1st Source (SRCE) - 2025 Q2 - Quarterly Results

Quarterly Highlights and Management Commentary The company reported Q2 2025 financial results, showcasing net income, loan growth, and margin expansion, alongside management's insights on credit quality and corporate achievements Second Quarter 2025 Performance Overview 1st Source Corporation reported Q2 2025 net income of $37.32 million, a slight decrease of 0.54% from the previous quarter but a 1.43% increase year-over-year. The solid growth in net interest income was partially offset by a higher provision for credit losses and realized losses from strategic investment portfolio trades. The Board approved a cash dividend of $0.38 per share, a 5.56% increase from the prior year Q2 2025 Key Financial Results | Metric | Q2 2025 | Q1 2025 | Q2 2024 | Change (YoY) | | :--- | :--- | :--- | :--- | :--- | | Net Income | $37.32 million | $37.52 million | $36.79 million | +1.43% | | Diluted EPS | $1.51 | $1.52 | $1.49 | +1.34% | | Cash Dividend per Share | $0.38 | $0.36 | $0.34 | +5.56% | - Performance was driven by strong net interest income, which was offset by a $7.69 million provision for credit losses and $1.00 million in pre-tax losses from the sale of available-for-sale securities[2][5] - Average loans and leases grew by $169.51 million (2.49%) from the previous quarter and $362.25 million (5.48%) from the second quarter of 2024[5] - Tax-equivalent net interest margin expanded to 4.01%, an increase of 11 basis points from the previous quarter and 42 basis points from the prior year's second quarter[5] Management Commentary and Corporate Achievements The CEO highlighted the sixth consecutive quarter of margin expansion, driven by higher rates and loan growth, despite economic uncertainty. Credit quality faced challenges with elevated net charge-offs from a single large account. The company was recognized for its long-term performance and community service, and expanded its physical presence by opening a new banking center in Carmel, Indiana - The CEO noted a sixth consecutive quarter of margin expansion, attributing it to higher rates on investments, increased loan balances, and lower deposit costs[4] - Credit quality was challenged by elevated net charge-offs, primarily from one Auto and Light Truck account, leading to an increase in nonperforming assets to 1.06% of loans and leases[6] - For the seventh consecutive year, 1st Source was named to the Bank Honor Roll by Keefe, Bruyette & Woods, Inc., placing it among the top 5% of eligible U.S. banks for long-term performance[8] - The company received the Indiana Banker's Association's (IBA) Commitment to Community award, recognizing over 14,500 volunteer hours and more than 200 financial education classes in 2024[9] - A new banking center was opened in Carmel, Indiana, featuring a "side-by-side" banking model to enhance client interaction and transparency[10] Detailed Financial Results (Q2 2025) This section provides an in-depth analysis of the company's Q2 2025 financial performance, covering loans, deposits, net interest income, expenses, credit quality, and capital Loans and Leases Average loans and leases reached $6.97 billion in Q2 2025, showing a 2.49% increase from the previous quarter and a 5.48% rise year-over-year. Growth was primarily concentrated in the Commercial and Agricultural, Renewable Energy, and Construction Equipment portfolios Average Loans and Leases Growth | Period | Average Balance | Change (QoQ) | Change (YoY) | | :--- | :--- | :--- | :--- | | Q2 2025 | $6.97 billion | +2.49% | +5.48% | | Q1 2025 | $6.80 billion | - | - | | Q2 2024 | $6.61 billion | - | - | - Portfolio growth was led by the Commercial and Agricultural, Renewable Energy, and Construction Equipment sectors[12] Deposits Average deposits for Q2 2025 were $7.35 billion, marking a slight increase of 0.21% quarter-over-quarter and 2.30% year-over-year. The growth was driven by increases in interest-bearing demand, savings, and non-brokered time deposits, which offset declines in brokered and noninterest-bearing demand deposits Average Deposit Growth | Period | Average Balance | Change (QoQ) | Change (YoY) | | :--- | :--- | :--- | :--- | | Q2 2025 | $7.35 billion | +0.21% | +2.30% | | Q1 2025 | $7.33 billion | - | - | | Q2 2024 | $7.18 billion | - | - | - The composition of deposit growth shifted towards interest-bearing demand, savings, and non-brokered time deposits, while brokered and noninterest-bearing demand deposits decreased[13] Net Interest Income and Net Interest Margin Tax-equivalent net interest income for Q2 2025 rose to $85.35 million, a 15.03% increase from the prior year. The tax-equivalent net interest margin expanded to 4.01%, up 11 basis points from Q1 2025 and 42 basis points from Q2 2024, primarily due to higher rates on securities, loan growth, and lower deposit costs Net Interest Income and Margin Performance | Metric | Q2 2025 | Q1 2025 | Q2 2024 | Change (YoY) | | :--- | :--- | :--- | :--- | :--- | | Tax-Equivalent NII | $85.35 million | $81.09 million | $74.19 million | +15.03% | | Tax-Equivalent NIM | 4.01% | 3.90% | 3.59% | +42 bps | - The increase in net interest margin was primarily driven by higher rates on investment securities, increased average loan and lease balances, and lower deposit costs[15] Noninterest Income Q2 2025 noninterest income remained flat at $23.06 million compared to the previous quarter and the prior year. A notable event was a $1.00 million realized loss from repositioning available-for-sale securities, which was offset by higher trust fees, debit card income, and partnership investment gains - The company realized a $1.00 million loss from the strategic sale of available-for-sale securities. The securities sold had a 1.04% yield and were replaced with securities yielding 4.18%[18] - The loss was offset by higher trust and wealth advisory income (from seasonal tax fees), increased debit card income, and gains from a small business capital investment[18] Noninterest Expense Noninterest expense in Q2 2025 was $52.43 million, a decrease of 1.22% from Q1 2025 but an increase of 5.15% from Q2 2024. The quarterly decrease was due to lower insurance claims, while the annual increase was driven by higher salaries, incentive compensation, and technology-related costs Noninterest Expense Comparison | Period | Amount | Change (QoQ) | Change (YoY) | | :--- | :--- | :--- | :--- | | Q2 2025 | $52.43 million | -1.22% | +5.15% | | Q1 2025 | $53.08 million | - | - | | Q2 2024 | $49.86 million | - | - | - The QoQ decrease was mainly due to reduced group insurance claims and lower leased equipment depreciation[21] - The YoY increase was primarily caused by higher salaries from merit increases, increased incentive compensation, and higher data processing costs from technology projects[22] Credit Quality Credit conditions were challenging in Q2 2025. The provision for credit losses increased to $7.69 million, and net charge-offs were $1.87 million. Nonperforming assets rose significantly to 1.06% of loans, up from 0.63% in the prior quarter, primarily due to a single relationship in the Auto and Light Truck portfolio. The allowance for loan and lease losses was increased to 2.30% of total loans Credit Quality Indicators | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Provision for Credit Losses | $7.69 million | $3.27 million | ($0.31 million) | | Net Charge-offs | $1.87 million | $0.18 million | ($1.99 million) | | Nonperforming Assets to Loans | 1.06% | 0.63% | 0.31% | | Allowance to Total Loans | 2.30% | 2.29% | 2.26% | - The increase in nonperforming assets during the quarter was primarily attributed to one relationship in the Auto and Light Truck portfolio[24] Capital Capital levels remained robust as of June 30, 2025. The Common Equity Tier 1 (CET1) ratio was 14.60%, and the tangible common equity-to-tangible assets ratio improved to 12.38% from 12.14% in the previous quarter. Capital growth was driven by retained earnings. The company also repurchased 47,428 shares for $2.84 million during the quarter Key Capital Ratios | Ratio | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 (CET1) | 14.60% | 14.71% | 13.74% | | Tangible Common Equity / Tangible Assets | 12.38% | 12.14% | 10.91% | | Common Equity / Assets | 13.19% | 12.96% | 11.75% | - During Q2 2025, the company repurchased 47,428 shares for $2.84 million[26] Company Overview and Disclosures This section provides an overview of 1st Source Corporation's business, along with important disclosures regarding forward-looking statements and the use of non-GAAP financial measures About 1st Source Corporation 1st Source Corporation (NASDAQ: SRCE), founded in 1863, is the largest locally controlled financial institution in its primary market of northern Indiana and southwest Michigan. It operates 78 banking centers and provides a range of consumer and commercial banking services. The company also has a national presence through specialized financing services for aircraft, trucks, and construction equipment - 1st Source is traded on the NASDAQ under the symbol "SRCE"[28] - The corporation includes 78 banking centers, 18 Specialty Finance Group locations, nine Wealth Advisory Services locations, and 10 insurance offices[29] - The bank competes nationally by offering specialized financing for private and cargo aircraft, auto leasing fleets, medium/heavy-duty trucks, and construction equipment[29] Forward-Looking Statements This section provides a standard safe harbor disclaimer, warning that the report contains forward-looking statements subject to material risks and uncertainties. It advises readers not to place undue reliance on these statements and notes that the company has no obligation to update them. Key risk factors include regulatory changes, competition, interest rate shifts, and economic downturns - The document contains forward-looking statements identified by words like "believe," "expect," "will," etc., which are subject to material risks and uncertainties[31] - The company cautions readers that actual results could differ materially from projections and undertakes no obligation to publicly update any forward-looking statements[31][32] Non-GAAP Financial Measures The company utilizes several non-GAAP financial measures, such as taxable-equivalent net interest income, net interest margin, the efficiency ratio, and tangible common equity ratios, which management believes offer a more meaningful view of performance. These measures should not be considered in isolation and are reconciled to the most comparable GAAP measures in the report's tables - Management uses non-GAAP measures to evaluate performance, including taxable-equivalent (FTE) net interest income, net interest margin, the efficiency ratio, and tangible equity ratios[34] - The company provides a reconciliation of these non-GAAP measures to their most closely related GAAP measures in a subsequent table[36] Financial Statements and Reconciliations This section presents the company's detailed financial statements for Q2 2025, including highlights, balance sheet, income statement, and reconciliations of non-GAAP financial measures Financial Highlights The financial highlights table presents a consolidated view of the company's performance, comparing Q2 2025 against Q1 2025 and Q2 2024. Key metrics for Q2 2025 include a Return on Average Assets of 1.67%, a Return on Average Common Shareholders' Equity of 12.61%, and a tax-equivalent Net Interest Margin of 4.01% Q2 2025 Key Performance Ratios | Ratio | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Return on average assets | 1.67% | 1.72% | 1.69% | | Return on average common shareholders' equity | 12.61% | 13.33% | 14.41% | | Net interest margin - FTE | 4.01% | 3.90% | 3.59% | | Efficiency ratio - adjusted | 48.40% | 51.31% | 51.17% | Consolidated Statements of Financial Condition (Balance Sheet) As of June 30, 2025, 1st Source Corporation's total assets stood at $9.09 billion, an increase from $8.96 billion at the end of Q1 2025. Total loans and leases grew to $7.10 billion, while total deposits increased to $7.44 billion. Total shareholders' equity strengthened to $1.20 billion Key Balance Sheet Items (in thousands) | Account | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Total Assets | $9,087,162 | $8,963,114 | $8,878,003 | | Net Loans and Leases | $6,934,485 | $6,705,923 | $6,502,932 | | Total Deposits | $7,442,669 | $7,417,765 | $7,195,924 | | Total Shareholders' Equity | $1,198,589 | $1,161,459 | $1,043,515 | Consolidated Statements of Income For the second quarter of 2025, the company generated total interest income of $127.22 million and net interest income of $85.19 million. After accounting for a $7.69 million provision for credit losses and other income/expenses, net income available to common shareholders was $37.32 million, or $1.51 per diluted share Income Statement Summary (in thousands) | Account | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Net Interest Income | $85,192 | $80,938 | $74,050 | | Provision for Credit Losses | $7,690 | $3,265 | ($314) | | Noninterest Income | $23,057 | $23,103 | $23,221 | | Noninterest Expense | $52,430 | $53,076 | $49,861 | | Net Income | $37,326 | $37,523 | $36,805 | Interest Rates and Interest Differential This analysis details the components of net interest margin. For Q2 2025, the tax-equivalent yield on total earning assets was 5.98%, while the rate on total interest-bearing liabilities was 2.81%. This resulted in a tax-equivalent net interest margin of 4.01%, an improvement from 3.59% in the same quarter of the previous year Interest Rate Spread (FTE) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Yield on Earning Assets | 5.98% | 5.88% | | Cost of Interest-Bearing Liabilities | 2.81% | 3.20% | | Net Interest Margin | 4.01% | 3.59% | Reconciliation of Non-GAAP Financial Measures This section provides the necessary calculations to bridge GAAP figures to the non-GAAP measures used by management. It details the adjustments for tax-equivalent net interest income, the adjusted efficiency ratio, and the calculation of tangible common equity and tangible book value per share by removing goodwill and intangible assets - The tables reconcile GAAP net interest income to fully tax-equivalent (FTE) net interest income, which was $85.35 million in Q2 2025[45] - It demonstrates the calculation of the tangible common equity-to-tangible assets ratio (12.38% at June 30, 2025) by subtracting goodwill and intangible assets from both equity and total assets[45] - The tangible book value per common share is calculated as $45.44 at June 30, 2025, compared to the GAAP book value per share of $48.86[46]