SRCE 1st Source Corporation

QUARTERLY HIGHLIGHTS

• Net income improved to $17.99 million, up 18.19% over the fourth quarter of 2016. Diluted net income per common share increased to $0.69 from the prior year's fourth quarter of $0.58.
• One-time tax benefit of $2.61 million from the revaluation of net deferred tax liabilities.
• Return on average assets increased to 1.23% and return on average common shareholders' equity improved to 9.93% from 1.11% and 8.96%, respectively, in the fourth quarter of 2016.
• Net charge-offs of $2.11 million and nonperforming assets to loans and leases of 0.67% compared to $1.10 million and 0.70%, respectively, in the fourth quarter of 2016.
• Average loans and leases grew $296.88 million, up 7.15% from the fourth quarter of 2016.
• Average deposits grew $283.92 million, up 6.45% from the fourth quarter of 2016.
• Net interest income increased $5.43 million, up 12.52% from the fourth quarter of 2016.
• Noninterest income increased $3.32 million, up 14.83% from the fourth quarter of 2016 (13.12% excluding leased equipment depreciation).
• Noninterest expenses increased $5.55 million or 13.29% from the fourth quarter of 2016 (12.27% excluding leased equipment depreciation).

1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported a record high net income of $68.05 million for the year of 2017, an increase of 17.76% compared to $57.79 million earned in 2016. Fourth quarter net income was $17.99 million, an increase of 18.19% compared to $15.23 million earned in the fourth quarter of 2016. The annual net income comparison was impacted by both positive and negative pre-tax items. It was positively impacted by gains on the sale of investment securities of $4.34 million and gains on the sale of fixed assets and leased equipment of $1.08 million. These positives were partially offset by contributions to the 1st Source Foundation of $2.54 million and software and consulting costs of $1.31 million for the design and implementation planning of Salesforce®, a customer relationship management (CRM) system. Also, the revaluation of net deferred tax liabilities due to the federal tax rate reduction as part of the Tax Cuts and Jobs Act resulted in a one-time tax benefit of $2.61 million.

Diluted net income per common share for the year was a record high at $2.60 up significantly from the $2.22 earned a year earlier. Diluted net income per common share for the fourth quarter was $0.69, up from $0.58 per common share reported in the fourth quarter of the previous year.

At its January 2018 meeting, the 1st Source Board of Directors approved a cash dividend of $0.22 per common share, an increase of 10.00% over the prior quarter. The cash dividend is payable to shareholders of record on February 5, 2018 and will be paid on February 15, 2018.

According to Christopher J. Murphy III, Chairman, “1st Source Corporation had a record year and 2017 was our 30th consecutive year of dividend growth. Quarterly average deposits have increased 6.45% over the fourth quarter 2016 and 3.49% compared to third quarter 2017. Annual average deposits for 2017 are up 4.43% from 2016. The company experienced strong loan growth in 2017. Average loans and leases increased 7.15% in the fourth quarter of 2017 over the fourth quarter of 2016. Year over year, average loans and leases grew by 5.34%. Credit quality remains stable.

“We are proud of the way we serve our clients. At December's annual meeting for the Indiana District of the U.S. Small Business Administration (SBA), we received the 'Gold Level Award' for the Community Bank category for the fifth year in a row. Among community banks with less than $10 billion in assets, the award honors 1st Source Bank as #1 for delivering the greatest number of SBA loans in Indiana in 2017, helping small businesses grow and succeed in our communities. This award is confirmation of our commitment to delivering outstanding client service. This commitment exists whether our client prefers to bank in person, on-line or through their mobile device.

“The new federal tax rate should have a positive impact on net income in 2018 and provide additional funds to invest in our people, our technologies, our client service and our branch, on-line, and mobile delivery channels. Of course, as the leading financial institution in our market, we will maintain attractive wage levels matching pay with skills, education, experience and job requirements. And we will continue to invest in the educational and personal development of our colleagues so we continue to grow together,” Mr. Murphy added.

FOURTH QUARTER 2017 FINANCIAL RESULTS

Loans

Average loans and leases of $4.45 billion increased $296.88 million, up 7.15% in the fourth quarter of 2017 from the year ago quarter and have increased $59.05 million, up 1.35% from the third quarter. Annual average loans and leases of $4.33 billion increased $219.87 million, up 5.34% from the same period in 2016.

Deposits

Average deposits of $4.69 billion grew $283.92 million, up 6.45% for the quarter ended December 31, 2017 and have increased $157.88 million, up 3.49% compared to the third quarter. Annual average deposits for 2017 were $4.49 billion an increase of $190.55 million, up 4.43% from 2016.

Net Interest Income and Net Interest Margin

Fourth quarter 2017 net interest income of $48.81 million increased $5.43 million, up 12.52% from the fourth quarter a year ago and increased $1.59 million, up 3.36% from the third quarter.

For the twelve months of 2017, tax equivalent net interest income was $187.43 million, an increase of $15.94 million, up 9.30% compared to the same period a year ago.

Fourth quarter 2017 net interest margin was 3.57%. This was an increase of 18 basis points from the 3.39% for the same period in 2016 and an increase of 4 basis points from the 3.53% in the third quarter. Fourth quarter 2017 net interest margin on a fully tax-equivalent basis was 3.61%, an increase of 19 basis points from the 3.42% for the same period in 2016 and an increase of 4 basis points from the 3.57% in the third quarter.

Net interest margin for the year ending December 31, 2017 was 3.54%, an increase of 15 basis points from the 3.39% for the year ending December 31, 2016. Net interest margin on a fully tax-equivalent basis for the year ending December 31, 2017 was 3.57%, an increase of 14 basis points from the 3.43% for the year ending December 31, 2016.

Noninterest Income

Noninterest income increased $3.32 million or 14.83% and $9.76 million or 10.97% in the three and twelve month periods ended December 31, 2017, respectively over the same periods a year ago. The increase in noninterest income was mainly due to higher equipment rental income resulting from an increase in the average lease portfolio, gains on the sale of available-for-sale equity securities, increased trust and wealth advisory fees, improved customer swap fees, and higher debit card income offset by reduced partnership gains resulting from the liquidation of an investment during 2016.

Noninterest Expense

Noninterest expense increased $5.55 million or 13.29% and $10.35 million or 6.33% for the three and twelve months ended December 31, 2017, respectively over the comparable periods a year ago. Excluding depreciation on leased equipment, annual noninterest expenses were up $6.82 million or 4.80%. The increase in noninterest expense was primarily due to higher depreciation on leased equipment, increased charitable contributions, increased loan and lease collection and repossession expenses and higher consulting fees, offset by reduced group insurance claims, lower FDIC insurance assessments and gains on the sale of leased equipment, fixed assets and repossessions. Depreciation on leased equipment was higher as a result of an increase in the average lease portfolio. 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, higher valuation adjustments and an increase in general collection and repossession expenses. Consulting fees grew in 2017 primarily due to the CRM system project.

Credit

The reserve for loan and lease losses as of December 31, 2017 and September 30, 2017 was 2.10% of total loans and leases compared to 2.11% at December 31, 2016. Net charge-offs of $2.11 million were recorded for the fourth quarter of 2017 compared with net charge-offs of $1.10 million in the same quarter a year ago. Net charge-offs for the full year were $2.64 million in 2017, compared to net charge-offs of $5.40 million in 2016.

The provision for loan and lease losses for the fourth quarter and full year of 2017 increased $2.88 million and $3.15 million, respectively compared with the same periods in 2016.

The ratio of nonperforming assets to net loans and leases was 0.67% as of December 31, 2017, comparable to the 0.70% on December 31, 2016 and the 0.64% on September 30, 2017.

Capital

1st Source continued its strong capital position and as of December 31, 2017, the common equity-to-assets ratio was 12.20% compared to 12.24% at September 30, 2017 and 12.26% a year ago. The tangible common equity-to-tangible assets ratio was 10.94% at December 31, 2017 and 10.95% at September 30, 2017 compared to 10.89% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 12.35% at December 31, 2017 compared to 12.52% at September 30, 2017 and 12.59% 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 4th QUARTER 2017 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,     2017   2017   2016     2017   2016 AVERAGE BALANCES Assets $ 5,818,837 $ 5,706,072 $ 5,461,990 $ 5,638,322 $ 5,360,685 Earning assets 5,418,305 5,300,838 5,097,192 5,251,094 5,003,922 Investments 884,209 858,572 828,955 854,879 812,501 Loans and leases 4,446,794 4,387,748 4,149,913 4,333,375 4,113,508 Deposits 4,686,145 4,528,267 4,402,225 4,493,247 4,302,701 Interest bearing liabilities 3,985,709 3,937,159 3,729,397 3,889,169 3,695,309 Common shareholders’ equity 719,058 709,276 675,915 702,419 663,703   INCOME STATEMENT DATA Net interest income $ 48,814 $ 47.229 $ 43,383 $ 185,631 $ 169,659 Net interest income - FTE(1) 49,249 47,670 43,837 187,426 171,484 Provision for loan and lease losses 3,622 1,620 742 8,980 5,833 Noninterest income 25,671 25,592 22,356 98,706 88,945 Noninterest expense 47,313 44,460 41,761 173,997 163,645 Net income 17,994 17,182 15,225 68,051 57,786   PER SHARE DATA Basic net income per common share $ 0.69 $ 0.66 $ 0.58 $ 2.60 $ 2.22 Diluted net income per common share 0.69 0.66 0.58 2.60 2.22 Common cash dividends declared 0.20 0.19 0.18 0.76 0.72 Book value per common share 27.70 27.39 26.00 27.70 26.00 Tangible book value per common share(1) 24.47 24.16 22.75 24.47 22.75 Market value - High 53.29 51.80 45.61 53.29 45.61 Market value - Low 47.16 44.59 33.27 42.15 27.01 Basic weighted average common shares outstanding 25,936,508 25,935,867 25,873,552 25,925,820 25,879,397 Diluted weighted average common shares outstanding 25,936,508 25,935,867 25,873,552 25,925,820 25,879,397   KEY RATIOS Return on average assets 1.23 % 1.19 % 1.11 % 1.21 % 1.08 % Return on average common shareholders’ equity 9.93 9.61 8.96 9.69 8.71 Average common shareholders’ equity to average assets 12.36 12.43 12.37 12.46 12.38 End of period tangible common equity to tangible assets(1) 10.94 10.95 10.89 10.94 10.89 Risk-based capital - Common Equity Tier 1(2) 12.35 12.52 12.59 12.35 12.59 Risk-based capital - Tier 1(2) 13.44 13.65 13.80 13.44 13.80 Risk-based capital - Total(2) 14.70 14.94 15.12 14.70 15.12 Net interest margin 3.57 3.53 3.39 3.54 3.39 Net interest margin - FTE(1) 3.61 3.57 3.42 3.57 3.43 Efficiency ratio: expense to revenue 63.52 61.05 63.53 61.19 63.28 Efficiency ratio: expense to revenue - adjusted(1) 60.09 57.98 59.87 57.66 60.24 Net charge offs to average loans and leases 0.19 0.01 0.11 0.06 0.13 Loan and lease loss reserve to loans and leases 2.10 2.10 2.11 2.10 2.11 Nonperforming assets to loans and leases 0.67 0.64 0.70 0.67 0.70   December 31, September 30, June 30, March 31, December 31,     2017   2017   2017     2017   2016 END OF PERIOD BALANCES Assets $ 5,887,284 $ 5,806,735 $ 5,687,230 $ 5,501,526 $ 5,486,268 Loans and leases 4,527,678 4,436,718 4,381,314 4,234,862 4,188,071 Deposits 4,752,730 4,573,712 4,482,036 4,336,976 4,333,760 Reserve for loan and lease losses 94,883 93,372 91,914 90,118 88,543 Goodwill and intangible assets 83,742 83,795 83,848 83,960 84,102 Common shareholders’ equity 718,537 710,497 699,202 685,934 672,650   ASSET QUALITY Loans and leases past due 90 days or more $ 459 $ 208 $ 178 $ 344 $ 416 Nonaccrual loans and leases 19,405 15,066 15,923 18,090 19,907 Other real estate 1,312 1,341 710 916 704 Repossessions 10,114 12,913 13,052 8,121 9,373 Equipment owned under operating leases   9     14     21       27     34   Total nonperforming assets   $ 31,299     $ 29,542     $ 29,884       $ 27,498     $ 30,434   (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,     2017     2017     2017     2016

ASSETS

Cash and due from banks $ 73,635 $ 64,636 $ 63,473 $ 58,578 Federal funds sold and interest bearing deposits with other banks 4,398 34,788 12,561 49,726 Investment securities available-for-sale 904,033 893,973 850,314 850,467 Other investments 25,953 25,953 24,238 22,458 Mortgages held for sale 13,123 11,000 16,204 15,849 Loans and leases, net of unearned discount: Commercial and agricultural 929,997 893,174 876,404 812,264 Auto and light truck 496,816 505,126 512,021 411,764 Medium and heavy duty truck 296,935 287,975 290,687 294,790 Aircraft 844,657 816,120 787,516 802,414 Construction equipment 563,437 541,838 539,097 495,925 Commercial real estate 741,568 740,345 720,078 719,170 Residential real estate and home equity 526,122 524,071 526,592 521,931 Consumer   128,146       128,069       128,919       129,813   Total loans and leases 4,527,678 4,436,718 4,381,314 4,188,071 Reserve for loan and lease losses   (94,883 )     (93,372 )     (91,914 )     (88,543 ) Net loans and leases 4,432,795 4,343,346 4,289,400 4,099,528 Equipment owned under operating leases, net 139,581 145,975 144,509 118,793 Net premises and equipment 54,612 53,324 54,783 56,708 Goodwill and intangible assets 83,742 83,795 83,848 84,102 Accrued income and other assets   155,412       149,945       147,900       130,059   Total assets   $ 5,887,284       $ 5,806,735       $ 5,687,230       $ 5,486,268    

LIABILITIES

Deposits: Noninterest bearing demand $ 1,064,271 $ 1,019,106 $ 979,801 $ 991,256 Interest-bearing deposits: Interest-bearing demand 1,554,898 1,493,187 1,519,419 1,471,526 Savings 863,588 825,147 832,341 814,326 Time   1,269,973       1,236,272       1,150,475       1,056,652   Total interest-bearing deposits   3,688,459       3,554,606       3,502,235       3,342,504   Total deposits   4,752,730       4,573,712       4,482,036       4,333,760   Short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 205,834 148,001 148,109 162,913 Other short-term borrowings   8,761       168,764       158,474       129,030   Total short-term borrowings   214,595       316,765       306,583       291,943   Long-term debt and mandatorily redeemable securities 70,060 70,482 70,438 74,308 Subordinated notes 58,764 58,764 58,764 58,764 Accrued expenses and other liabilities   72,598       76,515       70,207       54,843   Total liabilities   5,168,747       5,096,238       4,988,028       4,813,618    

SHAREHOLDERS’ EQUITY

Preferred stock; no par value Authorized 10,000,000 shares; none issued or outstanding

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Common stock; no par value Authorized 40,000,000 shares; issued 28,205,674 shares at December 31, 2017, September 30, 2017, June 30, 2017, and December 31, 2016, respectively

436,538 436,538 436,538 436,538 Retained earnings 339,959 327,149 314,889 290,824

Cost of common stock in treasury (2,268,910, 2,269,544, 2,270,350, and 2,329,909 shares at December 31, 2017, September 30, 2017, June 30, 2017, and December 31, 2016, respectively)

(54,628 ) (54,643 ) (54,662 ) (56,056 ) Accumulated other comprehensive (loss) income   (3,332 )     1,453       2,437       1,344   Total shareholders’ equity   718,537       710,497       699,202       672,650   Total liabilities and shareholders’ equity   $ 5,887,284       $ 5,806,735       $ 5,687,230       $ 5,486,268                 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,     2017   2017   2016     2017   2016 Interest income: Loans and leases $ 51,381 $ 50,429 $ 44,407 $ 194,726 $ 175,999 Investment securities, taxable 3,761 3,048 3,273 13,693 11,777 Investment securities, tax-exempt 585 628 679 2,573 2,740 Other   458     325     365       1,393     1,244 Total interest income   56,185     54,430     48,724       212,385     191,760 Interest expense: Deposits 5,771 5,186 3,827 19,202 15,267 Short-term borrowings 220 396 95 1,115 525 Subordinated notes 870 1,022 1,055 4,002 4,220 Long-term debt and mandatorily redeemable securities   510     597     364       2,435     2,089 Total interest expense   7,371     7,201     5,341       26,754     22,101 Net interest income 48,814 47,229 43,383 185,631 169,659 Provision for loan and lease losses   3,622     1,620     742       8,980     5,833 Net interest income after provision for loan and lease losses   45,192     45,609     42,641       176,651     163,826 Noninterest income: Trust and wealth advisory 5,315 5,037 4,834 20,980 19,256 Service charges on deposit accounts 2,393 2,468 2,304 9,564 9,053 Debit card 3,090 2,983 2,727 11,809 10,887 Mortgage banking 1,059 1,486 1,001 4,796 4,496 Insurance commissions 1,383 1,429 1,367 5,889 5,513 Equipment rental 8,046 7,917 6,616 30,381 25,863 Gains on investment securities available-for-sale 1,583 1,007 1,006 4,340 1,796 Other   2,802     3,265     2,501       10,947     12,081 Total noninterest income   25,671     25,592     22,356       98,706     88,945 Noninterest expense: Salaries and employee benefits 22,839 22,016 22,156 86,912 86,837 Net occupancy 2,856 2,806 2,443 10,624 9,686 Furniture and equipment 5,505 5,363 5,001 20,769 19,500 Depreciation — leased equipment 6,674 6,565 5,563 25,215 21,678 Professional fees 2,296 1,765 1,508 6,810 5,161 Supplies and communication 1,444 1,316 1,106 5,355 5,244 FDIC and other insurance 648 693 710 2,537 3,147 Business development and marketing 3,125 1,199 1,668 7,477 4,936 Loan and lease collection and repossession 666 1,093 464 2,724 1,600 Other   1,260     1,644     1,142       5,574     5,856 Total noninterest expense   47,313     44,460     41,761       173,997     163,645 Income before income taxes 23,550 26,741 23,236 101,360 89,126 Income tax expense   5,556     9,559     8,011       33,309     31,340 Net income   $ 17,994     $ 17,182     $ 15,225       $ 68,051     $ 57,786 Per common share: Basic net income per common share   $ 0.69     $ 0.66     $ 0.58       $ 2.60     $ 2.22 Diluted net income per common share   $ 0.69     $ 0.66     $ 0.58       $ 2.60     $ 2.22 Cash dividends   $ 0.20     $ 0.19     $ 0.18       $ 0.76     $ 0.72 Basic weighted average common shares outstanding   25,936,508     25,935,867     25,873,552       25,925,820     25,879,397 Diluted weighted average common shares outstanding   25,936,508     25,935,867     25,873,552       25,925,820     25,879,397                     1st SOURCE CORPORATION DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY INTEREST RATES AND INTEREST DIFFERENTIAL (Unaudited - Dollars in thousands) Three Months Ended December 31, 2017 September 30, 2017 December 31, 2016 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 $ 764,239 $ 3,761 1.95 % $ 733,471 $ 3,048 1.65 % $ 696,110 $ 3,273 1.87 % Tax-exempt(1) 119,970 853 2.82 % 125,101 917 2.91 % 132,845 983 2.94 % Mortgages held for sale 10,654 107 3.98 % 12,832 126 3.90 % 14,615 128 3.48 % Loans and leases, net of unearned discount(1) 4,446,794 51,441 4.59 % 4,387,748 50,455 4.56 % 4,149,913 44,429 4.26 % Other investments   76,648     458     2.37 %   41,686     325     3.09 %   103,709     365     1.40 % Total earning assets(1) 5,418,305 56,620 4.15 % 5,300,838 54,871 4.11 % 5,097,192 49,178 3.84 % Cash and due from banks 64,356 62,373 62,689 Reserve for loan and lease losses (94,265 ) (93,162 ) (89,618 ) Other assets   430,441             436,023             391,727           Total assets   $ 5,818,837             $ 5,706,072             $ 5,461,990            

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing deposits $ 3,644,989 $ 5,771 0.63 % $ 3,543,037 $ 5,186 0.58 % $ 3,406,478 $ 3,827 0.45 % Short-term borrowings 211,786 220 0.41 % 265,014 396 0.59 % 189,895 95 0.20 % Subordinated notes 58,764 870 5.87 % 58,764 1,022 6.90 % 58,764 1,055 7.14 % Long-term debt and mandatorily redeemable securities   70,170     510     2.88 %   70,344     597     3.37 %   74,260     364     1.95 % Total interest-bearing liabilities 3,985,709 7,371 0.73 % 3,937,159 7,201 0.73 % 3,729,397 5,341 0.57 % Noninterest-bearing deposits 1,041,156 985,230 995,747 Other liabilities 72,914 74,407 60,931 Shareholders’ equity   719,058             709,276             675,915           Total liabilities and shareholders’ equity   $ 5,818,837             $ 5,706,072             $ 5,461,990           Less: Fully tax-equivalent adjustments (435 ) (441 ) (454 ) Net interest income/margin (GAAP-derived)(1)       $ 48,814     3.57 %       $ 47,229     3.53 %       $ 43,383     3.39 % Fully tax-equivalent adjustments 435 441 454 Net interest income/margin - FTE(1)       $ 49,249     3.61 %       $ 47,670     3.57 %       $ 43,837     3.42 %

(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, 2017 December 31, 2016 Interest Interest Average Income/ Yield/ Average Income/ Yield/     Balance   Expense   Rate   Balance   Expense   Rate

ASSETS

Investment securities available-for-sale: Taxable $ 728,501 $ 13,693 1.88 % $ 684,503 $ 11,777 1.72 % Tax-exempt(1) 126,378 3,747 2.96 % 127,998 3,981 3.11 % Mortgages held for sale 10,754 429 3.99 % 12,396 467 3.77 % Loans and leases, net of unearned discount(1) 4,333,375 194,918 4.50 % 4,113,508 176,116 4.28 % Other investments   52,086     1,393     2.67 %   65,517     1,244     1.90 % Total earning assets(1) 5,251,094 214,180 4.08 % 5,003,922 193,585 3.87 % Cash and due from banks 62,137 60,753 Reserve for loan and lease losses (92,187 ) (90,206 ) Other assets   417,278             386,216           Total assets   $ 5,638,322             $ 5,360,685            

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing deposits $ 3,510,197 $ 19,202 0.55 % $ 3,358,827 $ 15,267 0.45 % Short-term borrowings 245,235 1,115 0.45 % 210,876 525 0.25 % Subordinated notes 58,764 4,002 6.81 % 58,764 4,220 7.18 % Long-term debt and mandatorily redeemable securities   74,973     2,435     3.25 %   66,842     2,089     3.13 % Total interest-bearing liabilities 3,889,169 26,754 0.69 % 3,695,309 22,101 0.60 % Noninterest-bearing deposits 983,050 943,874 Other liabilities 63,684 57,799 Shareholders’ equity   702,419             663,703           Total liabilities and shareholders’ equity   $ 5,638,322             $ 5,360,685           Less: Fully tax-equivalent adjustments (1,795 ) (1,825 ) Net interest income/margin (GAAP-derived)(1)       $ 185,631     3.54 %       $ 169,659     3.39 % Fully tax-equivalent adjustments 1,795 1,825 Net interest income/margin - FTE(1)       $ 187,426     3.57 %       $ 171,484     3.43 % (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,         2017   2017   2016     2017   2016

Calculation of Net Interest Margin

(A) Interest income (GAAP) $ 56,185 $ 54,430 $ 48,724 $ 212,385 $ 191,760 Fully tax-equivalent adjustments: (B) - Loans and leases 167 152 150 621 584 (C)   - Tax-exempt investment securities   268     289     304       1,174     1,241   (D) Interest income - FTE (A+B+C) 56,620 54,871 49,178 214,180 193,585 (E) Interest expense (GAAP) 7,371 7,201 5,341 26,754 22,101 (F)   Net interest income (GAAP) (A–E)   48,814     47,229     43,383       185,631     169,659   (G)   Net interest income - FTE (D–E)   49,249     47,670     43,837       187,426     171,484   (H) Annualization factor 3.967 3.967 3.978 1.000 1.000 (I) Total earning assets $ 5,418,305 $ 5,300,838 $ 5,097,192 $ 5,251,094 $ 5,003,922 Net interest margin (GAAP-derived) (F*H)/I 3.57 % 3.53 % 3.39 % 3.54 % 3.39 % Net interest margin - FTE (G*H)/I 3.61 % 3.57 % 3.42 % 3.57 % 3.43 %  

Calculation of Efficiency Ratio

(F) Net interest income (GAAP) $ 48,814 $ 47,229 $ 43,383 $ 185,631 $ 169,659 (G) Net interest income - FTE 49,249 47,670 43,837 187,426 171,484 (J) Plus: noninterest income (GAAP) 25,671 25,592 22,356 98,706 88,945 (K) Less: gains/losses on investment securities and partnership investments (1,441 ) (1,336 ) (974 ) (4,569 ) (3,873 ) (L)   Less: depreciation - leased equipment   (6,674 )   (6,565 )   (5,563 )     (25,215 )   (21,678 ) (M)   Total net revenue (GAAP) (F+J)   74,485     72,821     65,739       284,337     258,604   (N)   Total net revenue - adjusted (G+J–K–L)   66,805     65,361     59,656       256,348     234,878   (O) Noninterest expense (GAAP) 47,313 44,460 41,761 173,997 163,645 (L) Less: depreciation - leased equipment (6,674 ) (6,565 ) (5,563 ) (25,215 ) (21,678 ) (P)   Less: contribution expense limited to gains on investment securities in (K)   (498 )   —     (484 )     (959 )   (484 ) (Q) Noninterest expense - adjusted (O–L–P) 40,141 37,895 35,714 147,823 141,483 Efficiency ratio (GAAP-derived) (O/M) 63.52 % 61.05 % 63.53 % 61.19 % 63.28 % Efficiency ratio - adjusted (Q/N) 60.09 % 57.98 % 59.87 % 57.66 % 60.24 %   End of Period December 31, September 30, December 31,         2017   2017   2016

Calculation of Tangible Common Equity-to-Tangible Assets Ratio

(R) Total common shareholders’ equity (GAAP) $ 718,537 $ 710,497 $ 672,650 (S)   Less: goodwill and intangible assets   (83,742 )   (83,795 )   (84,102 ) (T)   Total tangible common shareholders’ equity (R–S)   $ 634,795     $ 626,702     $ 588,548   (U) Total assets (GAAP) 5,887,284 5,806,735 5,486,268 (S)   Less: goodwill and intangible assets   (83,742 )   (83,795 )   (84,102 ) (V)   Total tangible assets (U–S)   $ 5,803,542     $ 5,722,940     $ 5,402,166   Common equity-to-assets ratio (GAAP-derived) (R/U) 12.20 % 12.24 % 12.26 % Tangible common equity-to-tangible assets ratio (T/V) 10.94 % 10.95 % 10.89 %  

Calculation of Tangible Book Value per Common Share

(R) Total common shareholders’ equity (GAAP) $ 718,537 $ 710,497 $ 672,650 (W)   Actual common shares outstanding   25,936,764     25,936,130     25,875,765   Book value per common share (GAAP-derived) (R/W)*1000 $ 27.70 $ 27.39 $ 26.00 Tangible common book value per share (T/W)*1000 $ 24.47 $ 24.16 $ 22.75

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1st Source CorporationAndrea Short, 574-235-2000