Business Wire | Oct 22, 2020 04:02PM EDT

1st Source Corporation Reports Third Quarter Results, Cash Dividend Declared

Oct. 22, 2020

SOUTH BEND, Ind.--(BUSINESS WIRE)--Oct. 22, 2020--1st Source Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported net income of $20.06 million for the third quarter of 2020, up 8.41% from the $18.50 million reported in the second quarter of 2020 and down 17.92% from the $24.44 million reported in the third quarter a year ago, bringing the 2020 year-to-date net income to $54.97 million compared to $70.02 million in 2019, a decrease of 21.49%. The year-to-date net income comparison was negatively impacted by an increased provision for loan and lease losses of $18.15 million primarily due to sizeable impairments in a few accounts, the negative economic impact on our clients from COVID-19 and higher special attention loan balances in the first nine months of 2020. Additionally, net interest income decreased $4.86 million due to lower loan and investment rates resulting from the Federal Reserve's actions to lower interest rates and stimulate the economy in response to the economic effects of COVID-19. These negatives were offset by improved noninterest income driven primarily by higher mortgage financing income. Non-recurring 2020 items which added to net income included $0.55 million in FDIC insurance premium credits received, bank owned life insurance claims of $0.30 million and a trust recovery of $0.17 million. These additions to income were offset by $1.40 million of negative valuation adjustments on repossessed assets and $0.81 million in mortgage servicing rights impairment charges.

Diluted net income per common share for the third quarter of 2020 was up 8.33% to $0.78 versus $0.72 for the second quarter of 2020 and was down 17.89% versus $0.95 in the third quarter of 2019. Diluted net income per common share for the first nine months of 2020 was $2.14 compared to $2.72 a year earlier, a 21.32% decrease.

At its October 2020 meeting, the Board of Directors approved a cash dividend of $0.28 per common share, equal to that declared in the previous quarter and down 3.45% from the $0.29 per common share declared a year ago. The cash dividend is payable to shareholders of record on November 3, 2020 and will be paid on November 13, 2020.

Christopher J. Murphy III, Chairman and Chief Executive Officer, commented, "The third quarter continued to provide operating and financial challenges but I am pleased with our overall results and our efforts to work with clients through these difficult times. Although our net income is down from the third quarter of 2019, we did see improvement from the second quarter 2020 while also providing $9.30 million to the reserve for loan and lease losses as we continue to work through the immediate and longer term negative impacts on our clients from the coronavirus pandemic. Continuing a positive trend from the first and second quarters, our residential mortgage loan business increased its production volumes and profitability enjoying the second highest quarterly volume in 10 years due to record low long term interest rates.

"During the quarter, we began working with our Paycheck Protection Program (PPP) clients to submit loan forgiveness applications to the Small Business Administration (SBA) and were pleased with the SBA's announcement of a streamlined loan forgiveness application for loans $50,000 or less. Of the 3,540 PPP loans we originated, 1,972 loans were for $50,000 or less. Our focus now is to help all of our small business clients successfully complete this forgiveness process. As of mid-October, we had submitted over $100 million in PPP loan forgiveness requests to the SBA. While uncertainty remains concerning the forgiveness process, we anticipate the process to be finished or nearly finished by the end of the second quarter of 2021.

"Last quarter, we reported on COVID-19 related loan modifications across our portfolios. That number peaked at approximately $1 billion and by the close of the quarter over 80% had completed their modification term and did not require further deferral. Clients in certain industries in our loan portfolios though have been negatively impacted more than others. These include transportation (particularly auto rental and charter bus) clients and hotel industry clients. For those, further deferrals were required as these industries slowly return back to more normal operations. We will continue to take a long-term view of working with our clients who need further deferral extensions where appropriate.

"During the third quarter, we saw an increase in nonaccrual loans and leases predominately from our bus segment. The majority of the remaining nonaccrual loans are tied to four customer relationships in our auto and light truck and construction equipment portfolios.

"Throughout the pandemic, our focus has remained on keeping our clients, our colleagues, and families safe so we can deliver the highest level of service. In the spring, we made the decision to provide by-appointment client service in our banking center lobbies to ensure everyone's safety, both clients and colleagues, allowing us to screen visitors for symptoms, and conduct swift and accurate contract tracing if needed. This approach has served us well and, with a few exceptions, we have made the decision to keep this approach in place for the time being. Our drive-up teller lanes are serving clients well and our ATMs, Online Banking, Mobile App and Telephone Banking are accessible 24/7. We have opened our supermarket banking centers and, in some locations where virus levels are low, we have opened banking facilities where we do not have drive-up teller lanes to conduct transactions at a distance.

"As mentioned earlier this year, we have a dedicated executive pandemic response team that meets regularly and is closely monitoring developments and providing guidance for additional precautions and initiatives. This group will continue to review and analyze data from local health departments to make the best decisions possible for the health and safety of our team members, clients and communities." Mr. Murphy concluded.

THIRD QUARTER 2020 FINANCIAL RESULTS

Loans

Average loans and leases of $5.67 billion increased $578.26 million, up 11.36% in the third quarter of 2020 from the year ago quarter and have increased $104.46 million, up 1.88% from the second quarter. Year-to-date average loans and leases of $5.45 billion increased $460.72 million, up 9.24% from the first nine months of 2019. Loan growth is primarily from PPP originations when compared to 2019.

Deposits

Average deposits of $5.89 billion grew $526.04 million for the quarter ended September 30, 2020, up 9.81% from the year ago quarter and have increased $78.86 million, or 1.36% from the second quarter. Average deposits for the first nine months of 2020 were $5.66 billion, an increase of $427.97 million, up 8.18% from the same period a year ago. Deposit growth is primarily from PPP loan fundings and increased consumer deposit levels compared to 2019.

Net Interest Income and Net Interest Margin

Third quarter 2020 net interest income of $54.87 million decreased $2.33 million, or 4.07% from the third quarter a year ago and increased $0.87 million, or 1.61% from the previous quarter. For the first nine months of 2020, tax-equivalent net interest income was $164.13 million, a decrease of $4.97 million, or 2.94% compared to the same period a year ago.

Third quarter 2020 net interest margin was 3.19%, a decrease of 48 basis points from the 3.67% for the same period in 2019 and decreased four basis points from the previous quarter. Third quarter 2020 net interest margin on a fully tax-equivalent basis was 3.20%, a decrease of 48 basis points from the 3.68% for the same period in 2019 and was lower by four basis points compared to the previous quarter. The margin continues to experience pressure from the numerous Federal Reserve interest rate decreases during the second half of 2019 and the first three months of 2020. Additionally, PPP loans had a negative impact on the net interest margin of six basis points for the quarter.

Net interest margin for the first nine months of 2020 was 3.32%, a decrease of 40 basis points from the 3.72% for the same period in 2019. Net interest margin on a fully-taxable-equivalent basis for the first nine months of 2020 was 3.33%, a decrease of 41 basis points from the 3.74% for the first nine months of 2019. PPP loans had a negative impact of five basis points on the year-to-date net interest margin.

Noninterest Income

Third quarter 2020 noninterest income of $28.04 million increased $2.28 million, or 8.83% from the third quarter a year ago and increased $2.80 million, or 11.09% from the second quarter of 2020. For the first nine months of 2020, noninterest income was $77.90 million, an increase of $2.35 million, or 3.11% from the same period a year ago.

The growth in noninterest income during the third quarter and first nine months of 2020 compared to a year ago was mainly from improved mortgage financing income driven by gains on a higher volume of loan sales offset by lower service charges on deposit accounts due to fewer overdraft and non-sufficient fund transactions and less equipment rental income due to a reduction in the size of the average equipment rental portfolio. Additionally, we recognized $0.81 million of impairment charges on our mortgage servicing rights during 2020 as prepayment speeds accelerated.

The increase in noninterest income from the second quarter of 2020 was primarily the result of improved mortgage banking income driven by higher margins on loan sales, increased debit card income, and higher service charges on deposit accounts offset by decreased customer swap fees, lower equipment rental income due to a reduction in the size of the average equipment rental portfolio, and reduced trust and wealth advisory fees as a result of seasonal tax activity in the second quarter.

Noninterest Expense

Third quarter 2020 noninterest expense of $47.04 million decreased $0.06 million, or 0.13% from the third quarter a year ago and increased $2.22 million, or 4.95% from the prior quarter. Excluding depreciation on leased equipment, noninterest expenses were up 3.52% from the third quarter a year ago and up 6.72% from the prior quarter. For the first nine months of 2020, noninterest expense was $138.40 million, a decrease of $1.26 million, down 0.90% compared to the same period a year ago.

The increase in noninterest expense from the prior quarter was primarily the result of lower deferred salary expense on PPP loan originations, negative valuation adjustments on repossessed assets and higher professional consulting fees. These increases were offset by lower leased equipment depreciation from a reduction in the average equipment rental portfolio and a decline in general collection and repossession costs.

Credit

The reserve for loan and lease losses as of September 30, 2020 was 2.43% of total loans and leases compared to 2.31% at June 30, 2020 and 2.14% at September 30, 2019. The reserve calculation includes PPP loans which are guaranteed by the SBA. Excluding these loans from the calculation results in a reserve of 2.69% at September 30, 2020 compared to 2.54% at June 30, 2020. Net charge-offs of $3.77 million were recorded for the third quarter of 2020 compared with net recoveries of $0.31 million in the same quarter a year ago and $0.11 million of net recoveries in the prior quarter.

The provision for loan and lease losses was $9.30 million for the third quarter of 2020, an increase of $5.59 million compared with the same period in 2019 and a decrease of $1.07 million from the second quarter of 2020. The ratio of nonperforming assets to loans and leases was 1.33% as of September 30, 2020, compared to 1.20% on June 30, 2020 and 0.34% on September 30, 2019. Excluding PPP loans, the ratio of non-performing assets to loans and leases was 1.48% at September 30, 2020 and 1.33% at June 30, 2020.

Capital

As of September 30, 2020, the common equity-to-assets ratio was 12.04%, compared to 11.74% at June 30, 2020 and 12.15% a year ago. The tangible common equity-to-tangible assets ratio was 11.01% at September 30, 2020 compared to 10.73% at June 30, 2020 and 11.04% a year earlier. The Common Equity Tier 1 ratio, calculated under banking regulatory guidelines, was 12.92% at September 30, 2020 compared to 12.76% at June 30, 2020 and 12.26% a year ago. All of the September 30, 2020 calculations except the regulatory capital ratios are impacted by the inclusion of PPP loan balances at the close of the quarter. There were no shares repurchased for treasury during 2020.

ABOUT 1ST SOURCE CORPORATION

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

1st Source serves the northern half of Indiana and southwest Michigan and is the largest locally controlled financial institution headquartered in the area. While delivering a comprehensive range of consumer and commercial banking services through its community bank offices, 1st Source has distinguished itself with highly personalized services. 1st Source Bank also competes for business nationally by offering specialized financing services for new and used private and cargo aircraft, automobiles for leasing and rental agencies, medium and heavy duty trucks, and construction equipment. The Corporation includes 79 banking centers, 18 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.

Category: Earnings

(charts attached)

1st SOURCE CORPORATION

3rd QUARTER2020 FINANCIALHIGHLIGHTS

(Unaudited -Dollars inthousands, except pershare data)

Three Months Ended Nine Months Ended

September 30, June 30, September 30, September 30, September 30,

2020 2020 2019 2020 2019

AVERAGE BALANCES

Assets $ 7,281,542 $ 7,185,406 $ 6,620,880 $ 7,026,956 $ 6,467,547

Earning 6,841,720 6,727,011 6,190,264 6,584,451 6,052,686 assets

Investments 1,057,780 1,045,310 1,024,250 1,044,625 1,004,463

Loans and 5,669,615 5,565,160 5,091,358 5,445,213 4,984,498 leases

Deposits 5,889,434 5,810,578 5,363,391 5,658,309 5,230,335

Interestbearing 4,553,503 4,580,419 4,493,376 4,516,627 4,426,489 liabilities

Commonshareholders' 876,992 862,209 809,279 861,366 791,438 equity

Total equity 913,926 891,606 819,734 891,129 796,767

INCOMESTATEMENT DATA

Net interest $ 54,868 $ 54,001 $ 57,195 $ 163,713 $ 168,570 income

Net interestincome - FTE^ 54,996 54,138 57,362 164,129 169,096 (1)

Provision forloan and 9,303 10,375 3,717 31,031 12,882 lease losses

Noninterest 28,041 25,241 25,765 77,904 75,553 income

Noninterest 47,043 44,825 47,106 138,403 139,663 expense

Net income 20,054 18,526 24,448 54,998 70,061

Net incomeavailable to 20,058 18,502 24,438 54,973 70,019 commonshareholders

PER SHARE DATA

Basic netincome per $ 0.78 $ 0.72 $ 0.95 $ 2.14 $ 2.72 common share

Diluted netincome per 0.78 0.72 0.95 2.14 2.72 common share

Common cashdividends 0.28 0.28 0.27 0.85 0.81 declared

Book valueper common 34.35 33.85 31.88 34.35 31.88 share^(2)

Tangible bookvalue per 31.06 30.57 28.59 31.06 28.59 common share^(1)

Market value 38.26 38.70 48.31 52.16 50.15 - High

Market value 28.72 26.72 42.31 26.07 39.11 - Low

Basicweightedaverage 25,552,374 25,540,855 25,520,035 25,538,910 25,630,771 common sharesoutstanding

Dilutedweightedaverage 25,552,374 25,540,855 25,520,035 25,538,910 25,630,771 common sharesoutstanding

KEY RATIOS

Return onaverage 1.10 % 1.04 % 1.46 % 1.05 % 1.45 %assets

Return onaveragecommon 9.10 8.63 11.98 8.52 11.83 shareholders'equity

Averagecommonshareholders' 12.04 12.00 12.22 12.26 12.24 equity toaverageassets

End of periodtangiblecommon equity 11.01 10.73 11.04 11.01 11.04 to tangibleassets^(1)

Risk-basedcapital - 12.92 12.76 12.26 12.92 12.26 Common EquityTier 1^(3)

Risk-basedcapital - 14.48 14.32 13.33 14.48 13.33 Tier 1^(3)

Risk-basedcapital - 15.74 15.58 14.59 15.74 14.59 Total^(3)

Net interest 3.19 3.23 3.67 3.32 3.72 margin

Net interestmargin - FTE^ 3.20 3.24 3.68 3.33 3.74 (1)

Efficiencyratio: 56.74 56.57 56.78 57.28 57.21 expense torevenue

Efficiencyratio:expense to 54.18 53.63 53.44 54.53 53.57 revenue -adjusted^(1)

Net chargeoffs(recoveries) 0.26 (0.01) (0.02) 0.13 0.12 to averageloans andleases

Loan andlease lossreserve to 2.43 2.31 2.14 2.43 2.14 loans andleases

Nonperformingassets to 1.33 1.20 0.34 1.33 0.34 loans andleases



September 30, June 30, March 31, December 31, September 30,

2020 2020 2020 2019 2019

END OF PERIOD BALANCES

Assets $ 7,290,949 $ 7,365,146 $ 6,735,118 $ 6,622,776 $ 6,691,070

Loans and 5,627,036 5,692,322 5,129,514 5,085,527 5,099,546 leases

Deposits 5,896,855 5,993,456 5,275,911 5,357,326 5,391,679

Reserve forloan and 136,817 131,283 120,798 111,254 108,941 lease losses

Goodwill andintangible 83,953 83,959 83,964 83,971 83,978 assets

Commonshareholders' 877,754 864,995 850,897 828,277 813,167 equity

Total equity 915,015 901,653 877,302 848,636 833,042

ASSET QUALITY

Loans andleases past $ 81 $ 256 $ 191 $ 309 $ 311 due 90 daysor more

Nonaccrualloans and 70,595 62,800 26,301 9,789 10,188 leases

Other real 303 303 362 522 629 estate

Repossessions 4,639 6,132 9,020 8,623 6,610

Equipmentowned under 136 57 - - - operatingleases

Totalnonperforming $ 75,754 $ 69,548 $ 35,874 $ 19,243 $ 17,738 assets

(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.

1st SOURCE CORPORATION

CONSOLIDATEDSTATEMENTS OF FINANCIAL CONDITION

(Unaudited -Dollars in thousands)

September 30, June 30, December 31, September 30,

2020 2020 2019 2019

ASSETS

Cash and due from $ 62,575 $ 67,591 $ 67,215 $ 94,160 banks

Federal funds soldand interest 91,641 112,645 16,150 33,325 bearing depositswith other banks

Investmentsecurities 1,083,427 1,055,797 1,040,583 1,032,185 available-for-sale

Other investments 27,674 30,619 28,414 28,404

Mortgages held for 20,990 36,508 20,277 28,654 sale

Loans and leases,net of unearned discount:

Commercial and 1,681,519 1,710,712 1,132,791 1,175,936 agricultural

Auto and light 527,582 563,606 588,807 612,921 truck

Medium and heavy 271,248 284,432 294,824 289,925 duty truck

Aircraft 806,162 782,160 784,040 805,568

Construction 723,596 739,027 705,451 685,696 equipment

Commercial real 961,550 942,971 908,177 858,402 estate

Residential realestate and home 519,881 531,972 532,003 531,630 equity

Consumer 135,498 137,442 139,434 139,468

Total loans and 5,627,036 5,692,322 5,085,527 5,099,546 leases

Reserve for loan (136,817 ) (131,283 ) (111,254 ) (108,941 ) and lease losses

Net loans and 5,490,219 5,561,039 4,974,273 4,990,605 leases

Equipment ownedunder operating 79,703 86,183 111,684 119,171 leases, net

Net premises and 49,933 51,486 52,219 51,680 equipment

Goodwill and 83,953 83,959 83,971 83,978 intangible assets

Accrued income and 300,834 279,319 227,990 228,908 other assets

Total assets $ 7,290,949 $ 7,365,146 $ 6,622,776 $ 6,691,070



LIABILITIES

Deposits:

Noninterest-bearing $ 1,720,768 $ 1,684,102 $ 1,216,834 $ 1,246,063 demand

Interest-bearing deposits:

Interest-bearing 1,885,771 1,866,415 1,677,200 1,605,602 demand

Savings 992,320 942,891 814,794 820,409

Time 1,297,996 1,500,048 1,648,498 1,719,605

Totalinterest-bearing 4,176,087 4,309,354 4,140,492 4,145,616 deposits

Total deposits 5,896,855 5,993,456 5,357,326 5,391,679

Short-term borrowings:

Federal fundspurchased andsecurities sold 158,834 169,483 120,459 139,417 under agreements torepurchase

Other short-term 6,740 7,536 25,434 57,734 borrowings

Total short-term 165,574 177,019 145,893 197,151 borrowings

Long-term debt andmandatorily 81,659 81,760 71,639 71,520 redeemablesecurities

Subordinated notes 58,764 58,764 58,764 58,764

Accrued expensesand other 173,082 152,494 140,518 138,914 liabilities

Total liabilities 6,375,934 6,463,493 5,774,140 5,858,028



SHAREHOLDERS' EQUITY

Preferred stock; nopar valueAuthorized - - - - 10,000,000 shares;none issued oroutstanding

Common stock; nopar value

Authorized40,000,000 shares;issued 28,205,674 436,538 436,538 436,538 436,538 shares at September30, 2020,June 30, 2020,December 31, 2019,and September 30,2019, respectively

Retained earnings 497,419 484,491 463,269 448,715

Cost of commonstock in treasury(2,652,030,2,655,319,2,696,200, and2,696,918 (75,861 ) (75,922 ) (76,702 ) (76,716 ) shares at September30, 2020, June 30,2020, December 31,2019, andSeptember 30, 2019,respectively)

Accumulated othercomprehensive 19,658 19,888 5,172 4,630 income

Total shareholders' 877,754 864,995 828,277 813,167 equity

Noncontrolling 37,261 36,658 20,359 19,875 interests

Total equity 915,015 901,653 848,636 833,042

Total liabilities $ 7,290,949 $ 7,365,146 $ 6,622,776 $ 6,691,070 and equity

1st SOURCE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited - Dollars in thousands, except per share amounts)

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2020

2020

2019

2020

2019

Interest income:

Loans and leases

$

58,318

$

58,815

$

66,807

$

178,659

$

195,089

Investment securities, taxable

4,103

4,487

5,056

14,140

15,757

Investment securities, tax-exempt

207

232

316

703

1,054

Other

289

316

497

951

1,434

Total interest income

62,917

63,850

72,676

194,453

213,334

Interest expense:

Deposits

6,532

8,265

13,524

25,648

37,972

Short-term borrowings

83

90

293

427

1,764

Subordinated notes

824

835

914

2,543

2,770

Long-term debt and mandatorily redeemable securities

610

659

750

2,122

2,258

Total interest expense

8,049

9,849

15,481

30,740

44,764

Net interest income

54,868

54,001

57,195

163,713

168,570

Provision for loan and lease losses

9,303

10,375

3,717

31,031

12,882

Net interest income after provision for loan and lease losses

45,565

43,626

53,478

132,682

155,688

Noninterest income:

Trust and wealth advisory

5,153

5,589

4,982

15,590

15,423

Service charges on deposit accounts

2,336

1,910

2,892

6,851

8,175

Debit card

4,019

3,601

3,727

10,993

10,616

Mortgage banking

6,474

3,315

1,362

12,125

3,297

Insurance commissions

1,825

1,695

1,603

5,401

5,295

Equipment rental

5,593

5,990

7,578

18,213

23,369

(Losses) gains on investment securities available-for-sale

-

(1

)

-

279

-

Other

2,641

3,142

3,621

8,452

9,378

Total noninterest income

28,041

25,241

25,765

77,904

75,553

Noninterest expense:

Salaries and employee benefits

25,609

23,999

24,434

74,009

71,716

Net occupancy

2,512

2,504

2,635

7,737

7,888

Furniture and equipment

6,247

6,258

6,027

18,912

18,340

Depreciation - leased equipment

4,694

5,142

6,198

15,263

19,122

Professional fees

2,041

1,258

1,603

4,741

4,907

Supplies and communication

1,305

1,390

1,643

4,329

4,744

FDIC and other insurance

868

599

260

1,755

1,513

Business development and marketing

923

1,121

1,844

3,403

4,471

Loan and lease collection and repossession

1,054

838

697

2,655

2,288

Other

1,790

1,716

1,765

5,599

4,674

Total noninterest expense

47,043

44,825

47,106

138,403

139,663

Income before income taxes

26,563

24,042

32,137

72,183

91,578

Income tax expense

6,509

5,516

7,689

17,185

21,517

Net income

20,054

18,526

24,448

54,998

70,061

Net loss (income) attributable to noncontrolling interests

4

(24

)

(10

)

(25

)

(42

)

Net income available to common shareholders

$

20,058

$

18,502

$

24,438

$

54,973

$

70,019

Per common share:

Basic net income per common share

$

0.78

$

0.72

$

0.95

$

2.14

$

2.72

Diluted net income per common share

$

0.78

$

0.72

$

0.95

$

2.14

$

2.72

Cash dividends

$

0.28

$

0.28

$

0.27

$

0.85

$

0.81

Basic weighted average common shares outstanding

25,552,374

25,540,855

25,520,035

25,538,910

25,630,771

Diluted weighted average common shares outstanding

25,552,374

25,540,855

25,520,035

25,538,910

25,630,771

1st SOURCE CORPORATION

CONSOLIDATEDSTATEMENTS OF INCOME

(Unaudited - Dollars inthousands, except per share amounts)

Three Months Ended Nine Months Ended

September June 30, September 30, September 30, September 30, 30,

2020 2020 2019 2020 2019

Interest income:

Loans and leases $ 58,318 $ 58,815 $ 66,807 $ 178,659 $ 195,089

Investmentsecurities, 4,103 4,487 5,056 14,140 15,757 taxable

Investmentsecurities, 207 232 316 703 1,054 tax-exempt

Other 289 316 497 951 1,434

Total interest 62,917 63,850 72,676 194,453 213,334 income

Interest expense:

Deposits 6,532 8,265 13,524 25,648 37,972

Short-term 83 90 293 427 1,764 borrowings

Subordinated notes 824 835 914 2,543 2,770

Long-term debt andmandatorily 610 659 750 2,122 2,258 redeemablesecurities

Total interest 8,049 9,849 15,481 30,740 44,764 expense

Net interest 54,868 54,001 57,195 163,713 168,570 income

Provision for loan 9,303 10,375 3,717 31,031 12,882 and lease losses

Net interestincome after 45,565 43,626 53,478 132,682 155,688 provision for loanand lease losses

Noninterest income:

Trust and wealth 5,153 5,589 4,982 15,590 15,423 advisory

Service charges on 2,336 1,910 2,892 6,851 8,175 deposit accounts

Debit card 4,019 3,601 3,727 10,993 10,616

Mortgage banking 6,474 3,315 1,362 12,125 3,297

Insurance 1,825 1,695 1,603 5,401 5,295 commissions

Equipment rental 5,593 5,990 7,578 18,213 23,369

(Losses) gains oninvestment - (1 ) - 279 - securitiesavailable-for-sale

Other 2,641 3,142 3,621 8,452 9,378

Total noninterest 28,041 25,241 25,765 77,904 75,553 income

Noninterest expense:

Salaries and 25,609 23,999 24,434 74,009 71,716 employee benefits

Net occupancy 2,512 2,504 2,635 7,737 7,888

Furniture and 6,247 6,258 6,027 18,912 18,340 equipment

Depreciation - 4,694 5,142 6,198 15,263 19,122 leased equipment

Professional fees 2,041 1,258 1,603 4,741 4,907

Supplies and 1,305 1,390 1,643 4,329 4,744 communication

FDIC and other 868 599 260 1,755 1,513 insurance

Businessdevelopment and 923 1,121 1,844 3,403 4,471 marketing

Loan and leasecollection and 1,054 838 697 2,655 2,288 repossession

Other 1,790 1,716 1,765 5,599 4,674

Total noninterest 47,043 44,825 47,106 138,403 139,663 expense

Income before 26,563 24,042 32,137 72,183 91,578 income taxes

Income tax expense 6,509 5,516 7,689 17,185 21,517

Net income 20,054 18,526 24,448 54,998 70,061

Net loss (income)attributable to 4 (24 ) (10 ) (25 ) (42 ) noncontrollinginterests

Net incomeavailable to $ 20,058 $ 18,502 $ 24,438 $ 54,973 $ 70,019 commonshareholders

Per common share:

Basic net income $ 0.78 $ 0.72 $ 0.95 $ 2.14 $ 2.72 per common share

Diluted net income $ 0.78 $ 0.72 $ 0.95 $ 2.14 $ 2.72 per common share

Cash dividends $ 0.28 $ 0.28 $ 0.27 $ 0.85 $ 0.81

Basic weightedaverage common 25,552,374 25,540,855 25,520,035 25,538,910 25,630,771 shares outstanding

Diluted weightedaverage common 25,552,374 25,540,855 25,520,035 25,538,910 25,630,771 shares outstanding

1st SOURCE CORPORATION

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY

INTEREST RATES AND INTEREST DIFFERENTIAL

(Unaudited - Dollars in thousands)

Three Months Ended

September 30, 2020

June 30, 2020

September 30, 2019

AverageBalance

Interest Income/Expense

Yield/Rate

AverageBalance

Interest Income/Expense

Yield/Rate

AverageBalance

Interest Income/Expense

Yield/Rate

ASSETS

Investment securities available-for-sale:

Taxable

$

1,012,703

$

4,103

1.61

%

$

995,776

$

4,487

1.81

%

$

959,104

$

5,056

2.09

%

Tax exempt(1)

45,077

257

2.26

%

49,534

286

2.32

%

65,146

388

2.36

%

Mortgages held for sale

26,327

186

2.81

%

27,016

198

2.95

%

19,888

190

3.79

%

Loans and leases, net of unearned discount(1)

5,669,615

58,210

4.08

%

5,565,160

58,700

4.24

%

5,091,358

66,712

5.20

%

Other investments

87,998

289

1.31

%

89,525

316

1.42

%

54,768

497

3.60

%

Total earning assets(1)

6,841,720

63,045

3.67

%

6,727,011

63,987

3.83

%

6,190,264

72,843

4.67

%

Cash and due from banks

72,474

73,523

66,046

Reserve for loan and lease losses

(134,824

)

(124,186

)

(106,559

)

Other assets

502,172

509,058

471,129

Total assets

$

7,281,542

$

7,185,406

$

6,620,880

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing deposits

$

4,225,299

$

6,532

0.62

%

$

4,248,478

$

8,265

0.78

%

$

4,174,746

$

13,524

1.29

%

Short-term borrowings

187,912

83

0.18

%

191,411

90

0.19

%

188,562

293

0.62

%

Subordinated notes

58,764

824

5.58

%

58,764

835

5.71

%

58,764

914

6.17

%

Long-term debt and mandatorily redeemable securities

81,528

610

2.98

%

81,766

659

3.24

%

71,304

750

4.17

%

Total interest-bearing liabilities

4,553,503

8,049

0.70

%

4,580,419

9,849

0.86

%

4,493,376

15,481

1.37

%

Noninterest-bearing deposits

1,664,135

1,562,100

1,188,645

Other liabilities

149,978

151,281

119,125

Shareholders' equity

876,992

862,209

809,279

Noncontrolling interests

36,934

29,397

10,455

Total liabilities and equity

$

7,281,542

$

7,185,406

$

6,620,880

Less: Fully tax-equivalent adjustments

(128

)

(137

)

(167

)

Net interest income/margin (GAAP-derived)(1)

$

54,868

3.19

%

$

54,001

3.23

%

$

57,195

3.67

%

Fully tax-equivalent adjustments

128

137

167

Net interest income/margin - FTE(1)

$

54,996

3.20

%

$

54,138

3.24

%

$

57,362

3.68

%

(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)

Three Months Ended

September 30, 2020 June 30, 2020 September 30, 2019

Average Interest Yield/ Average Interest Yield/ Average Interest Yield/ Balance Income/ Rate Balance Income/ Rate Balance Income/ Rate Expense Expense Expense

ASSETS

Investmentsecurities available-for-sale:

Taxable $ 1,012,703 $ 4,103 1.61 % $ 995,776 $ 4,487 1.81 % $ 959,104 $ 5,056 2.09 %

Tax exempt^(1) 45,077 257 2.26 % 49,534 286 2.32 % 65,146 388 2.36 %

Mortgages held for 26,327 186 2.81 % 27,016 198 2.95 % 19,888 190 3.79 %sale

Loans and leases,net of unearned 5,669,615 58,210 4.08 % 5,565,160 58,700 4.24 % 5,091,358 66,712 5.20 %discount^(1)

Other investments 87,998 289 1.31 % 89,525 316 1.42 % 54,768 497 3.60 %

Total earning 6,841,720 63,045 3.67 % 6,727,011 63,987 3.83 % 6,190,264 72,843 4.67 %assets^(1)

Cash and due from 72,474 73,523 66,046 banks

Reserve for loan (134,824 ) (124,186 ) (106,559 ) and lease losses

Other assets 502,172 509,058 471,129

Total assets $ 7,281,542 $ 7,185,406 $ 6,620,880



LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing $ 4,225,299 $ 6,532 0.62 % $ 4,248,478 $ 8,265 0.78 % $ 4,174,746 $ 13,524 1.29 %deposits

Short-term 187,912 83 0.18 % 191,411 90 0.19 % 188,562 293 0.62 %borrowings

Subordinated notes 58,764 824 5.58 % 58,764 835 5.71 % 58,764 914 6.17 %

Long-term debt andmandatorily 81,528 610 2.98 % 81,766 659 3.24 % 71,304 750 4.17 %redeemablesecurities

Totalinterest-bearing 4,553,503 8,049 0.70 % 4,580,419 9,849 0.86 % 4,493,376 15,481 1.37 %liabilities

Noninterest-bearing 1,664,135 1,562,100 1,188,645 deposits

Other liabilities 149,978 151,281 119,125

Shareholders' 876,992 862,209 809,279 equity

Noncontrolling 36,934 29,397 10,455 interests

Total liabilities $ 7,281,542 $ 7,185,406 $ 6,620,880 and equity

Less: Fullytax-equivalent (128 ) (137 ) (167 ) adjustments

Net interest income/margin $ 54,868 3.19 % $ 54,001 3.23 % $ 57,195 3.67 %(GAAP-derived)^(1)

Fullytax-equivalent 128 137 167 adjustments

Net interest income $ 54,996 3.20 % $ 54,138 3.24 % $ 57,362 3.68 %/margin - FTE^(1)

(1) See "Reconciliation of Non-GAAP Financial Measures" for more information onthis performance measure/ratio.

1st SOURCE CORPORATION

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY

INTEREST RATES AND INTEREST DIFFERENTIAL

(Unaudited - Dollars in thousands)

Nine Months Ended

September 30, 2020

September 30, 2019

AverageBalance

Interest Income/Expense

Yield/Rate

AverageBalance

Interest Income/Expense

Yield/Rate

ASSETS

Investment securities available-for-sale:

Taxable

$

994,035

$

14,140

1.90

%

$

932,779

$

15,757

2.26

%

Tax exempt(1)

50,590

868

2.29

%

71,684

1,297

2.42

%

Mortgages held for sale

21,563

480

2.97

%

13,616

418

4.10

%

Loans and leases, net of unearned discount(1)

5,445,213

178,430

4.38

%

4,984,498

194,954

5.23

%

Other investments

73,050

951

1.74

%

50,109

1,434

3.83

%

Total earning assets(1)

6,584,451

194,869

3.95

%

6,052,686

213,860

4.72

%

Cash and due from banks

70,475

65,801

Reserve for loan and lease losses

(123,790)

(103,699)

Other assets

495,820

452,759

Total assets

$

7,026,956

$

6,467,547

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing deposits

4,183,502

25,648

0.82

%

4,083,140

37,972

1.24

%

Short-term borrowings

193,934

427

0.29

%

213,551

1,764

1.10

%

Subordinated notes

58,764

2,543

5.78

%

58,764

2,770

6.30

%

Long-term debt and mandatorily redeemable securities

80,427

2,122

3.52

%

71,034

2,258

4.25

%

Total interest-bearing liabilities

4,516,627

30,740

0.91

%

4,426,489

44,764

1.35

%

Noninterest-bearing deposits

1,474,807

1,147,195

Other liabilities

144,393

97,096

Shareholders' equity

861,366

791,438

Noncontrolling interests

29,763

5,329

Total liabilities and equity

$

7,026,956

$

6,467,547

Less: Fully tax-equivalent adjustments

(416)

(526)

Net interest income/margin (GAAP-derived)(1)

$

163,713

3.32

%

$

168,570

3.72

%

Fully tax-equivalent adjustments

416

526

Net interest income/margin - FTE(1)

$

164,129

3.33

%

$

169,096

3.74

%

(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)

Nine Months Ended

September 30, 2020 September 30, 2019

Average Interest Yield/ Average Interest Yield/ Balance Income/ Rate Balance Income/ Rate Expense Expense

ASSETS

Investmentsecurities available-for-sale:

Taxable $ 994,035 $ 14,140 1.90 % $ 932,779 $ 15,757 2.26 %

Tax exempt^(1) 50,590 868 2.29 % 71,684 1,297 2.42 %

Mortgages held for 21,563 480 2.97 % 13,616 418 4.10 %sale

Loans and leases,net of unearned 5,445,213 178,430 4.38 % 4,984,498 194,954 5.23 %discount^(1)

Other investments 73,050 951 1.74 % 50,109 1,434 3.83 %

Total earning 6,584,451 194,869 3.95 % 6,052,686 213,860 4.72 %assets^(1)

Cash and due from 70,475 65,801 banks

Reserve for loan (123,790) (103,699) and lease losses

Other assets 495,820 452,759

Total assets $ 7,026,956 $ 6,467,547



LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing 4,183,502 25,648 0.82 % 4,083,140 37,972 1.24 %deposits

Short-term 193,934 427 0.29 % 213,551 1,764 1.10 %borrowings

Subordinated notes 58,764 2,543 5.78 % 58,764 2,770 6.30 %

Long-term debt andmandatorily 80,427 2,122 3.52 % 71,034 2,258 4.25 %redeemablesecurities

Totalinterest-bearing 4,516,627 30,740 0.91 % 4,426,489 44,764 1.35 %liabilities

Noninterest-bearing 1,474,807 1,147,195 deposits

Other liabilities 144,393 97,096

Shareholders' 861,366 791,438 equity

Noncontrolling 29,763 5,329 interests

Total liabilities $ 7,026,956 $ 6,467,547 and equity

Less: Fullytax-equivalent (416) (526) adjustments

Net interest income/margin $ 163,713 3.32 % $ 168,570 3.72 %(GAAP-derived)^(1)

Fullytax-equivalent 416 526 adjustments

Net interest income $ 164,129 3.33 % $ 169,096 3.74 %/margin - FTE^(1)

(1) See "Reconciliation of Non-GAAP Financial Measures" for more information onthis performance measure/ratio.

1st SOURCE CORPORATION

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Unaudited - Dollars in thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2020

2020

2019

2020

2019

Calculation of Net Interest Margin

(A)

Interest income (GAAP)

$

62,917

$

63,850

$

72,676

$

194,453

$

213,334

Fully tax-equivalent adjustments:

(B)

- Loans and leases

78

83

95

251

283

(C)

- Tax exempt investment securities

50

54

72

165

243

(D)

Interest income - FTE (A+B+C)

63,045

63,987

72,843

194,869

213,860

(E)

Interest expense (GAAP)

8,049

9,849

15,481

30,740

44,764

(F)

Net interest income (GAAP) (A-E)

54,868

54,001

57,195

163,713

168,570

(G)

Net interest income - FTE (D-E)

54,996

54,138

57,362

164,129

169,096

(H)

Annualization factor

3.978

4.022

3.967

1.336

1.337

(I)

Total earning assets

$

6,841,720

$

6,727,011

$

6,190,264

$

6,584,451

$

6,052,686

Net interest margin (GAAP-derived) (F*H)/I

3.19

%

3.23

%

3.67

%

3.32

%

3.72

%

Net interest margin - FTE (G*H)/I

3.20

%

3.24

%

3.68

%

3.33

%

3.74

%

Calculation of Efficiency Ratio

(F)

Net interest income (GAAP)

$

54,868

$

54,001

$

57,195

$

163,713

$

168,570

(G)

Net interest income - FTE

54,996

54,138

57,362

164,129

169,096

(J)

Plus: noninterest income (GAAP)

28,041

25,241

25,765

77,904

75,553

(K)

Less: gains/losses on investment securities and partnership investments

(177)

(248)

(374)

(938)

(521)

(L)

Less: depreciation - leased equipment

(4,694)

(5,142)

(6,198)

(15,263)

(19,122)

(M)

Total net revenue (GAAP) (F+J)

82,909

79,242

82,960

241,617

244,123

(N)

Total net revenue - adjusted (G+J-K-L)

78,166

73,989

76,555

225,832

225,006

(O)

Noninterest expense (GAAP)

47,043

44,825

47,106

138,403

139,663

(L)

Less:depreciation - leased equipment

(4,694)

(5,142)

(6,198)

(15,263)

(19,122)

(P)

Noninterest expense - adjusted (O-L)

42,349

39,683

40,908

123,140

120,541

Efficiency ratio (GAAP-derived) (O/M)

56.74

%

56.57

%

56.78

%

57.28

%

57.21

%

Efficiency ratio - adjusted (P/N)

54.18

%

53.63

%

53.44

%

54.53

%

53.57

%

End of Period

September 30,

June 30,

September 30,

2020

2020

2019

Calculation of Tangible Common Equity-to-Tangible Assets Ratio

(Q)

Total common shareholders' equity (GAAP)

$

877,754

$

864,995

$

813,167

(R)

Less: goodwill and intangible assets

(83,953)

(83,959)

(83,978)

(S)

Total tangible common shareholders' equity (Q-R)

$

793,801

$

781,036

$

729,189

(T)

Total assets (GAAP)

7,290,949

7,365,146

6,691,070

(R)

Less: goodwill and intangible assets

(83,953)

(83,959)

(83,978)

(U)

Total tangible assets (T-R)

$

7,206,996

$

7,281,187

$

6,607,092

Common equity-to-assets ratio (GAAP-derived) (Q/T)

12.04

%

11.74

%

12.15

%

Tangible common equity-to-tangible assets ratio (S/U)

11.01

%

10.73

%

11.04

%

Calculation of Tangible Book Value per Common Share

(Q)

Total common shareholders' equity (GAAP)

$

877,754

$

864,995

$

813,167

(V)

Actual common shares outstanding

25,553,644

25,550,355

25,508,756

Book value per common share (GAAP-derived) (Q/V)*1000

$

34.35

$

33.85

$

31.88

Tangible common book value per share (S/V)*1000

$

31.06

$

30.57

$

28.59

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

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