SRCE 1st Source Corporation

QUARTERLY HIGHLIGHTS

• Net income improved to $15.23 million and diluted net income per common share improved to $0.58 from the prior year's quarter.
• Return on average assets of 1.11% and return on average common shareholders' equity of 8.96%.
• Net charge-offs of $1.10 million and nonperforming assets to loans and leases of 0.70%.
• Average loans and leases grew $190.45 million or 4.81% from the fourth quarter of 2015.
• Average deposits grew $301.31 million or 7.35% from the fourth quarter of 2015.
• Net interest income increased slightly from the fourth quarter of 2015.
• Noninterest income increased $1.45 million or 6.96% from the fourth quarter of 2015 (increased 5.19% excluding leased equipment depreciation).
• Noninterest expenses were comparable to the fourth quarter of 2015 (decreased 1.65% excluding leased equipment depreciation).

1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported net income of $57.79 million for the year of 2016, compared to $57.49 million in 2015. Fourth quarter net income was $15.23 million, an increase of 5.60% compared to $14.42 million in the fourth quarter of 2015. The year-to-date net income comparison was positively impacted by net gains of $1.80 million on investment securities available-for-sale and gains of $1.86 million on a partnership investment liquidation required by the Volcker Rule. These positives were offset by a reduction in net interest recoveries of $3.16 million and a higher provision for loan and lease losses of $3.67 million.

Diluted net income per common share for the year improved to $2.22 compared to $2.17 a year earlier. Diluted net income per common share for the fourth quarter was $0.58, compared to $0.55 per common share reported in the fourth quarter of the previous year.

At its January 2017 meeting, the 1st Source Board of Directors approved a cash dividend of $0.18 per common share. The cash dividend is payable to shareholders of record on February 6, 2017 and will be paid on February 15, 2017. Cash dividends for 2016 increased 7.30% over the previous year.

According to Christopher J. Murphy III, Chairman, “1st Source Corporation had a steady fourth quarter and 2016 was our 29th year of consecutive annual dividend growth. Credit quality remains stable and we have seen average deposits increase 7.35% from a year ago. Average loan and lease growth of 4.81% for the same quarterly period was a strong increase considering the acquisitions of a number of our clients. As an example, the consolidation occurring in the recreational vehicle industry and the auto rental industry has resulted in the sale of a number of our clients to substantially larger companies. These sales and mergers have resulted in loan payoffs as have the sale of local business customers with aging owners who took advantage of the improved economy to sell their businesses. For the year, average loans and leases grew by 7.20%.”

“This past quarter we launched a new mobile responsive website and smart watch apps for Android™ and Apple® watches. We also opened a new expanded banking center in Warsaw, Indiana, replacing our former downtown location and financed our first tax advantaged renewable energy solar projects.”

“We were once again identified for providing the best banking experience in the Midwest by The MSR Group, a top research firm specializing in the customer experience in retail banking. To determine this they interviewed thousands of customers of banks including the top 50 banks in the country. We are proud to have received this award for two consecutive years as it shows our commitment to delivering outstanding client service. We are committed to providing outstanding service to our clients whether they prefer to bank in person, online or with their mobile device.” Mr. Murphy concluded.

FOURTH QUARTER 2016 FINANCIAL RESULTS

Loans

Average loans and leases of $4.15 billion increased $190.45 million, or 4.81% in the fourth quarter of 2016 from the year ago quarter and have decreased slightly from the third quarter. Annual average loans and leases of $4.11 billion increased $276.36 million, or 7.20% from the same period in 2015.

Deposits

Average deposits of $4.40 billion grew $301.31 million, or 7.35% for the quarter ended December 31, 2016 from the year ago quarter and have increased $48.97 million, or 1.12% compared to the third quarter. Annual average deposits for 2016 were $4.30 billion an increase of $341.64 million or 8.62% from 2015.

Net Interest Income and Net Interest Margin

Fourth quarter 2016 net interest income of $43.38 million increased slightly from the fourth quarter a year ago and increased $0.69 million, or 1.61% from the third quarter. Net interest recoveries during the quarter were down $1.70 million from 2015, resulting in a 14 basis point reduction to the net interest margin.

Fourth quarter 2016 net interest margin was 3.39%, a decrease of 19 basis points from the 3.58% for the same period in 2015 and an increase of 4 basis points from the 3.35% in the third quarter. Fourth quarter 2016 net interest margin on a fully tax-equivalent basis was 3.42%, a decrease of 19 basis points from the 3.61% for the same period in 2015 and an increase of 3 basis points from the 3.39% in the third quarter.

For the twelve months of 2016, net interest income was $169.66 million, an increase of $3.14 million, or 1.88% compared to the same period a year ago. Net interest recoveries for 2016 were down $3.16 million from 2015, resulting in a 6 basis point reduction to the net interest margin.

Net interest margin for the year ending December 31, 2016 was 3.39%, a decrease of 18 basis points from the 3.57% for the year ending December 31, 2015. Net interest margin on a fully tax-equivalent basis for the year ending December 31, 2016 was 3.43%, a decrease of 17 basis points from the 3.60% for the year ending December 31, 2015.

Noninterest Income

Noninterest income increased $1.45 million or 6.96% and $5.63 million or 6.76% in the three and twelve month periods ended December 31, 2016, respectively over the same periods a year ago. The increase in noninterest income during the fourth quarter was mainly due to higher equipment rental income related to an increase in the average equipment rental portfolio and gains on the sale of available-for-sale equity securities, which was offset by lower monogram fund income. The increase in noninterest income during the twelve months of 2016 was primarily due to higher equipment rental income related to an increase in the average equipment rental portfolio, improved debit card income due to growth in those transactions, gains on the liquidation of a partnership investment required by the Volcker Rule and gains on the sale of available-for-sale equity securities, which was offset by lower monogram fund income and decreased customer swap fees.

Noninterest Expense

Noninterest expense was flat for the quarter ended December 31, 2016 and increased $4.53 million or 2.85% for the twelve months of 2016, respectively over the comparable periods a year ago. Excluding depreciation on leased equipment, annual noninterest expenses were up $1.13 million or 0.80%. The 2016 increase in noninterest expense was primarily due to higher depreciation on leased equipment, furniture and equipment expense and increased loan and lease collection and repossession expenses offset by reduced residential mortgage foreclosure expenses, losses on the sale of fixed assets and lower supplies and communication. Depreciation on leased equipment was higher as a result of an increase in the average equipment rental portfolio. Furniture and equipment expense was higher due to increased software maintenance costs, depreciation on new equipment with banking center remodels and computer processing charges. Loan and lease collection and repossession expenses increased mainly due to lower recoveries on repurchased mortgage loans, fewer gains on the sale of other real estate owned and repossessions and an increase in general collection and repossession expenses. Supplies and communication expense was lower primarily due to costs associated with replacing debit cards with embedded EMV chip cards in 2015 and a reduction in telephone charges. In addition, during the fourth quarter of 2016, business development and marketing expenses included $0.53 million of charitable contributions related to the gains on the sale of available-for-sale securities.

Credit

The reserve for loan and lease losses as of December 31, 2016 was 2.11% of total loans and leases compared to 2.13% at September 30, 2016 and 2.21% at December 31, 2015. Net charge-offs of $1.10 million were recorded for the fourth quarter of 2016 compared with net recoveries of $0.50 million in the same quarter a year ago. Net charge-offs for the full year were $5.40 million in 2016, compared to net recoveries of $0.88 in 2015.

The provision for loan and lease losses for the fourth quarter and full year of 2016 increased $0.74 million and $3.67 million, respectively compared with the same periods in 2015.

The ratio of nonperforming assets to net loans and leases was 0.70% as of December 31, 2016, up from the 0.50% on December 31, 2015 and comparable to the 0.68% on September 30, 2016.

Capital

As of December 31, 2016, the common equity-to-assets ratio was 12.26% compared to 12.30% at September 30, 2016 and 12.41% a year ago. The tangible common equity-to-tangible assets ratio was 10.89% at December 31, 2016 and 10.93% at September 30, 2016 compared to 10.96% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 12.59% at December 31, 2016 compared to 12.35% at September 30, 2016 and 12.39% a year ago. During 2016, the Company repurchased $8.03 million of common stock in several open market transactions. During the fourth quarter of 2016, accumulated other comprehensive income decreased $8.03 million as a result of the decrease in the market value of our investment securities available-for-sale given current market conditions. At December 31, 2016 approximately 53% of our investment securities portfolio will reprice in the next three years.

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 81 banking centers, 22 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 4th QUARTER 2016 FINANCIAL HIGHLIGHTS (Unaudited - Dollars in thousands, except per share data)   Three Months Ended Twelve Months Ended December 31, September 30, December 31, December 31, December 31,     2016   2016   2015   2016   2015 AVERAGE BALANCES Assets $ 5,461,990 $ 5,425,530 $ 5,134,594 $ 5,360,685 $ 4,994,208 Earning assets 5,097,192 5,066,375 4,792,553 5,003,922 4,668,811 Investments 828,955 821,068 785,903 812,501 786,980 Loans and leases 4,149,913 4,189,340 3,959,468 4,113,508 3,837,149 Deposits 4,402,225 4,353,253 4,100,913 4,302,701 3,961,060 Interest bearing liabilities 3,729,397 3,734,322 3,532,627 3,695,309 3,459,939 Common shareholders’ equity 675,915 670,006 647,027 663,703 635,497   INCOME STATEMENT DATA Net interest income $ 43,383 $ 42.694 $ 43,211 $ 169,659 $ 166,521 Net interest income - FTE(1) 43,837 43,144 43,668 171,484 168,219 Provision for loan and lease losses 742 2,067 — 5,833 2,160 Noninterest income 22,356 22,665 20,902 88,945 83,316 Noninterest expense 41,761 41,145 41,744 163,645 159,114 Net income 15,225 14,264 14,417 57,786 57,486   PER SHARE DATA Basic net income per common share $ 0.58 $ 0.55 $ 0.55 $ 2.22 $ 2.17 Diluted net income per common share 0.58 0.55 0.55 2.22 2.17 Common cash dividends declared 0.180 0.180 0.180 0.720 0.671 Book value per common share 26.00 25.91 24.75 26.00 24.75 Tangible book value per common share(1) 22.75 22.65 21.49 22.75 21.49 Market value - High 45.61 35.99 34.35 45.61 34.35 Market value - Low 33.27 31.50 29.35 27.01 26.95 Basic weighted average common shares outstanding 25,873,552 25,867,169 26,059,762 25,879,397 26,173,351 Diluted weighted average common shares outstanding 25,873,552 25,867,169 26,059,762 25,879,397 26,173,351   KEY RATIOS Return on average assets 1.11 % 1.05 % 1.11 % 1.08 % 1.15 % Return on average common shareholders’ equity 8.96 8.47 8.84 8.71 9.05 Average common shareholders’ equity to average assets 12.37 12.35 12.60 12.38 12.72 End of period tangible common equity to tangible assets(1) 10.89 10.93 10.96 10.89 10.96 Risk-based capital - Common Equity Tier 1(2) 12.59 12.35 12.39 12.59 12.39 Risk-based capital - Tier 1(2) 13.80 13.56 13.65 13.80 13.65 Risk-based capital - Total(2) 15.12 14.87 14.97 15.12 14.97 Net interest margin 3.39 3.35 3.58 3.39 3.57 Net interest margin - FTE(1) 3.42 3.39 3.61 3.43 3.60 Efficiency ratio: expense to revenue 63.53 62.95 65.11 63.28 63.69 Efficiency ratio: expense to revenue - adjusted(1) 59.87 60.10 61.98 60.24 60.93 Net charge offs to average loans and leases 0.11 0.44 (0.05 ) 0.13 (0.02 ) Loan and lease loss reserve to loans and leases 2.11 2.13 2.21 2.11 2.21 Nonperforming assets to loans and leases 0.70 0.68 0.50 0.70 0.50   December 31, September 30, June 30, March 31, December 31,     2016   2016   2016   2016   2015 END OF PERIOD BALANCES Assets $ 5,486,268 $ 5,447,911 $ 5,379,938 $ 5,245,610 $ 5,187,916 Loans and leases 4,188,071 4,179,417 4,152,763 4,031,975 3,994,692 Deposits 4,333,760 4,377,038 4,325,084 4,225,148 4,139,186 Reserve for loan and lease losses 88,543 88,897 91,458 89,296 88,112 Goodwill and intangible assets 84,102 84,244 84,386 84,530 84,676 Common shareholders’ equity 672,650 670,259 661,756 649,973 644,053   ASSET QUALITY Loans and leases past due 90 days or more $ 416 $ 611 $ 275 $ 728 $ 122 Nonaccrual loans and leases 19,907 19,922 12,579 12,982 12,718 Other real estate 704 551 452 330 736 Repossessions 9,373 8,089 7,619 7,201 6,927 Equipment owned under operating leases   34     43     107     113     121   Total nonperforming assets   $ 30,434     $ 29,216     $ 21,032     $ 21,354     $ 20,624    

(1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio.

(2) Calculated under banking regulatory guidelines.

          1st SOURCE CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited - Dollars in thousands)   December 31, September 30, June 30, December 31,     2016   2016   2016   2015

ASSETS

Cash and due from banks $ 58,578 $ 65,724 $ 58,944 $ 65,171 Federal funds sold and interest bearing deposits with other banks 49,726 30,100 14,297 14,550 Investment securities available-for-sale 850,467 828,615 814,258 791,727 Other investments 22,458 22,458 21,973 21,973 Mortgages held for sale 15,849 19,986 15,924 9,825 Loans and leases, net of unearned discount: Commercial and agricultural 812,264 786,167 759,175 744,749 Auto and light truck 411,764 400,809 457,586 425,236 Medium and heavy duty truck 294,790 271,478 273,674 278,254 Aircraft 802,414 836,977 822,842 778,012 Construction equipment 495,925 498,086 484,354 455,565 Commercial real estate 719,170 744,972 715,932 700,268 Residential real estate and home equity 521,931 512,597 506,369 490,468 Consumer   129,813     128,331     132,831     122,140   Total loans and leases 4,188,071 4,179,417 4,152,763 3,994,692 Reserve for loan and lease losses   (88,543 )   (88,897 )   (91,458 )   (88,112 ) Net loans and leases 4,099,528 4,090,520 4,061,305 3,906,580 Equipment owned under operating leases, net 118,793 117,883 119,312 110,371 Net premises and equipment 56,708 54,654 54,506 53,191 Goodwill and intangible assets 84,102 84,244 84,386 84,676 Accrued income and other assets   130,059     133,727     135,033     129,852   Total assets   $ 5,486,268     $ 5,447,911     $ 5,379,938     $ 5,187,916    

LIABILITIES

Deposits: Noninterest bearing $ 991,256 $ 992,776 $ 944,626 $ 902,364 Interest-bearing deposits: Interest-bearing demand 1,471,526 1,417,692 1,391,823 1,350,417 Savings 814,326 799,891 779,899 745,661 Time   1,056,652     1,166,679     1,208,736     1,140,744   Total interest-bearing deposits   3,342,504     3,384,262     3,380,458     3,236,822   Total deposits   4,333,760     4,377,038     4,325,084     4,139,186   Short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 162,913 167,029 161,826 130,662 Other short-term borrowings   129,030     48,978     44,150     102,567   Total short-term borrowings   291,943     216,007     205,976     233,229   Long-term debt and mandatorily redeemable securities 74,308 64,760 64,738 57,379 Subordinated notes 58,764 58,764 58,764 58,764 Accrued expenses and other liabilities   54,843     61,083     63,620     55,305   Total liabilities   4,813,618     4,777,652     4,718,182     4,543,863    

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 December 31, 2016, September 30, 2016, June 30, 2016, and December 31, 2015, respectively

436,538 436,538 436,538 436,538 Retained earnings 290,824 280,335 270,744 251,812 Cost of common stock in treasury (2,329,909, 2,338,581, 2,342,904, and 2,178,090 shares at December 31, 2016, September 30, 2016, June 30, 2016, and December 31, 2015, respectively) (56,056 ) (56,262 ) (56,357 ) (50,852 ) Accumulated other comprehensive income   1,344     9,648     10,831     6,555   Total shareholders’ equity   672,650     670,259     661,756     644,053   Total liabilities and shareholders’ equity   $ 5,486,268     $ 5,447,911     $ 5,379,938     $ 5,187,916               1st SOURCE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited - Dollars in thousands, except per share amounts)   Three Months Ended Twelve Months Ended December 31, September 30, December 31, December 31, December 31,     2016   2016   2015   2016   2015 Interest income: Loans and leases $ 44,407 $ 44,965 $ 44,019 $ 175,999 $ 168,766 Investment securities, taxable 3,273 2,384 3,000 11,777 11,929 Investment securities, tax-exempt 679 672 731 2,740 2,992 Other   365     279     267     1,244     997 Total interest income   48,724     48,300     48,017     191,760     184,684 Interest expense: Deposits 3,827 3,879 3,218 15,267 11,489 Short-term borrowings 95 150 103 525 484 Subordinated notes 1,055 1,055 1,055 4,220 4,220 Long-term debt and mandatorily redeemable securities   364     522     430     2,089     1,970 Total interest expense   5,341     5,606     4,806     22,101     18,163 Net interest income 43,383 42,694 43,211 169,659 166,521 Provision for loan and lease losses   742     2,067     —     5,833     2,160 Net interest income after provision for loan and lease losses   42,641     40,627     43,211     163,826     164,361 Noninterest income: Trust and wealth advisory 4,834 4,691 4,688 19,256 19,126 Service charges on deposit accounts 2,304 2,366 2,336 9,053 9,313 Debit card 2,727 2,745 2,607 10,887 10,217 Mortgage banking 1,001 1,334 1,111 4,496 4,570 Insurance commissions 1,367 1,350 1,318 5,513 5,465 Equipment rental 6,616 6,657 6,000 25,863 22,302 Gains on investment securities available-for-sale 1,006 989 — 1,796 4 Other   2,501     2,533     2,842     12,081     12,319 Total noninterest income   22,356     22,665     20,902     88,945     83,316 Noninterest expense: Salaries and employee benefits 22,156 22,136 22,579 86,837 86,133 Net occupancy 2,443 2,435 2,466 9,686 9,768 Furniture and equipment 5,001 4,898 4,877 19,500 18,348 Depreciation — leased equipment 5,563 5,570 4,938 21,678 18,280 Professional fees 1,508 1,244 1,467 5,161 4,682 Supplies and communication 1,106 1,256 1,889 5,244 6,011 FDIC and other insurance 710 647 868 3,147 3,412 Business development and marketing 1,668 1,263 1,330 4,936 4,837 Loan and lease collection and repossession 464 324 182 1,600 667 Other   1,142     1,372     1,148     5,856     6,976 Total noninterest expense   41,761     41,145     41,744     163,645     159,114 Income before income taxes 23,236 22,147 22,369 89,126 88,563 Income tax expense   8,011     7,883     7,952     31,340     31,077 Net income   $ 15,225     $ 14,264     $ 14,417     $ 57,786     $ 57,486 Per common share: Basic net income per common share   $ 0.58     $ 0.55     $ 0.55     $ 2.22     $ 2.17 Diluted net income per common share   $ 0.58     $ 0.55     $ 0.55     $ 2.22     $ 2.17 Cash dividends   $ 0.180     $ 0.180     $ 0.18     $ 0.720     $ 0.671 Basic weighted average common shares outstanding   25,873,552     25,867,169     26,059,762     25,879,397     26,173,351 Diluted weighted average common shares outstanding   25,873,552     25,867,169     26,059,762     25,879,397     26,173,351                     1st SOURCE CORPORATION DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY INTEREST RATES AND INTEREST DIFFERENTIAL (Unaudited - Dollars in thousands)   Three Months Ended December 31, 2016 September 30, 2016 December 31, 2015 Interest Interest Interest Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/     Balance   Expense   Rate   Balance   Expense   Rate   Balance   Expense   Rate

ASSETS

Investment securities available-for-sale: Taxable $ 696,110 $ 3,273 1.87 % $ 690,867 $ 2,384 1.37 % $ 663,569 $ 3,000 1.79 % Tax-exempt(1) 132,845 983 2.94 % 130,201 973 2.97 % 122,334 1,074 3.48 % Mortgages held for sale 14,615 128 3.48 % 14,681 134 3.63 % 8,392 88 4.16 % Loans and leases, net of unearned discount(1) 4,149,913 44,429 4.26 % 4,189,340 44,980 4.27 % 3,959,468 44,045 4.41 % Other investments   103,709     365     1.40 %   41,286     279     2.69 %   38,790     267     2.73 % Total earning assets(1) 5,097,192 49,178 3.84 % 5,066,375 48,750 3.83 % 4,792,553 48,474 4.01 % Cash and due from banks 62,689 60,665 62,446 Reserve for loan and lease losses (89,618 ) (92,237 ) (89,841 ) Other assets   391,727             390,727             369,436           Total assets   $ 5,461,990             $ 5,425,530             $ 5,134,594            

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing deposits $ 3,406,478 $ 3,827 0.45 % $ 3,393,457 $ 3,879 0.45 % $ 3,193,247 $ 3,218 0.40 % Short-term borrowings 189,895

95

0.20 % 217,460 150 0.27 % 223,202 103 0.18 % Subordinated notes 58,764 1,055 7.14 % 58,764 1,055 7.14 % 58,764 1,055 7.12 % Long-term debt and mandatorily redeemable securities   74,260     364     1.95 %   64,641     522     3.21 %   57,414     430     2.97 % Total interest-bearing liabilities 3,729,397 5,341 0.57 % 3,734,322 5,606 0.60 % 3,532,627 4,806 0.54 % Noninterest-bearing deposits 995,747 959,796 907,666 Other liabilities 60,931 61,406 47,274 Shareholders’ equity   675,915             670,006             647,027           Total liabilities and shareholders’ equity   $ 5,461,990             $ 5,425,530             $ 5,134,594           Less: Fully tax-equivalent adjustments (454 ) (450 ) (457 ) Net interest income/margin (GAAP-derived)(1)       $ 43,383     3.39 %       $ 42,694     3.35 %       $ 43,211     3.58 % Fully tax-equivalent adjustments 454 450 457 Net interest income/margin - FTE(1)       $ 43,837     3.42 %       $ 43,144     3.39 %       $ 43,668     3.61 %  

(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)   Twelve Months Ended December 31, 2016 December 31, 2015 Interest Interest Average Income/ Yield/ Average Income/ Yield/     Balance   Expense   Rate   Balance   Expense   Rate

ASSETS

Investment securities available-for-sale: Taxable $ 684,503 $ 11,777 1.72 % $ 664,480 $ 11,929 1.80 % Tax-exempt(1) 127,998 3,981 3.11 % 122,500 4,406 3.60 % Mortgages held for sale 12,396 467 3.77 % 11,099 439 3.96 % Loans and leases, net of unearned discount(1) 4,113,508 176,116 4.28 % 3,837,149 168,611 4.39 % Other investments   65,517     1,244     1.90 %   33,583     997     2.97 % Total earning assets(1) 5,003,922 193,585 3.87 % 4,668,811 186,382 3.99 % Cash and due from banks 60,753 61,400 Reserve for loan and lease losses (90,206 ) (87,208 ) Other assets   386,216             351,205           Total assets   $ 5,360,685             $ 4,994,208            

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing deposits $ 3,358,827 $ 15,267 0.45 % $ 3,106,990 $ 11,489 0.37 % Short-term borrowings 210,876 525 0.25 % 236,940 484 0.20 % Subordinated notes 58,764 4,220 7.18 % 58,764 4,220 7.18 % Long-term debt and mandatorily redeemable securities   66,842     2,089     3.13 %   57,245     1,970     3.44 % Total interest-bearing liabilities 3,695,309 22,101 0.60 % 3,459,939 18,163 0.52 % Noninterest-bearing deposits 943,874 854,070 Other liabilities 57,799 44,702 Shareholders’ equity   663,703             635,497           Total liabilities and shareholders’ equity   $ 5,360,685             $ 4,994,208           Less: Fully tax-equivalent adjustments (1,825 ) (1,698 ) Net interest income/margin (GAAP-derived)(1)       $ 169,659     3.39 %       $ 166,521     3.57 % Fully tax-equivalent adjustments 1,825 1,698 Net interest income/margin - FTE(1)       $ 171,484     3.43 %       $ 168,219     3.60 %  

(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 Twelve Months Ended December 31, September 30, December 31, December 31, December 31,         2016   2016   2015   2016   2015

Calculation of Net Interest Margin

(A) Interest income (GAAP) $ 48,724 $ 48,300 $ 48,017 $ 191,760 $ 184,684 Fully tax-equivalent adjustments: (B) - Loans and leases 150 150 113 584 284 (C)   - Tax-exempt investment securities   304     300     344     1,241     1,414   (D) Interest income - FTE (A+B+C) 49,178 48,750 48,474 193,585 186,382 (E) Interest expense (GAAP) 5,341 5,606 4,806 22,101 18,163 (F)   Net interest income (GAAP) (A–E)   43,383     42,694     43,211     169,659     166,521   (G)   Net interest income - FTE (D–E)   43,837     43,144     43,668     171,484     168,219   (H) Annualization factor 3.978 3.978 3.967 1.000 1.000 (I) Total earning assets $ 5,097,192 $ 5,066,375 $ 4,792,553 $ 5,003,922 $ 4,668,811 Net interest margin (GAAP-derived) (F*H)/I 3.39 % 3.35 % 3.58 % 3.39 % 3.57 % Net interest margin - FTE (G*H)/I 3.42 % 3.39 % 3.61 % 3.43 % 3.60 %  

Calculation of Efficiency Ratio

(F) Net interest income (GAAP) $ 43,383 $ 42,694 $ 43,211 $ 169,659 $ 166,521 (G) Net interest income - FTE 43,837 43,144 43,668 171,484 168,219 (J) Plus: noninterest income (GAAP) 22,356 22,665 20,902 88,945 83,316 (K) Less: gains/losses on investment securities and partnership investments (974 ) (1,046 ) (249 ) (3,873 ) (2,130 ) (L)   Less: depreciation - leased equipment   (5,563 )   (5,570 )   (4,938 )   (21,678 )   (18,280 ) (M)   Total net revenue (GAAP) (F+J)   65,739     65,359     64,113     258,604     249,837   (N)   Total net revenue - adjusted (G+J–K–L)   59,656     59,193     59,383     234,878     231,125   (O) Noninterest expense (GAAP) 41,761 41,145 41,744 163,645 159,114 (L) Less: depreciation - leased equipment (5,563 ) (5,570 ) (4,938 ) (21,678 ) (18,280 ) (P)   Less: contribution expense limited to gains on investment securities in (K)   (484 )   —     —     (484 )   —   (Q) Noninterest expense - adjusted (O–L–P) 35,714 35,575 36,806 141,483 140,834 Efficiency ratio (GAAP-derived) (O/M) 63.53 % 62.95 % 65.11 % 63.28 % 63.69 % Efficiency ratio - adjusted (Q/N) 59.87 % 60.10 % 61.98 % 60.24 % 60.93 %   End of Period December 31, September 30, December 31,         2016   2016   2015

Calculation of Tangible Common Equity-to-Tangible Assets Ratio

(R) Total common shareholders’ equity (GAAP) $ 672,650 $ 670,259 $ 644,053 (S)   Less: goodwill and intangible assets   (84,102 )   (84,244 )   (84,676 ) (T)   Total tangible common shareholders’ equity (R–S)   $ 588,548     $ 586,015     $ 559,377   (U) Total assets (GAAP) 5,486,268 5,447,911 5,187,916 (S)   Less: goodwill and intangible assets   (84,102 )   (84,244 )   (84,676 ) (V)   Total tangible assets (U–S)   $ 5,402,166     $ 5,363,667     $ 5,103,240   Common equity-to-assets ratio (GAAP-derived) (R/U) 12.26 % 12.30 % 12.41 % Tangible common equity-to-tangible assets ratio (T/V) 10.89 % 10.93 % 10.96 %  

Calculation of Tangible Book Value per Common Share

(R) Total common shareholders’ equity (GAAP) $ 672,650 $ 670,259 $ 644,053 (W)   Actual common shares outstanding   25,875,765     25,867,093     26,027,584   Book value per common share (GAAP-derived) (R/W)*1000 $ 26.00 $ 25.91 $ 24.75 Tangible common book value per share (T/W)*1000 $ 22.75 $ 22.65 $ 21.49  

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