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1S

1ST SOURCE CORP (SRCE)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 diluted EPS was $1.51, up 1.34% YoY and down 0.66% QoQ; EPS beat Wall Street consensus by approximately $0.04 as the company delivered solid NII growth despite higher credit costs . EPS consensus mean was $1.47333* (3 estimates), implying a modest beat*.
  • Total net revenue (GAAP) was $108.249M, up ~11.3% YoY and ~4.0% QoQ; this exceeded consensus revenue of $104.788M* by ~$3.46M*, aided by a sixth consecutive quarter of net interest margin expansion .
  • Net interest margin expanded to 4.01% (FTE 4.01%), driven by higher investment yields, increased average loans/leases, and lower deposit costs; management highlighted the margin expansion streak and resilient balance sheet .
  • Credit deteriorated: provision for credit losses rose to $7.69M vs $3.27M in Q1; nonperforming assets/loans climbed to 1.06% from 0.63% (Q1), largely due to one Auto & Light Truck relationship; net charge-offs were $1.87M vs $0.18M in Q1 .
  • Capital and shareholder returns remained healthy: CET1 was 14.60%; tangible common equity/tangible assets at 12.38%; dividend declared at $0.38 and 47,428 shares repurchased (~$2.84M equity reduction), supporting the medium-term thesis of disciplined balance sheet and shareholder returns .

Values marked with * are retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • Sixth consecutive quarter of margin expansion; NIM rose to 4.01% (FTE 4.01%), driven by higher investment yields, increased average loans/leases, and lower deposit costs. “We are proud to have achieved a sixth consecutive quarter of margin expansion…” — Christopher J. Murphy III, Chairman & CEO .
  • NII strength and loan growth: tax‑equivalent NII increased to $85.35M (+5.25% QoQ, +15.03% YoY); average loans/leases grew $169.51M QoQ (+2.49%) and $362.25M YoY (+5.48%) .
  • Strong capital and dividend: CET1 14.60%, TCE/TA 12.38%; cash dividend declared $0.38, up 5.56% YoY; recognition on KBW Bank Honor Roll for seventh consecutive year underscores long‑term performance .

What Went Wrong

  • Credit headwinds: provision for credit losses rose to $7.69M (vs $3.27M in Q1 and a recovery in prior‑year Q2); nonperforming assets/loans increased to 1.06% (from 0.63% in Q1, 0.31% prior year), with elevated net charge‑offs ($1.87M) largely due to one Auto & Light Truck account .
  • Securities repositioning losses: realized AFS losses of $1.00M as the company sold ~$26M of low‑yield securities (1.04% WA yield) and reinvested at 4.18% WA yield; while accretive over time, it pressured noninterest income this quarter .
  • Expense mix: noninterest expense rose 5.15% YoY to $52.43M; upward pressure from salaries/incentives, furniture/equipment, and data processing costs (technology projects) partially offset reductions in group insurance claims and leased equipment depreciation .

Financial Results

P&L and Profitability (GAAP)

MetricQ4 2024Q1 2025Q2 2025
Total Net Revenue (GAAP) ($USD Millions)$97.848 $104.041 $108.249
Net Interest Income ($USD Millions)$79.366 $80.938 $85.192
Noninterest Income ($USD Millions)$18.482 $23.103 $23.057
Provision for Credit Losses ($USD Millions)$3.580 $3.265 $7.690
Net Income ($USD Millions)$31.437 $37.523 $37.326
Diluted EPS ($USD)$1.27 $1.52 $1.51
Net Interest Margin (%)3.77 3.89 4.00
Efficiency Ratio (%) (expense to revenue)55.40 51.01 48.43
Return on Avg Assets (%)1.42 1.72 1.67
Return on Avg Common Equity (%)11.21 13.33 12.61

Consensus vs Actual (Q2 2025)

MetricConsensusActualBeat/(Miss)
EPS ($USD)1.47333*1.51 +$0.04 (approx.)
Revenue ($USD Millions)104.788*108.249 +$3.461

Values marked with * are retrieved from S&P Global.

Segment/Portfolio Composition (End of Period Loans & Leases)

Category ($USD Thousands)Q2 2024Q1 2025Q2 2025
Commercial & Agricultural$721,235 $775,118 $835,826
Renewable Energy$459,441 $505,413 $573,226
Auto & Light Truck$1,009,967 $955,945 $972,461
Medium & Heavy Duty Truck$315,157 $289,837 $282,875
Aircraft$1,058,591 $1,118,099 $1,134,838
Construction Equipment$1,132,556 $1,171,934 $1,207,209
Commercial Real Estate$1,164,598 $1,230,760 $1,252,750
Residential RE & Home Equity$654,357 $689,101 $714,026
Consumer$137,097 $127,186 $124,758
Total Loans & Leases$6,652,999 $6,863,393 $7,097,969

Key KPIs and Asset Quality

KPIQ2 2024Q1 2025Q2 2025
Nonperforming Assets to Loans & Leases (%)0.31 0.63 1.06
Allowance for Loan & Lease Losses to Loans & Leases (%)2.26 2.29 2.30
Net Charge-offs to Avg Loans & Leases (%)(0.12) 0.01 0.11
Common Equity Tier 1 (%)13.74 14.71 14.60
TCE/TA (%)10.91 12.14 12.38
Dividend per Share ($)0.34 0.36 0.38

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue / EPS / MarginsFY/Q3 forwardNot providedNot providedMaintained (no formal guidance)
Dividend per ShareQ2 2025$0.36 (Q1 declared) $0.38 Raised YoY (maintained vs Q1 text approval at $0.38)
Capital RatiosQ2 2025N/ACET1 14.60%; TCE/TA 12.38% Informational (no guidance)

Management did not issue quantitative forward guidance; dividend was declared at $0.38 for Q2 2025 .

Earnings Call Themes & Trends

(Transcript not available via our document tools; themes derived from press releases and reported materials)

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Net Interest Margin Expansion3.77% in Q4; margin expanding despite deposit competition 4.01% FTE; sixth consecutive quarter of expansion Improving
Deposit Costs & MixShift to higher‑yield time/MM; competition persisted Lower deposit costs aided NIM Moderating cost pressure
Credit QualityNPA 0.46% (Q4); 0.63% (Q1); provisions moderate NPA 1.06%; provision $7.69M; one Auto & Light Truck account drove NCOs Deteriorating
Investment Portfolio RepositioningQ4: $3.90M losses; breakeven ~1.6 years Q2: $1.00M losses; reinvestment at 4.18% WA yield Near‑term drag; long‑term accretive
Technology/Data Processing CostsElevated in Q4/Q1 due to projects Data processing costs increased QoQ Persistent investment
Specialty Finance/Loan GrowthGrowth in Construction Equipment/Auto/Renewables Growth in Commercial & Agricultural, Renewable Energy, Construction Equipment Broad‑based growth

Management Commentary

  • “We are proud to have achieved a sixth consecutive quarter of margin expansion resulting from higher rates on investment securities, increased average loan and lease balances, and lower deposit costs.” — Christopher J. Murphy III, Chairman & CEO .
  • “While still very good, credit was challenged during the quarter with elevated net charge‑offs, the majority of which were from one Auto and Light Truck account.” — Christopher J. Murphy III .
  • “Our balance sheet remained healthy during the quarter and is well positioned to handle the continued economic uncertainty… Our liquidity position is solid and our historically conservative capital position has been maintained.” — Christopher J. Murphy III .

Q&A Highlights

  • A full Q2 2025 earnings call transcript was not available through our document retrieval tools. We note common investor focus areas this quarter include: credit uptick and NPA rise, drivers of margin expansion, impact and rationale for securities repositioning losses, and data processing/technology spend trajectory .
  • The company posted a Second Quarter 2025 Investor Presentation on July 24, 2025, which may offer additional context for investors on quarterly themes .

Estimates Context

  • EPS: Reported $1.51 vs Primary EPS Consensus Mean $1.47333* (3 estimates) — a beat of ~$0.04.
  • Revenue: Reported total net revenue (GAAP) $108.249M vs Revenue Consensus Mean $104.788M* (3 estimates) — a beat of ~$$3.461M.
  • Implication: Consensus models likely need to incorporate stronger NIM trajectory and loan growth; however, they should also reflect higher provision expense path given NPA and NCO trends.

Values marked with * are retrieved from S&P Global.

Key Takeaways for Investors

  • NIM expansion remains the core earnings driver; six consecutive quarters of improvement suggest continued pricing discipline and favorable asset yields .
  • Loan growth is broad‑based across Commercial & Agricultural, Renewables, and Construction Equipment, reinforcing revenue momentum .
  • Credit normalization is the principal risk near term; NPA rose to 1.06%, and provision/charge‑offs increased, driven by one Auto & Light Truck exposure .
  • Securities portfolio repositioning is strategically accretive (higher reinvestment yields) but creates short‑term income headwinds; monitor future repositioning pace .
  • Operating efficiency improved (48.43% expense‑to‑revenue), supported by NII growth; watch for continued data processing costs tied to technology projects .
  • Capital remains robust (CET1 14.60%), enabling continued shareholder returns (dividend $0.38, share repurchases) while supporting balance sheet resilience .
  • Net effect for the stock: modest beat on EPS/revenue and durable NIM are positives; credit deterioration and higher provision are offsets. Near‑term trading likely hinges on management’s framing of credit trends and margin sustainability.
Document citations: **[34782_0000034782-25-000079_ex06302025991pressrelease.htm:0]**, **[34782_0000034782-25-000043_ex03312025991pressrelease.htm:0]**, **[34782_0000034782-25-000003_ex01232025991pressrelease.htm:0]** as referenced inline. Internet sources: Investor presentation/events portal and press release index **[https://ir.1stsource.com/events-and-presentations/default.aspx]** **[https://www.1stsource.com/news/earnings-report-2025-q2/]**.