consulting fees
has proven to be exceedingly high. This reminds us we should be wary of
complex lending structures.

"At 1st Source, we value integrity, teamwork, superior quality,
outstanding client service, community leadership, true relationship
banking and operating with strong capital and reserves. We believe it is
these values that differentiate us from our competition, and it seems
others have taken notice. In March, we once again received the
BauerFinancial ‘Superior' Five-Star rating - the highest rating
possible. BauerFinancial bases its rating on capital ratio,
profitability/loss trend, credit quality and CRA ratings. We would not
be able to achieve high scores in such categories without conducting our
daily business with those values at the core of what we do.

"Our focus on smaller businesses continues to receive recognition across
the state of Indiana. For the sixth year in a row, we were honored with
the ‘Gold Level Award' in the Community Lender's category by the Small
Business Administration. This award honors 1st Source Bank as #1 among
Indiana Community Banks with less than $10 billion in assets for making
the greatest number of SBA loans during 2018. We have devoted over 155
years to serving small businesses and maintain a dedicated SBA
department to ensure the highest level of service to our clients, and
this recognition confirms our strategic focus is successful."

FIRST QUARTER 2019 FINANCIAL RESULTS

Loans

Average loans and leases of $4.86 billion increased $269.40 million, up
5.87% in the first quarter of 2019 from the year ago quarter and have
increased $22.19 million, up 0.46% from the fourth quarter of 2018.

Deposits

Average deposits of $5.06 billion grew $350.92 million, up 7.45% for the
quarter ended March 31, 2019 from the year ago quarter and have
decreased $28.59 million, down 0.56% compared to the fourth quarter of
2018.

Net Interest Income and Net Interest Margin

First quarter 2019 net interest income of $54.95 million increased $4.42
million, up 8.74% from the first quarter a year ago and decreased $0.90
million, down 1.60% from the prior quarter.

First quarter 2019 net interest margin was 3.78%, an improvement of nine
basis points from the 3.69% for the same period in 2018 and increased
one basis point from the fourth quarter of 2018. First quarter 2019 net
interest margin on a fully tax-equivalent basis was 3.79%, an increase
of eight basis points from the 3.71% for the same period in 2018 and was
higher by one basis point compared to the prior quarter. With the
Federal Reserve announcing rate increases will be put on hold, interest
margins may have reached their peak. Also, there is significant
competition for deposits with many local market participants increasing
their rates and there is considerable price competition for loans.

Noninterest Income

First quarter 2019 noninterest income of $24.12 million increased $0.32
million, up 1.33% from the first quarter a year ago and was relatively
flat from the fourth quarter of 2018.

Noninterest income during the three months ended March 31, 2019 was
higher compared to a year ago mainly from increased equipment rental
income from an increase in the average lease portfolio, higher insurance
commissions primarily from increased business and higher contingent
commissions, and higher debit card income from increased customer use.
These positives were offset by reduced net gains on partnership
investments and lower trust and wealth advisory fees resulting from a
lower value of assets under management due to stock market movements.

Noninterest Expense

First quarter 2019 noninterest expense of $45.20 million was down
slightly from the first quarter a year ago and decreased $2.49 million,
down 5.21% from the prior quarter. Excluding depreciation on leased
equipment, noninterest expenses were down 1.15% from the first quarter a
year ago and down 5.97% from the prior quarter.

The decrease in noninterest expense from the fourth quarter was
primarily the result of higher gains on the sale of fixed assets,
reduced professional fees from consulting services, and fewer group
insurance claims offset by higher repossessed asset valuation
adjustments and lower gains on the sale of repossessed assets.

Credit

The reserve for loan and lease losses as of March 31, 2019 was 2.07% of
total loans and leases compared to 2.08% at December 31, 2018 and 2.10%
at March 31, 2018. Net charge-offs of $3.54 million were recorded for
the first quarter of 2019 compared with net charge-offs of $0.34 million
in the same quarter a year ago and up from the $2.53 million of net
charge-offs in the fourth quarter. The majority of the first quarter
charge-offs was related to one relationship within the aircraft
portfolio. This account had experienced significant charge-offs during
the second half of 2018.

The provision for loan and lease losses was $4.92 million for the first
quarter of 2019, an increase of $1.13 million compared with the same
period in 2018 and an increase of $0.22 million from the fourth quarter.
The ratio of nonperforming assets to loans and leases was an improved
0.49% as of March 31, 2019, compared to 0.71% on December 31, 2018 and
0.74% on March 31, 2018.

Capital

As of March 31, 2019, the common equity-to-assets ratio was 12.20%,
compared to 12.11% at December 31, 2018 and 11.99% a year ago. The
tangible common equity-to-tangible assets ratio was 11.03% at March 31,
2019 compared to 10.92% at December 31, 2018 and 10.75% a year earlier.
The Common Equity Tier 1 ratio, calculated under banking regulatory
guidelines, was 12.28% at March 31, 2019 compared to 12.38% at
December 31, 2018 and 12.22% 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 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, 19 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 2019 FINANCIAL HIGHLIGHTS
(Unaudited - Dollars in thousands, except per share data)
Three Months Ended
March 31, December 31, March 31,
    2019   2018   2018
AVERAGE BALANCES
Assets $ 6,290,386 $ 6,270,544 $ 5,939,574
Earning assets 5,896,697 5,873,476 5,552,779
Investments 987,593 976,856 916,979
Loans and leases 4,858,183 4,835,995 4,588,782
Deposits 5,059,362 5,087,948 4,708,439
Interest b
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