SRCE 1st Source Corporation

QUARTERLY HIGHLIGHTS

• Net income improved to $16.67 million, 15.13% over the second quarter of 2016 and diluted net income per common share improved to $0.64 from the prior year’s quarter of $0.56.
• Return on average assets of 1.20% and return on average common shareholders’ equity of 9.59%.
• Net charge-offs of $0.94 million and nonperforming assets to loans and leases of 0.66%.
• Average loans and leases grew $203.17 million or 4.95% from the second quarter of 2016.
• Average deposits grew $154.57 million or 3.59% from the second quarter of 2016.
• Net interest income increased $3.57 million or 8.44% from the second quarter of 2016.
• Noninterest income increased $1.84 million or 8.25% from the second quarter of 2016 (increased 5.86% excluding leased equipment depreciation).
• Noninterest expenses increased $1.07 million or 2.68% from the second quarter of 2016 (relatively flat excluding leased equipment depreciation).

1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported a record high net income of $16.67 million for the second quarter of 2017, an increase of 15.13% compared to $14.48 million reported in the second quarter a year ago, bringing the 2017 year-to-date net income to $32.88 million compared to $28.30 million in 2016, an increase of 16.18%. The year-to-date net income comparison was positively impacted by gains on the sale of investment securities available-for-sale of $1.94 million net of an other than temporary impairment loss of $0.19 million and gains on the sale of fixed assets and leased equipment of $0.59 million. These increases were partially offset by the writedown of fixed assets of $0.41 million and a contribution to the 1st Source Foundation of $0.50 million.

Diluted net income per common share for the second quarter of 2017 was also a record high at $0.64, versus $0.56 in the second quarter of 2016. Diluted net income per common share for the first half of 2017 was $1.26 compared to the $1.08 earned a year earlier.

At its July 2017 meeting, the Board of Directors approved a cash dividend of $0.19 per common share. The cash dividend is payable to shareholders of record on August 7, 2017 and will be paid on August 15, 2017. This brings year-to-date dividends in 2017 to $0.56 per common share, an increase of 3.70% compared to $0.54 per common share at the same time last year.

According to Christopher J. Murphy III, Chairman, “We are very pleased with our record net income in the second quarter as 1st Source Corporation continues to experience healthy growth in loans and leases and deposits. Credit quality remains stable with year-to-date net charge-offs of $367,000 or 0.02% of average loans and leases. Average loans and leases were up a solid 4.95% for the quarter compared to the same period a year ago. Average deposits have held steady with a 3.59% increase from this time last year. Net interest income has increased 8.44% from the second quarter 2016, along with noninterest income increasing 8.25% while noninterest expense growth was held to a 2.68% increase over the same quarter of 2016.”

“In April, we announced an exciting partnership with the South Bend Cubs. 1st Source Bank has a five-year sponsorship of the South Bend Cubs’ Performance Center located at Four Winds Field. This collaboration is an investment for the bank intended to produce new primary relationships and opportunities for growth in our home market.”

“Moreover, we recently completed the reopening of the North Calumet banking center on July 17, 2017. This new branch is a significant rebuild and an enhancement to the client experience and our service offerings in the Valparaiso market.”

“As always, we will continue to help our clients achieve security, build wealth and realize their dreams,” Mr. Murphy concluded.

SECOND QUARTER 2017 FINANCIAL RESULTS

Loans

Average loans and leases of $4.31 billion increased $203.17 million, or 4.95% in the second quarter of 2017 from the year ago quarter and have increased $121.05 million from the first quarter. Year-to-date average loans and leases of $4.25 billion increased $191.32 million, or 4.72% from the first six months of 2016.

Deposits

Average deposits of $4.45 billion grew $154.57 million, or 3.59% for the quarter ended June 30, 2017 from the year ago quarter and have increased $156.01 million, or 3.63% compared to the first quarter. Average deposits for the first six months of 2017 were $4.38 billion, an increase of $150.56 million or 3.56% from the same period a year ago.

Net Interest Income and Net Interest Margin

Second quarter 2017 net interest income of $45.86 million increased $3.57 million, or 8.44% from the second quarter a year ago and increased $2.13 million, or 4.88% from the first quarter.

For the first six months of 2017, tax-equivalent net interest income was $90.51 million, an increase of $6.00 million, or 7.11% compared to the same period a year ago.

Second quarter 2017 net interest margin was 3.53%, an improvement of 12 basis points from the 3.41% for the same period in 2016 and increased 4 basis points from the 3.49% in the first quarter. Second quarter 2017 net interest margin on a fully tax-equivalent basis was 3.57%, an increase of 12 basis points from the 3.45% for the same period in 2016 and improved 4 basis points from the 3.53% in the first quarter.

Net interest margin for the first six months of 2017 was 3.51%, an increase of 10 basis points from the 3.41% for the same period in 2016. Net interest margin on a fully tax-equivalent basis for the first six months of 2017 was 3.55%, an increase of 10 basis points from the 3.45% for the same period in 2016.

Noninterest Income

Noninterest income increased $1.84 million or 8.25% and $3.52 million or 8.01% in the three and six month periods ended June 30, 2017, respectively over the same periods a year ago. The growth in noninterest income during the second quarter and first six months of 2017 from the same periods a year ago was mainly due to gains on the sale of available-for-sale equity securities, higher equipment rental income related to an increase in the average equipment rental portfolio and increased trust and wealth advisory fees, which was offset by reduced partnership gains, resulting from the liquidation of an investment during 2016, lower mutual fund income and monogram fund income and decreased customer swap fees. The rise in noninterest income from the first quarter of 2017 was primarily a result of higher equipment rental income related to an increase in the average equipment rental portfolio, increased trust and wealth advisory fees and an improvement in mortgage banking income offset by a reduction in gains on the sale of available-for-sale equity securities and lower insurance contingent commissions.

Noninterest Expense

Noninterest expense increased $1.07 million or 2.68% and $1.49 million or 1.84% for the three and six months ended June 30, 2017, respectively over the comparable periods a year ago. Excluding depreciation on leased equipment, noninterest expenses were relatively flat for the second quarter and first six months of 2017. The increase in noninterest expense from the same quarter a year ago was primarily due to higher depreciation on leased equipment, increased professional fees and marketing promotions, offset by reduced group insurance claims, lower FDIC insurance assessments and gains on the sale of leased equipment. The increase in noninterest expense for the first six months of 2017 compared to the first six months of 2016 was mainly due to higher depreciation on leased equipment, increased charitable contributions and marketing promotions, and increased professional fees, offset by lower FDIC insurance assessments, reduced group insurance claims, fewer writedowns on fixed assets and gains on the sale of leased equipment.

Credit

The reserve for loan and lease losses as of June 30, 2017 was 2.10% of total loans and leases compared to 2.13% at March 31, 2017 and 2.20% at June 30, 2016. Net charge-offs of $0.94 million were recorded for the second quarter of 2017 compared with net recoveries of $0.11 million in the same quarter a year ago and $0.58 million of net recoveries in the first quarter. Year-to-date net charge-offs of $0.37 million have been recorded in 2017, compared to net recoveries of $0.32 million for the first half of 2016.

The ratio of nonperforming assets to loans and leases was 0.66% as of June 30, 2017, comparable to the 0.49% on June 30, 2016 and the 0.63% on March 31, 2017.

Capital

As of June 30, 2017, the common equity-to-assets ratio was 12.29%, compared to 12.47% at March 31, 2017 and 12.30% a year ago. The tangible common equity-to-tangible assets ratio was 10.98% at June 30, 2017 and 11.11% at March 31, 2017 compared to 10.90% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 12.43% at June 30, 2017 compared to 12.69% at March 31, 2017 and 12.20% 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 2nd QUARTER 2017 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,     2017   2017   2016   2017   2016 AVERAGE BALANCES Assets $ 5,586,192 $ 5,437,247 $ 5,343,630 $ 5,512,131 $ 5,276,697 Earning assets 5,205,508 5,075,410 4,986,635 5,140,819 4,925,204 Investments 836,915 839,283 804,856 838,093 799,853 Loans and leases 4,308,276 4,187,231 4,105,111 4,248,088 4,056,772 Deposits 4,454,975 4,298,964 4,300,402 4,377,400 4,226,838 Interest bearing liabilities 3,882,915 3,747,752 3,709,706 3,815,706 3,658,357 Common shareholders’ equity 697,229 683,647 659,092 690,476 654,344   INCOME STATEMENT DATA Net interest income $ 45,861 $ 43,727 $ 42,293 $ 89,588 $ 83,582 Net interest income - FTE(1) 46,319 44,188 42,753 90,507 84,503 Provision for loan and lease losses 2,738 1,000 2,049 3,738 3,024 Noninterest income 24,136 23,307 22,297 47,443 43,924 Noninterest expense 41,105 41,119 40,034 82,224 80,739 Net income 16,669 16,206 14,479 32,875 28,297   PER SHARE DATA Basic net income per common share $ 0.64 $ 0.62 $ 0.56 $ 1.26 $ 1.08 Diluted net income per common share 0.64 0.62 0.56 1.26 1.08 Common cash dividends declared 0.19 0.18 0.18 0.37 0.36 Book value per common share 26.96 26.46 25.59 26.96 25.59 Tangible book value per common share(1) 23.73 23.22 22.32 23.73 22.32 Market value - High 50.78 49.11 34.83 50.78 34.83 Market value - Low 43.58 42.15 30.32 42.15 27.01 Basic weighted average common shares outstanding 25,927,032 25,903,397 25,853,537 25,915,280 25,888,534 Diluted weighted average common shares outstanding 25,927,032 25,903,397 25,853,537 25,915,280 25,888,534   KEY RATIOS Return on average assets 1.20 % 1.21 % 1.09 % 1.20 % 1.08 % Return on average common shareholders’ equity 9.59 9.61 8.84 9.60 8.70 Average common shareholders’ equity to average assets 12.48 12.57 12.33 12.53 12.40 End of period tangible common equity to tangible assets(1) 10.98 11.11 10.90 10.98 10.90 Risk-based capital - Common Equity Tier 1(2) 12.43 12.69 12.20 12.43 12.20 Risk-based capital - Tier 1(2) 13.58 13.88 13.41 13.58 13.41 Risk-based capital - Total(2) 14.88 15.18 14.73 14.88 14.73 Net interest margin 3.53 3.49 3.41 3.51 3.41 Net interest margin - FTE(1) 3.57 3.53 3.45 3.55 3.45 Efficiency ratio: expense to revenue 58.72 61.34 61.98 60.00 63.32 Efficiency ratio: expense to revenue - adjusted(1) 54.66 57.81 58.76 56.20 60.50 Net charge offs to average loans and leases 0.09 (0.06 ) (0.01 ) 0.02 (0.02 ) Loan and lease loss reserve to loans and leases 2.10 2.13 2.20 2.10 2.20 Nonperforming assets to loans and leases 0.66 0.63 0.49 0.66 0.49   June 30, March 31, December 31, September 30, June 30,     2017   2017   2016   2016   2016 END OF PERIOD BALANCES Assets $ 5,687,230 $ 5,501,526 $ 5,486,268 $ 5,447,911 $ 5,379,938 Loans and leases 4,381,314 4,234,862 4,188,071 4,179,417 4,152,763 Deposits 4,482,036 4,336,976 4,333,760 4,377,038 4,325,084 Reserve for loan and lease losses 91,914 90,118 88,543 88,897 91,458 Goodwill and intangible assets 83,848 83,960 84,102 84,244 84,386 Common shareholders’ equity 699,202 685,934 672,650 670,259 661,756   ASSET QUALITY Loans and leases past due 90 days or more $ 178 $ 344 $ 416 $ 611 $ 275 Nonaccrual loans and leases 15,923 18,090 19,907 19,922 12,579 Other real estate 710 916 704 551 452 Repossessions 13,052 8,121 9,373 8,089 7,619 Equipment owned under operating leases   21     27     34     43     107   Total nonperforming assets   $ 29,884     $ 27,498     $ 30,434     $ 29,216     $ 21,032   (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)         June 30, March 31, December 31, June 30,     2017   2017   2016   2016

ASSETS

Cash and due from banks $ 63,473 $ 58,429 $ 58,578 $ 58,944 Federal funds sold and interest bearing deposits with other banks 12,561 33,687 49,726 14,297 Investment securities available-for-sale 850,314 836,682 850,467 814,258 Other investments 24,238 22,458 22,458 21,973 Mortgages held for sale 16,204 8,409 15,849 15,924 Loans and leases, net of unearned discount: Commercial and agricultural 876,404 843,757 812,264 759,175 Auto and light truck 512,021 430,489 411,764 457,586 Medium and heavy duty truck 290,687 290,167 294,790 273,674 Aircraft 787,516 783,523 802,414 822,842 Construction equipment 539,097 512,545 495,925 484,354 Commercial real estate 720,078 723,623 719,170 715,932 Residential real estate and home equity 526,592 522,772 521,931 506,369 Consumer   128,919     127,986     129,813     132,831   Total loans and leases 4,381,314 4,234,862 4,188,071 4,152,763 Reserve for loan and lease losses   (91,914 )   (90,118 )   (88,543 )   (91,458 ) Net loans and leases 4,289,400 4,144,744 4,099,528 4,061,305 Equipment owned under operating leases, net 144,509 127,323 118,793 119,312 Net premises and equipment 54,783 55,167 56,708 54,506 Goodwill and intangible assets 83,848 83,960 84,102 84,386 Accrued income and other assets   147,900     130,667     130,059     135,033   Total assets   $ 5,687,230     $ 5,501,526     $ 5,486,268     $ 5,379,938    

LIABILITIES

Deposits: Noninterest-bearing demand $ 979,801 $ 966,903 $ 991,256 $ 944,626 Interest-bearing deposits: Interest-bearing demand 1,519,419 1,418,395 1,471,526 1,391,823 Savings 832,341 839,257 814,326 779,899 Time   1,150,475     1,112,421     1,056,652     1,208,736   Total interest-bearing deposits   3,502,235     3,370,073     3,342,504     3,380,458   Total deposits   4,482,036     4,336,976     4,333,760     4,325,084   Short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 148,109 176,079 162,913 161,826 Other short-term borrowings   158,474     103,666     129,030     44,150   Total short-term borrowings   306,583     279,745     291,943     205,976   Long-term debt and mandatorily redeemable securities 70,438 85,479 74,308 64,738 Subordinated notes 58,764 58,764 58,764 58,764 Accrued expenses and other liabilities   70,207     54,628     54,843     63,620   Total liabilities   4,988,028     4,815,592     4,813,618     4,718,182    

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, 2017, March 31, 2017, December 31, 2016, and June 30, 2016, respectively

436,538 436,538 436,538 436,538 Retained earnings 314,889 303,009 290,824 270,744 Cost of common stock in treasury (2,270,350, 2,282,044, 2,329,909, and 2,342,904 shares at June 30, 2017, March 31, 2017, December 31, 2016, and June 30, 2016, respectively) (54,662 ) (54,940 ) (56,056 ) (56,357 ) Accumulated other comprehensive income   2,437     1,327     1,344     10,831   Total shareholders’ equity   699,202     685,934     672,650     661,756   Total liabilities and shareholders’ equity   $ 5,687,230     $ 5,501,526     $ 5,486,268     $ 5,379,938     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,     2017   2017   2016   2017   2016 Interest income: Loans and leases $ 48,032 $ 44,884 $ 43,891 $ 92,916 $ 86,627 Investment securities, taxable 3,370 3,514 3,040 6,884 6,120 Investment securities, tax-exempt 677 683 697 1,360 1,389 Other   319     291     309     610     600   Total interest income   52,398     49,372     47,937     101,770     94,736   Interest expense: Deposits 4,511 3,734 3,790 8,245 7,561 Short-term borrowings 272 227 119 499 280 Subordinated notes 1,055 1,055 1,055 2,110 2,110 Long-term debt and mandatorily redeemable securities   699     629     680     1,328     1,203   Total interest expense   6,537     5,645     5,644     12,182     11,154   Net interest income 45,861 43,727 42,293 89,588 83,582 Provision for loan and lease losses   2,738     1,000     2,049     3,738     3,024   Net interest income after provision for loan and lease losses   43,123     42,727     40,244     85,850     80,558   Noninterest income: Trust and wealth advisory 5,627 5,001 5,108 10,628 9,731 Service charges on deposit accounts 2,464 2,239 2,276 4,703 4,383 Debit card 2,986 2,750 2,816 5,736 5,415 Mortgage banking 1,304 947 1,115 2,251 2,161 Insurance commissions 1,310 1,767 1,233 3,077 2,796 Equipment rental 7,586 6,832 6,517 14,418 12,590 Gains (losses) on investment securities available-for-sale 465 1,285 (209 ) 1,750 (199 ) Other   2,394     2,486     3,441     4,880     7,047   Total noninterest income   24,136     23,307     22,297     47,443     43,924   Noninterest expense: Salaries and employee benefits 20,712 21,345 21,194 42,057 42,545 Net occupancy 2,368 2,594 2,307 4,962 4,808 Furniture and equipment 5,108 4,793 4,811 9,901 9,601 Depreciation - leased equipment 6,296 5,680 5,444 11,976 10,545 Professional fees 1,672 1,077 1,190 2,749 2,409 Supplies and communication 1,345 1,250 1,374 2,595 2,882 FDIC and other insurance 573 623 911 1,196 1,790 Business development and marketing 1,501 1,652 1,025 3,153 2,005 Loan and lease collection and repossession 329 636 385 965 812 Other   1,201     1,469     1,393     2,670     3,342   Total noninterest expense   41,105     41,119     40,034     82,224     80,739   Income before income taxes 26,154 24,915 22,507 51,069 43,743 Income tax expense   9,485     8,709     8,028     18,194     15,446   Net income   $ 16,669     $ 16,206     $ 14,479     $ 32,875     $ 28,297   Per common share: Basic net income per common share   $ 0.64     $ 0.62     $ 0.56     $ 1.26     $ 1.08   Diluted net income per common share   $ 0.64     $ 0.62     $ 0.56     $ 1.26     $ 1.08   Cash dividends   $ 0.19     $ 0.18     $ 0.18     $ 0.37     $ 0.36   Basic weighted average common shares outstanding   25,927,032     25,903,397     25,853,537     25,915,280     25,888,534   Diluted weighted average common shares outstanding   25,927,032     25,903,397     25,853,537     25,915,280     25,888,534     1st SOURCE CORPORATION DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY INTEREST RATES AND INTEREST DIFFERENTIAL (Unaudited - Dollars in thousands)       Three Months Ended     June 30, 2017   March 31, 2017   June 30, 2016     Average

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            Investment securities available-for-sale: Taxable $ 707,373 $ 3,370 1.91 % $ 708,249 $ 3,514 2.01 % $ 678,849 $ 3,040 1.80 % Tax exempt(1) 129,542 983 3.04 % 131,034 994 3.08 % 126,007 1,012 3.23 % Mortgages held for sale 11,325 115 4.07 % 8,155 81 4.03 % 11,100 110 3.99 % Loans and leases, net of unearned discount(1) 4,308,276 48,069 4.48 % 4,187,231 44,953 4.35 % 4,105,111 43,926 4.30 % Other investments   48,992     319     2.61 %   40,741     291     2.90 %   65,568     309     1.90 % Total earning assets(1) 5,205,508 52,856 4.07 % 5,075,410 49,833 3.98 % 4,986,635 48,397 3.90 % Cash and due from banks 61,801 59,967 60,786 Reserve for loan and lease losses (91,044 ) (90,222 ) (90,107 ) Other assets   409,927             392,092             386,316           Total assets   $ 5,586,192             $ 5,437,247             $ 5,343,630            

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing deposits 3,503,444 4,511 0.52 % 3,345,670 3,734 0.45 % 3,380,208 3,790 0.45 % Short-term borrowings 236,716 272 0.46 % 267,823 227 0.34 % 204,828 119 0.23 % Subordinated notes 58,764 1,055 7.20 % 58,764 1,055 7.28 % 58,764 1,055 7.22 % Long-term debt and mandatorily redeemable securities   83,991     699     3.34 %   75,495     629     3.38 %   65,906     680     4.15 % Total interest-bearing liabilities 3,882,915 6,537 0.68 % 3,747,752 5,645 0.61 % 3,709,706 5,644 0.61 % Noninterest-bearing deposits 951,531 953,294 920,194 Other liabilities 54,517 52,554 54,638 Shareholders’ equity   697,229             683,647             659,092           Total liabilities and shareholders’ equity   $ 5,586,192             $ 5,437,247             $ 5,343,630           Less: Fully tax-equivalent adjustments (458 ) (461 ) (460 ) Net interest income/margin (GAAP-derived)(1)       $ 45,861     3.53 %       $ 43,727     3.49 %       $ 42,293     3.41 % Fully tax-equivalent adjustments 458 461 460 Net interest income/margin - FTE(1)       $ 46,319     3.57 %       $ 44,188     3.53 %       $ 42,753     3.45 % (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, 2017   June 30, 2016     Average

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ASSETS

        Investment securities available-for-sale: Taxable $ 707,809 $ 6,884 1.96 % $ 675,419 $ 6,120 1.82 % Tax exempt(1) 130,284 1,977 3.06 % 124,434 2,025 3.27 % Mortgages held for sale 9,748 196 4.05 % 10,119 205 4.07 % Loans and leases, net of unearned discount(1) 4,248,088 93,022 4.42 % 4,056,772 86,707 4.30 % Other investments   44,890     610     2.74 %   58,460     600     2.06 % Total earning assets(1) 5,140,819 102,689 4.03 % 4,925,204 95,657 3.91 % Cash and due from banks 60,889 59,818 Reserve for loan and lease losses (90,635 ) (89,476 ) Other assets   401,058             381,151           Total assets   $ 5,512,131             $ 5,276,697            

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing deposits 3,424,992 8,245 0.49 % 3,317,235 7,561 0.46 % Short-term borrowings 252,183 499 0.40 % 218,153 280 0.26 % Subordinated notes 58,764 2,110 7.24 % 58,764 2,110 7.22 % Long-term debt and mandatorily redeemable securities   79,767     1,328     3.36 %   64,205     1,203     3.77 % Total interest-bearing liabilities 3,815,706 12,182 0.64 % 3,658,357 11,154 0.61 % Noninterest-bearing deposits 952,408 909,603 Other liabilities 53,541 54,393 Shareholders’ equity   690,476             654,344           Total liabilities and shareholders’ equity   $ 5,512,131             $ 5,276,697           Less: Fully tax-equivalent adjustments (919 ) (921 ) Net interest income/margin (GAAP-derived)(1)       $ 89,588     3.51 %       $ 83,582     3.41 % Fully tax-equivalent adjustments 919 921 Net interest income/margin - FTE(1)       $ 90,507     3.55 %       $ 84,503     3.45 % (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,       2017   2017   2016   2017   2016

Calculation of Net Interest Margin

(A) Interest income (GAAP) $ 52,398 $ 49,372 $ 47,937 $ 101,770 $ 94,736 Fully tax-equivalent adjustments: (B) - Loans and leases 152 150 145 302 285 (C)   - Tax exempt investment securities   306     311     315     617     636   (D) Interest income - FTE (A+B+C) 52,856 49,833 48,397 102,689 95,657 (E) Interest expense (GAAP) 6,537 5,645 5,644 12,182 11,154 (F)   Net interest income (GAAP) (A-E)   45,861     43,727     42,293     89,588     83,582   (G)   Net interest income - FTE (D-E)   46,319     44,188     42,753     90,507     84,503   (H) Annualization factor 4.011 4.056 4.022 2.017 2.011 (I) Total earning assets $ 5,205,508 $ 5,075,410 $ 4,986,635 $ 5,140,819 $ 4,925,204 Net interest margin (GAAP-derived) (F*H)/I 3.53 % 3.49 % 3.41 % 3.51 % 3.41 % Net interest margin - FTE (G*H)/I 3.57 % 3.53 % 3.45 % 3.55 % 3.45 %  

Calculation of Efficiency Ratio

(F) Net interest income (GAAP) $ 45,861 $ 43,727 $ 42,293 $ 89,588 $ 83,582 (G) Net interest income - FTE 46,319 44,188 42,753 90,507 84,503 (J) Plus: noninterest income (GAAP) 24,136 23,307 22,297 47,443 43,924 (K) Less: gains/losses on investment securities and partnership investments (477 ) (1,314 ) (743 ) (1,791 ) (1,853 ) (L)   Less: depreciation - leased equipment   (6,296 )   (5,680 )   (5,444 )   (11,976 )   (10,545 ) (M)   Total net revenue (GAAP) (F+J)   69,997     67,034     64,590     137,031     127,506   (N)   Total net revenue - adjusted (G+J–K–L)   63,682     60,501     58,863     124,183     116,029   (O) Noninterest expense (GAAP) 41,105 41,119 40,034 82,224 80,739 (L) Less:depreciation - leased equipment (6,296 ) (5,680 ) (5,444 ) (11,976 ) (10,545 ) (P)   Less: contribution expense limited to gains on investment securities in (K)   —     (462 )   —     (462 )   —   (Q) Noninterest expense - adjusted (O–L–P) 34,809 34,977 34,590 69,786 70,194 Efficiency ratio (GAAP-derived) (O/M) 58.72 % 61.34 % 61.98 % 60.00 % 63.32 % Efficiency ratio - adjusted (Q/N) 54.66 % 57.81 % 58.76 % 56.20 % 60.50 %   End of Period June 30, March 31, June 30,         2017   2017   2016

Calculation of Tangible Common Equity-to-Tangible Assets Ratio

(R) Total common shareholders’ equity (GAAP) $ 699,202 $ 685,934 $ 661,756 (S)   Less: goodwill and intangible assets   (83,848 )   (83,960 )   (84,386 ) (T)   Total tangible common shareholders’ equity (R–S)   $ 615,354     $ 601,974     $ 577,370   (U) Total assets (GAAP) 5,687,230 5,501,526 5,379,938 (S)   Less: goodwill and intangible assets   (83,848 )   (83,960 )   (84,386 ) (V)   Total tangible assets (U–S)   $ 5,603,382     $ 5,417,566     $ 5,295,552   Common equity-to-assets ratio (GAAP-derived) (R/U) 12.29 % 12.47 % 12.30 % Tangible common equity-to-tangible assets ratio (T/V) 10.98 % 11.11 % 10.90 %  

Calculation of Tangible Book Value per Common Share

(R) Total common shareholders’ equity (GAAP) $ 699,202 $ 685,934 $ 661,756 (W)   Actual common shares outstanding   25,935,324     25,923,630     25,862,770   Book value per common share (GAAP-derived) (R/W)*1000 $ 26.96 $ 26.46 $ 25.59 Tangible common book value per share (T/W)*1000 $ 23.73 $ 23.22 $ 22.32  

The NASDAQ Stock Market National Market Symbol: “SRCE” (CUSIP #336901 10 3)Please contact us at shareholder@1stsource.com

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1st Source CorporationAndrea Short, 574-235-2000