8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 18, 2019
1st Source Corporation
(Exact name of registrant as specified in its charter)
Indiana	0-6233	35-1068133
(State or other jurisdiction of incorporation)	(Commission File No.)	(I.R.S. Employer Identification No.)
100 North Michigan Street, South Bend, Indiana 46601
(Address of principal executive offices)     (Zip Code)
574-235-2000
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

ITEM 2.02Results of Operations and Financial Condition.

On April 18, 2019, 1st Source Corporation issued a press release that announced its first quarter earnings for 2019. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated by reference herein.

ITEM 9.01Financial Statements and Exhibits.

Exhibit 99.1: Press release dated April 18, 2019, with respect to 1st Source Corporation’s financial results for the first quarter ended March 31, 2019.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	1st SOURCE CORPORATION
	(Registrant)
Date: April 18, 2019	/s/ CHRISTOPHER J. MURPHY III
	Christopher J. Murphy III
	Chairman of the Board and CEO
Date: April 18, 2019	/s/ ANDREA G. SHORT
	Andrea G. Short
	Treasurer and Chief Financial Officer
	Principal Accounting Officer

EX-99.1

Exhibit 99.1

For:	Immediate Release	Contact:	Andrea Short
	April 18, 2019		574-235-2000

1st Source Corporation Reports Record First Quarter Results,

Increased Cash Dividend Declared

QUARTERLY HIGHLIGHTS

• Net income was a record $22.20 million, up 16.11% over the first quarter of 2018. Diluted net income per common share was also a record of $0.86, up from the prior year’s first quarter of $0.73.

• Return on average assets increased to 1.43% and return on average common shareholders’ equity increased to 11.61% from 1.31% and 10.67%, respectively in the first quarter of 2018.

• Net charge-offs of $3.54 million and nonperforming assets to loans and leases of 0.49% compared to $0.34 million and 0.74%, respectively in the first quarter of 2018.

• Average loans and leases grew $269.40 million, up 5.87% from the first quarter of 2018.

• Average deposits grew $350.92 million, up 7.45% from the first quarter of 2018.

• Net interest income increased $4.42 million, up 8.74% from the first quarter of 2018.

• Noninterest income increased $0.32 million, up 1.33% from the first quarter of 2018 (increased 1.27% excluding leased equipment depreciation).

• Noninterest expenses decreased $0.35 million, down 0.77% from the first quarter of 2018 (decreased 1.15% excluding leased equipment depreciation).

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

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

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

- 1 -

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

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

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

FIRST QUARTER 2019 FINANCIAL RESULTS

Loans

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

Deposits

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

Net Interest Income and Net Interest Margin

First quarter2019 net interest income of $54.95 million increased $4.42 million, up 8.74% from the first quarter a year ago and decreased $0.90 million, down 1.60% from the prior quarter.

First quarter2019 net interest margin was 3.78%, an improvement of nine basis points from the 3.69% for the same period in 2018 and increased one basis point from the fourth quarter of 2018. First quarter2019 net interest margin on a fully tax-equivalent basis was 3.79%, an increase of eight basis points from the 3.71% for the same period in 2018 and was higher by one basis point compared to the prior quarter. With the Federal Reserve announcing rate increases will be put on hold, interest margins may have reached their peak. Also, there is significant competition for deposits with many local market participants increasing their rates and there is considerable price competition for loans.

- 2 -

Noninterest Income

First quarter2019 noninterest income of $24.12 million increased $0.32 million, up 1.33% from the first quarter a year ago and was relatively flat from the fourth quarter of 2018.

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

Noninterest Expense

First quarter2019 noninterest expense of $45.20 million was down slightly from the first quarter a year ago and decreased $2.49 million, down 5.21% from the prior quarter. Excluding depreciation on leased equipment, noninterest expenses were down 1.15% from the first quarter a year ago and down 5.97% from the prior quarter.

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

Credit

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

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

Capital

As of March 31, 2019, the common equity-to-assets ratio was 12.20%, compared to 12.11% at December 31, 2018 and 11.99% a year ago. The tangible common equity-to-tangible assets ratio was 11.03% at March 31, 2019 compared to 10.92% at December 31, 2018 and 10.75% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 12.28% at March 31, 2019 compared to 12.38% at December 31, 2018 and 12.22% a year ago.

ABOUT 1ST SOURCE CORPORATION

1st Source common stock is traded on the NASDAQ Global Select Market under “SRCE” and appears in the National Market System tables in many daily newspapers under the code name “1st Src.” Since 1863, 1st Source has been committed to the success of its clients, individuals, businesses and the communities it serves. For more information, visit www.1stsource.com.

- 3 -

1st Source serves the northern half of Indiana and southwest Michigan and is the largest locally controlled financial institution headquartered in the area. While delivering a comprehensive range of consumer and commercial banking services through its community bank offices, 1st Source has distinguished itself with highly personalized services. 1st Source Bank also competes for business nationally by offering specialized financing services for new and used private and cargo aircraft, automobiles for leasing and rental agencies, medium and heavy duty trucks, and construction equipment. The Corporation includes 80 banking centers, 19 1st Source Bank Specialty Finance Group locations nationwide, eight Wealth Advisory Services locations and ten 1st Source Insurance offices.

FORWARD LOOKING STATEMENTS

Except for historical information contained herein, the matters discussed in this document express “forward-looking statements.” Generally, the words “believe,” “contemplate,” “seek,” “plan,” “possible,” “assume,” “expect,” “intend,” “targeted,” “continue,” “remain,” “estimate,” “anticipate,” “project,” “will,” “should,” “indicate,” “would,” “may” and similar expressions indicate forward-looking statements. Those statements, including statements, projections, estimates or assumptions concerning future events or performance, and other statements that are other than statements of historical fact, are subject to material risks and uncertainties. 1st Source cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made.

1st Source may make other written or oral forward-looking statements from time to time. Readers are advised that various important factors could cause 1st Source’s actual results or circumstances for future periods to differ materially from those anticipated or projected in such forward-looking statements. Such factors, among others, include changes in laws, regulations or accounting principles generally accepted in the United States; 1st Source’s competitive position within its markets served; increasing consolidation within the banking industry; unforeseen changes in interest rates; unforeseen downturns in the local, regional or national economies or in the industries in which 1st Source has credit concentrations; and other risks discussed in 1st Source’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K, which filings are available from the SEC. 1st Source undertakes no obligation to publicly update or revise any forward-looking statements.

NON-GAAP FINANCIAL MEASURES

The accounting and reporting policies of 1st Source conform to generally accepted accounting principles (“GAAP”) in the United States and prevailing practices in the banking industry. However, certain non-GAAP performance measures are used by management to evaluate and measure the Company’s performance. Although these non-GAAP financial measures are frequently used by investors to evaluate a financial institution, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. These include taxable-equivalent net interest income (including its individual components), net interest margin (including its individual components), the efficiency ratio, tangible common equity-to-tangible assets ratio and tangible book value per common share. Management believes that these measures provide users of the Company’s financial information a more meaningful view of the performance of the interest-earning assets and interest-bearing liabilities and of the Company’s operating efficiency. Other financial holding companies may define or calculate these measures differently.

- 4 -

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)

- 5 -

1st SOURCE CORPORATION
1st QUARTER 2019 FINANCIAL HIGHLIGHTS
(Unaudited - Dollars in thousands, except per share data)
	Three Months Ended
	March 31,			December 31,			March 31,
	2019			2018			2018
AVERAGE BALANCES
Assets	$	6,290,386		$	6,270,544		$	5,939,574
Earning assets	5,896,697			5,873,476			5,552,779
Investments	987,593			976,856			916,979
Loans and leases	4,858,183			4,835,995			4,588,782
Deposits	5,059,362			5,087,948			4,708,439
Interest bearing liabilities	4,315,545			4,304,067			4,154,214
Common shareholders’ equity	775,657			758,450			726,242
Total equity	777,217			759,220			726,242
INCOME STATEMENT DATA
Net interest income	$	54,948		$	55,843		$	50,532
Net interest income - FTE(1)	55,130			56,034			50,744
Provision for loan and lease losses	4,918			4,702			3,786
Noninterest income	24,124			24,160			23,807
Noninterest expense	45,204			47,691			45,557
Net income	22,196			21,446			19,116
Net income available to common shareholders	22,196			21,446			19,116
PER SHARE DATA
Basic net income per common share	$	0.86		$	0.82		$	0.73
Diluted net income per common share	0.86			0.82			0.73
Common cash dividends declared	0.27			0.25			0.22
Book value per common share(2)	30.33			29.56			27.96
Tangible book value per common share(1)	27.05			26.30			24.72
Market value - High	50.15			54.30			54.65
Market value - Low	39.11			38.44			48.26
Basic weighted average common shares outstanding	25,759,186			25,876,687			25,950,386
Diluted weighted average common shares outstanding	25,759,186			25,876,687			25,950,386
KEY RATIOS
Return on average assets	1.43		%	1.36		%	1.31		%
Return on average common shareholders’ equity	11.61			11.22			10.67
Average common shareholders’ equity to average assets	12.33			12.10			12.23
End of period tangible common equity to tangible assets(1)	11.03			10.92			10.75
Risk-based capital - Common Equity Tier 1(3)	12.28			12.38			12.22
Risk-based capital - Tier 1(3)	13.32			13.42			13.29
Risk-based capital - Total(3)	14.58			14.68			14.54
Net interest margin	3.78			3.77			3.69
Net interest margin - FTE(1)	3.79			3.78			3.71
Efficiency ratio: expense to revenue	57.17			59.61			61.28
Efficiency ratio: expense to revenue - adjusted(1)	53.20			55.90			57.47
Net charge offs to average loans and leases	0.30			0.21			0.03
Loan and lease loss reserve to loans and leases	2.07			2.08			2.10
Nonperforming assets to loans and leases	0.49			0.71			0.74
	March 31,			December 31,			September 30,			June 30,		March 31,
	2019			2018			2018			2018		2018
END OF PERIOD BALANCES
Assets	$	6,379,086		$	6,293,745		$	6,293,169		$	6,320,058	$	6,051,463
Loans and leases	4,926,187			4,835,464			4,825,553			4,839,823		4,691,097
Deposits	5,124,091			5,122,322			5,061,977			5,108,439		4,781,325
Reserve for loan and lease losses	101,852			100,469			98,300			103,007		98,331
Goodwill and intangible assets	83,992			83,998			84,097			84,104		84,124
Common shareholders’ equity	778,422			762,082			750,437			740,277		725,609
Total equity	781,101			763,590			750,437			740,277		725,609
ASSET QUALITY
Loans and leases past due 90 days or more	$	178		$	366		$	125		$	263	$	123
Nonaccrual loans and leases	13,622			27,859			36,028			34,582		25,360
Other real estate	417			299			432			133		1,184
Repossessions	10,411			6,666			13,041			9,389		9,432
Equipment owned under operating leases	64			126			48			—		2
Total nonperforming assets	$	24,692		$	35,316		$	49,674		$	44,367	$	36,101

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

(2) Calculated as common shareholders’ equity divided by common shares outstanding at the end of the period.

(3) Calculated under banking regulatory guidelines.

- 6 -

1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited - Dollars in thousands)
	March 31,			December 31,			September 30,			March 31,
	2019			2018			2018			2018
ASSETS
Cash and due from banks	$	64,619		$	94,907		$	68,362		$	29,404
Federal funds sold and interest bearing deposits with other banks	3,062			4,172			45,514			21,748
Investment securities available-for-sale	1,002,809			990,129			972,172			942,076
Other investments	28,404			28,404			28,159			27,265
Mortgages held for sale	9,210			11,290			11,149			8,626
Loans and leases, net of unearned discount:
Commercial and agricultural	1,146,031			1,073,205			1,062,907			1,011,700
Auto and light truck	554,078			559,987			562,546			511,051
Medium and heavy duty truck	285,631			283,544			271,601			280,010
Aircraft	830,437			803,111			836,458			868,419
Construction equipment	641,035			645,239			654,605			619,219
Commercial real estate	818,459			809,886			781,093			748,926
Residential real estate and home equity	514,719			523,855			523,391			518,130
Consumer	135,797			136,637			132,952			133,642
Total loans and leases	4,926,187			4,835,464			4,825,553			4,691,097
Reserve for loan and lease losses	(101,852		)	(100,469		)	(98,300		)	(98,331		)
Net loans and leases	4,824,335			4,734,995			4,727,253			4,592,766
Equipment owned under operating leases, net	131,594			134,440			137,492			144,129
Net premises and equipment	51,357			52,139			53,479			54,841
Goodwill and intangible assets	83,992			83,998			84,097			84,124
Accrued income and other assets	179,704			159,271			165,492			146,484
Total assets	$	6,379,086		$	6,293,745		$	6,293,169		$	6,051,463
LIABILITIES
Deposits:
Noninterest-bearing demand	$	1,146,647		$	1,217,120		$	1,151,573		$	1,030,902
Interest-bearing deposits:
Interest-bearing demand	1,560,840			1,614,959			1,606,462			1,514,299
Savings	851,564			822,477			822,246			855,729
Time	1,565,040			1,467,766			1,481,696			1,380,395
Total interest-bearing deposits	3,977,444			3,905,202			3,910,404			3,750,423
Total deposits	5,124,091			5,122,322			5,061,977			4,781,325
Short-term borrowings:
Federal funds purchased and securities sold under agreements to repurchase	149,172			113,627			124,630			143,913
Other short-term borrowings	106,216			85,717			166,077			212,051
Total short-term borrowings	255,388			199,344			290,707			355,964
Long-term debt and mandatorily redeemable securities	71,439			71,123			70,919			71,335
Subordinated notes	58,764			58,764			58,764			58,764
Accrued expenses and other liabilities	88,303			78,602			60,365			58,466
Total liabilities	5,597,985			5,530,155			5,542,732			5,325,854
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 March 31, 2019, December 31, 2018, September 30, 2018, and March 31, 2018, respectively	436,538			436,538			436,538			436,538
Retained earnings	414,428			398,980			383,943			354,608
Cost of common stock in treasury (2,537,741, 2,421,946, 2,239,928, and 2,250,503 shares at March 31,2019, December 31, 2018, September 30, 2018, and March 31, 2018, respectively)	(69,136		)	(62,760		)	(54,369		)	(54,602		)
Accumulated other comprehensive loss	(3,408		)	(10,676		)	(15,675		)	(10,935		)
Total shareholders’ equity	778,422			762,082			750,437			725,609
Noncontrolling interests	2,679			1,508			—			—
Total equity	781,101			763,590			750,437			725,609
Total liabilities and equity	$	6,379,086		$	6,293,745		$	6,293,169		$	6,051,463

- 7 -

1st SOURCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - Dollars in thousands, except per share amounts)
	Three Months Ended
	March 31,		December 31,		March 31,
	2019		2018		2018
Interest income:
Loans and leases	$	62,683	$	62,283	$	53,691
Investment securities, taxable	5,515		5,363		4,608
Investment securities, tax-exempt	385		419		531
Other	438		452		408
Total interest income	69,021		68,517		59,238
Interest expense:
Deposits	11,470		10,345		6,562
Short-term borrowings	931		718		776
Subordinated notes	928		916		883
Long-term debt and mandatorily redeemable securities	744		695		485
Total interest expense	14,073		12,674		8,706
Net interest income	54,948		55,843		50,532
Provision for loan and lease losses	4,918		4,702		3,786
Net interest income after provision for loan and lease losses	50,030		51,141		46,746
Noninterest income:
Trust and wealth advisory	4,858		4,974		5,188
Service charges on deposit accounts	2,498		2,778		2,484
Debit card	3,220		3,462		3,103
Mortgage banking	936		962		884
Insurance commissions	2,174		1,477		1,958
Equipment rental	7,982		7,957		7,755
Losses on investment securities available-for-sale	—		—		(345		)
Other	2,456		2,550		2,780
Total noninterest income	24,124		24,160		23,807
Noninterest expense:
Salaries and employee benefits	23,495		24,466		22,531
Net occupancy	2,772		2,537		2,866
Furniture and equipment	6,024		6,491		5,455
Depreciation – leased equipment	6,524		6,556		6,428
Professional fees	1,598		2,052		2,017
Supplies and communication	1,493		1,633		1,553
FDIC and other insurance	645		656		698
Business development and marketing	949		1,191		1,533
Loan and lease collection and repossession	1,361		296		951
Other	343		1,813		1,525
Total noninterest expense	45,204		47,691		45,557
Income before income taxes	28,950		27,610		24,996
Income tax expense	6,754		6,164		5,880
Net income	22,196		21,446		19,116
Net (income) loss attributable to noncontrolling interests	—		—		—
Net income available to common shareholders	$	22,196	$	21,446	$	19,116
Per common share:
Basic net income per common share	$	0.86	$	0.82	$	0.73
Diluted net income per common share	$	0.86	$	0.82	$	0.73
Cash dividends	$	0.27	$	0.25	$	0.22
Basic weighted average common shares outstanding	25,759,186		25,876,687		25,950,386
Diluted weighted average common shares outstanding	25,759,186		25,876,687		25,950,386

- 8 -

1st SOURCE CORPORATION
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
(Unaudited - Dollars in thousands)
									Three Months Ended
	March 31, 2019								December 31, 2018								March 31, 2018
	Average Balance			Interest Income/Expense			Yield/ Rate		Average Balance			Interest Income/Expense			Yield/ Rate		Average Balance			Interest Income/Expense			Yield/ Rate
ASSETS
Investment securities available-for-sale:
Taxable	$	909,422		$	5,515		2.46	%	$	895,204		$	5,363		2.38	%	$	813,144		$	4,608		2.30	%
Tax exempt(1)	78,171			472			2.45	%	81,652			516			2.51	%	103,835			655			2.56	%
Mortgages held for sale	8,826			101			4.64	%	9,018			107			4.71	%	7,719			80			4.20	%
Loans and leases, net of unearned discount(1)	4,858,183			62,677			5.23	%	4,835,995			62,270			5.11	%	4,588,782			53,699			4.75	%
Other investments	42,095			438			4.22	%	51,607			452			3.47	%	39,299			408			4.21	%
Total earning assets(1)	5,896,697			69,203			4.76	%	5,873,476			68,708			4.64	%	5,552,779			59,450			4.34	%
Cash and due from banks	63,886								67,437								61,395
Reserve for loan and lease losses	(101,697		)						(99,182		)						(95,707		)
Other assets	431,500								428,813								421,107
Total assets	$	6,290,386							$	6,270,544							$	5,939,574
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits	$	3,934,921		$	11,470		1.18	%	$	3,932,453		$	10,345		1.04	%	$	3,702,882		$	6,562		0.72	%
Short-term borrowings	251,379			931			1.50	%	241,979			718			1.18	%	322,257			776			0.98	%
Subordinated notes	58,764			928			6.40	%	58,764			916			6.18	%	58,764			883			6.09	%
Long-term debt and mandatorily redeemable securities	70,481			744			4.28	%	70,871			695			3.89	%	70,311			485			2.80	%
Total interest-bearing liabilities	4,315,545			14,073			1.32	%	4,304,067			12,674			1.17	%	4,154,214			8,706			0.85	%
Noninterest-bearing deposits	1,124,441								1,155,495								1,005,557
Other liabilities	73,183								51,762								53,561
Shareholders’ equity	775,657								758,450								726,242
Noncontrolling interests	1,560								770								—
Total liabilities and equity	$	6,290,386							$	6,270,544							$	5,939,574
Less: Fully tax-equivalent adjustments				(182		)						(191		)						(212		)
Net interest income/margin (GAAP-derived)(1)				$	54,948		3.78	%				$	55,843		3.77	%				$	50,532		3.69	%
Fully tax-equivalent adjustments				182								191								212
Net interest income/margin - FTE(1)				$	55,130		3.79	%				$	56,034		3.78	%				$	50,744		3.71	%
(1) See “Reconciliation of Non-GAAP Financial Measures” for more information on this performance measure/ratio.

- 9 -

1st SOURCE CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited - Dollars in thousands, except per share data)
		Three Months Ended
		March 31,			December 31,			March 31,
		2019			2018			2018
Calculation of Net Interest Margin
(A)	Interest income (GAAP)	$	69,021		$	68,517		$	59,238
	Fully tax-equivalent adjustments:
(B)	– Loans and leases	95			94			88
(C)	– Tax exempt investment securities	87			97			124
(D)	Interest income – FTE (A+B+C)	69,203			68,708			59,450
(E)	Interest expense (GAAP)	14,073			12,674			8,706
(F)	Net interest income (GAAP) (A-E)	54,948			55,843			50,532
(G)	Net interest income - FTE (D-E)	55,130			56,034			50,744
(H)	Annualization factor	4.056			3.967			4.056
(I)	Total earning assets	$	5,896,697		$	5,873,476		$	5,552,779
	Net interest margin (GAAP-derived) (F*H)/I	3.78		%	3.77		%	3.69		%
	Net interest margin – FTE (G*H)/I	3.79		%	3.78		%	3.71		%
Calculation of Efficiency Ratio
(F)	Net interest income (GAAP)	$	54,948		$	55,843		$	50,532
(G)	Net interest income – FTE	55,130			56,034			50,744
(J)	Plus: noninterest income (GAAP)	24,124			24,160			23,807
(K)	Less: gains/losses on investment securities and partnership investments	(17		)	(57		)	(32		)
(L)	Less: depreciation – leased equipment	(6,524		)	(6,556		)	(6,428		)
(M)	Total net revenue (GAAP) (F+J)	79,072			80,003			74,339
(N)	Total net revenue – adjusted (G+J–K–L)	72,713			73,581			68,091
(O)	Noninterest expense (GAAP)	45,204			47,691			45,557
(L)	Less:depreciation – leased equipment	(6,524		)	(6,556		)	(6,428		)
(Q)	Noninterest expense – adjusted (O–L)	38,680			41,135			39,129
	Efficiency ratio (GAAP-derived) (O/M)	57.17		%	59.61		%	61.28		%
	Efficiency ratio – adjusted (Q/N)	53.20		%	55.90		%	57.47		%
		End of Period
		March 31,			December 31,			March 31,
		2019			2018			2018
Calculation of Tangible Common Equity-to-Tangible Assets Ratio
(R)	Total common shareholders’ equity (GAAP)	$	778,422		$	762,082		$	725,609
(S)	Less: goodwill and intangible assets	(83,992		)	(83,998		)	(84,124		)
(T)	Total tangible common shareholders’ equity (R–S)	$	694,430		$	678,084		$	641,485
(U)	Total assets (GAAP)	6,379,086			6,293,745			6,051,463
(S)	Less: goodwill and intangible assets	(83,992		)	(83,998		)	(84,124		)
(V)	Total tangible assets (U–S)	$	6,295,094		$	6,209,747		$	5,967,339
	Common equity-to-assets ratio (GAAP-derived) (R/U)	12.20		%	12.11		%	11.99		%
	Tangible common equity-to-tangible assets ratio (T/V)	11.03		%	10.92		%	10.75		%
Calculation of Tangible Book Value per Common Share
(R)	Total common shareholders’ equity (GAAP)	$	778,422		$	762,082		$	725,609
(W)	Actual common shares outstanding	25,667,933			25,783,728			25,955,171
	Book value per common share (GAAP-derived) (R/W)*1000	$	30.33		$	29.56		$	27.96
	Tangible common book value per share (T/W)*1000	$	27.05		$	26.30		$	24.72

The NASDAQ Stock Market National Market Symbol: “SRCE” (CUSIP #336901 10 3)

Please contact us at shareholder@1stsource.com

- 10 -