1st Source (SRCE -1.76%), a regional bank known for its focus on specialty finance and community banking, released its second quarter 2025 results on July 24, 2025. The standouts were earnings per share (GAAP) of $1.51, which beat analyst expectations of $1.47 GAAP EPS. but provisions for credit losses rose as auto and truck portfolios saw higher net charge-offs. Overall, the quarter reflected robust core banking performance, though asset quality concerns appeared in certain lending segments.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EPS (GAAP) | $1.51 | $1.47 | $1.49 | 1.3% |
| Revenue (GAAP) | $108.25 million | $104.75 million | $97.27 million | 11.3% |
| Net Interest Income (GAAP) | $85.19 million | $74.05 million | 15.0% | |
| Noninterest Income | $23.06 million | $23.22 million | (0.7%) | |
| Return on Average Assets | 1.67% | 1.69% | (0.02 pp) |
Source: Analyst estimates for the quarter provided by FactSet.
Business Overview and Strategic Focus
1st Source runs a traditional banking business anchored by commercial lending, personal banking, and a specialty finance division. Its Specialty Finance Group offers custom financing for equipment, aircraft, and vehicles to clients nationwide. This focus on niche lending segments such as construction equipment and aircraft sets the bank apart from standard regional lenders.
The company's recent efforts have centered on loan and lease growth, targeted capital management, and deep community involvement. Critical success factors include strong risk controls, a well-diversified loan book, and adherence to regulatory standards. 1st Source also maintains a strong presence in northern Indiana, building on its history of personalized banking and local partnerships. Ongoing investments in technology and employee training underpin these efforts and reinforce client service and compliance.
Quarter Highlights: Results, Metrics, and Key Drivers
Net interest income (GAAP) increased to $85.19 million, marking a 15.0% rise from Q2 2024. Growth was fueled by higher loan balances and an improved net interest margin compared to the previous quarter, which climbed to 4.01%. Margin expansion resulted from a combination of better yields on investment assets and disciplined management of deposit costs. Average loans and leases were $6.97 billion, up 5.48% year over year, with expansion concentrated in the Commercial and Agricultural, Renewable Energy, and Construction Equipment portfolios. The construction equipment loan book was $1.21 billion. Renewable energy loans were $573 million. Aircraft loans were $1.13 billion.
Noninterest income (GAAP) remained largely flat at $23.06 million compared to Q2 2024. The flat performance in noninterest income came as lower insurance commissions and a dip in equipment rental income offset higher wealth advisory fees and investment partnership gains. The bank also reported $1.00 million in pre-tax losses from securities sales during a strategic repositioning of its investment portfolio, impacting overall noninterest income. The efficiency ratio (non-GAAP), a measure of how well expenses are managed relative to income, improved to 48.40% from 51.17% in Q2 2024.
Asset quality metrics revealed new challenges. Provision for credit losses (GAAP) more than doubled to $7.69 million from $3.27 million in Q1 2025, as net charge-offs rose sharply to $1.87 million. Nonperforming assets as a share of loans and leases jumped to 1.06%, largely driven by a single troubled relationship in the auto and light truck segment within the Specialty Finance Group. While reserves remain high and capital ratios continue to meet regulatory “well-capitalized” standards, rising credit costs and problem loans in this segment highlight emerging risks. The allowance for loan and lease losses climbed to $163.48 million, or 2.30% of total loans and leases (GAAP).
Deposit growth lagged loan growth, with average deposits up 2.3% to $7.35 billion. while noninterest-bearing (demand) deposits fell. The bank’s capital base remained strong, as shown by a Common Equity Tier 1 ratio of 14.60% (GAAP). and tangible common equity representing 12.38% of tangible assets (non-GAAP). Tangible book value per share (non-GAAP) was $45.44, up from $39.16 in the second quarter of 2024. Return on average assets (ROA, GAAP), an indicator of how efficiently assets are generating profit, edged down to 1.67% from 1.69% in Q2 2024, reflecting both higher income and greater provision expenses.
Dividend, Outlook, and What to Watch
The quarterly dividend was raised 5.6% to $0.38 per share. Management did not provide formal financial guidance for the remainder of fiscal 2025. In its commentary, the bank expressed confidence in its “healthy balance sheet” and liquidity position, while noting “continued economic uncertainty” and the need for ongoing monitoring of asset quality, especially in certain specialty finance portfolios.
Investors should pay attention to trends in nonperforming assets and credit provisioning, as these have begun to move upward in recent quarters. With capital ratios well above regulatory minimums, the bank maintains financial flexibility; however, no clear forward guidance was offered by management this period.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
