1st Source (US:SRCE)2025-07-24 20:07PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for 1st Source Corporation as of June 30, 2025, and for the three and six-month periods then ended, including detailed notes on accounting policies and financial data Consolidated Statements of Financial Condition As of June 30, 2025, total assets grew to $9.09 billion from $8.93 billion at year-end 2024, driven by a $235.22 million increase in net loans and leases, while total liabilities increased to $7.83 billion and total equity rose to $1.26 billion Consolidated Statements of Financial Condition (in thousands) | | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $9,087,162 | $8,931,938 | | Net loans and leases | $6,934,485 | $6,699,268 | | Investment securities available-for-sale | $1,456,157 | $1,536,299 | | Total Liabilities | $7,829,738 | $7,750,432 | | Total deposits | $7,442,669 | $7,230,035 | | Short-term borrowings | $110,058 | $249,198 | | Total Equity | $1,257,424 | $1,181,506 | Consolidated Statements of Income For the six months ended June 30, 2025, net income available to common shareholders was $74.84 million, an increase from $66.25 million in the prior year period, resulting in a diluted EPS of $3.02 driven by a significant increase in net interest income Key Income Statement Data (in thousands, except per share amounts) | | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net interest income | $166,130 | $145,965 | | Provision for credit losses | $10,955 | $7,163 | | Noninterest income | $46,160 | $45,377 | | Noninterest expense | $105,506 | $98,565 | | Net income available to common shareholders | $74,839 | $66,248 | | Diluted net income per common share | $3.02 | $2.68 | Consolidated Statements of Comprehensive Income (Loss) Comprehensive income available to common shareholders for the six months ended June 30, 2025, was $105.31 million, a significant increase from $67.01 million in the same period of 2024, primarily due to a $30.47 million positive change in other comprehensive income Comprehensive Income (Loss) Summary (in thousands) | | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net income | $74,849 | $66,267 | | Other comprehensive income (loss), net of tax | $30,471 | $758 | | Comprehensive income (loss) available to common shareholders | $105,310 | $67,006 | Consolidated Statements of Shareholders' Equity Total shareholders' equity increased from $1.18 billion at the start of 2025 to $1.26 billion at June 30, 2025, driven by $74.84 million in net income and a $30.47 million positive change in accumulated other comprehensive income, partially offset by $18.22 million in common stock dividends - Key drivers for the change in shareholders' equity during the first six months of 2025 were net income of $74.8 million and other comprehensive income of $30.5 million, offset by common stock dividends of $18.2 million and treasury stock acquisitions of $3.3 million13 Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash provided by operating activities was $116.6 million, net cash used in investing activities was $140.3 million, and net cash provided by financing activities was $47.9 million, resulting in a net increase in cash and cash equivalents of $24.3 million Net Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $116,645 | $91,946 | | Net cash used in investing activities | ($140,269) | ($55,541) | | Net cash provided by financing activities | $47,906 | $103,170 | | Net change in cash and cash equivalents | $24,282 | $139,575 | Notes to the Consolidated Financial Statements This section provides detailed disclosures supporting the consolidated financial statements, covering accounting policies, investment securities, loan and lease portfolio composition and credit quality, allowance for credit losses, derivative instruments, fair value measurements, and segment information - The company's loan and lease portfolio is diverse, with significant segments in Commercial Real Estate ($1.25 billion), Construction Equipment ($1.21 billion), and Aircraft ($1.13 billion) as of June 30, 20259 - The allowance for loan and lease losses increased to $163.5 million at June 30, 2025, from $155.5 million at year-end 2024, reflecting loan growth and increased historical loss rates in the auto and light truck portfolio70 - The company has one reportable operating segment: commercial banking, which provides a broad array of financial products and services, with performance evaluated on a company-wide basis158159 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations, comparing Q2 2025 to previous periods, highlighting asset and loan growth, increased net income driven by an expanded net interest margin, and a rise in nonperforming assets primarily from the auto and light truck segment - Total assets increased by $155.22 million (1.74%) to $9.09 billion since year-end 2024, primarily due to a $243.16 million (3.55%) growth in total loans and leases167168 - Net income available to common shareholders for the six months ended June 30, 2025, was $74.84 million ($3.02 per diluted share), up from $66.25 million ($2.68 per diluted share) in the prior-year period188 - The net interest margin on a fully taxable-equivalent basis expanded to 4.01% for Q2 2025, up from 3.59% in Q2 2024, driven by higher asset yields and lower costs on interest-bearing liabilities194 - Nonperforming assets increased significantly to $75.54 million (1.06% of loans) at June 30, 2025, up from $31.33 million at year-end 2024, mainly due to higher nonaccrual loans in the auto and light truck portfolio218219 Financial Condition As of June 30, 2025, total assets reached $9.09 billion, a 1.74% increase from year-end 2024, primarily fueled by a $243.16 million rise in loans and leases, while total deposits grew by $212.63 million and short-term borrowings decreased by $139.14 million Balance Sheet Changes (vs. Dec 31, 2024) | Account | Change (in millions) | % Change | | :--- | :--- | :--- | | Total Assets | $155.22 | 1.74% | | Total Loans and Leases | $243.16 | 3.55% | | Investment Securities | ($80.14) | -5.22% | | Total Deposits | $212.63 | 2.94% | | Short-term Borrowings | ($139.14) | -55.84% | - The loan portfolio growth was led by the renewable energy, commercial and agricultural, and commercial real estate segments168 Capital The company's capital position remains strong, with all regulatory capital ratios significantly exceeding the 'well-capitalized' thresholds, and total shareholders' equity rising to $1.26 billion at June 30, 2025, driven by net income and a decrease in accumulated other comprehensive loss Capital Ratios as of June 30, 2025 | Ratio | 1st Source Corporation | To Be Well Capitalized | | :--- | :--- | :--- | | Total Capital Ratio | 17.30% | 10.00% | | Tier 1 Capital Ratio | 16.04% | 8.00% | | Common Equity Tier 1 Ratio | 14.60% | 6.50% | | Tier 1 Leverage Ratio | 14.39% | 5.00% | - Book value per common share increased to $48.86 from $45.31 at December 31, 2024175 - A cash dividend of $0.38 per common share was declared and paid during Q2 2025176 Liquidity and Interest Rate Sensitivity The company maintains a strong liquidity position with total available liquidity of $3.44 billion as of June 30, 2025, representing approximately 50% of total deposits (net of brokered and listing services CDs), with key sources including unencumbered securities and external borrowing capacity Sources of Liquidity as of June 30, 2025 (in thousands) | Source | Available | | :--- | :--- | | Unencumbered securities | $1,221,043 | | FHLB advances | $561,709 | | FRB borrowings | $424,728 | | Fed funds purchased | $410,000 | | Brokered & Listing services deposits | $818,219 | | Total liquidity | $3,435,699 | Results of Operations For the six months ended June 30, 2025, net income rose to $74.84 million from $66.25 million year-over-year, driven by a 13.8% rise in taxable-equivalent net interest income to $166.43 million as the net interest margin expanded by 38 basis points to 3.95%, partially offset by a higher provision for credit losses and increased noninterest expense - Taxable-equivalent net interest income for H1 2025 increased 13.79% YoY to $166.43 million201 - The provision for credit losses for H1 2025 was $10.96 million, compared to $7.16 million in H1 2024, driven by loan growth and increased risk in the auto and light truck portfolio210 - Total noninterest income for H1 2025 increased slightly by 1.73% to $46.16 million, while total noninterest expense grew 7.04% to $105.51 million225236 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes in the market risks it faces since December 31, 2024, referring to its 2024 Annual Report on Form 10-K for detailed information - There have been no material changes in market risks faced by 1st Source since December 31, 2024246 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the second quarter - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective248 - No material changes to internal control over financial reporting were identified during the second fiscal quarter of 2025249 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company and its subsidiaries are involved in various legal proceedings incidental to their business, none of which are expected by management to have a material adverse effect on the company's financial position or results of operations - Management does not expect the outcome of any current legal proceedings to have a material adverse effect on the company's consolidated financial position or results of operations251 Item 1A. Risk Factors There have been no material changes in the risk factors faced by the company since December 31, 2024, with a full discussion available in its 2024 Annual Report on Form 10-K - No material changes in risk factors have occurred since the 2024 year-end report252 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's repurchases of its own equity securities during the quarter, with 47,428 shares repurchased in Q2 2025 under a plan authorized in October 2023, leaving 942,021 shares available Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2025 | 32,528 | $59.85 | | May 2025 | — | — | | June 2025 | 14,900 | $59.97 | - The stock repurchase plan, authorized on October 19, 2023, allows for the repurchase of up to 1,000,000 shares, and as of June 30, 2025, 942,021 shares may still be purchased under this plan255 Item 5. Other Information On July 23, 2025, the Executive Compensation and Human Resources Committee amended two executive compensation plans, updating the 1982 Restricted Stock Award Plan with clawback language and book value stock issuance, and changing the 1982 Executive Incentive Plan's Corporate Performance Factor calculation to be based on return on assets relative to a peer group - The 1982 Restricted Stock Award Plan was amended to include clawback provisions and allow for book value stock issuance258 - The 1982 Executive Incentive Plan was amended to change the calculation of the Corporate Performance Factor for annual awards, now based on ROA performance against a peer group259 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q report, including amended executive compensation plans, CEO and CFO certifications as required by SEC rules, and XBRL data files - Exhibits filed include amended versions of the 1982 Executive Incentive Plan and the 1982 Restricted Stock Award Plan260 - Certifications from the Chief Executive Officer and Chief Financial Officer are included as exhibits 31.1, 31.2, 32.1, and 32.2260