Breaking Down 1st Source Corporation (SRCE) Financial Health: Key Insights for Investors

You're looking at 1st Source Corporation (SRCE) and wondering if the regional banking story still holds up, especially with the latest rate environment-and honestly, the numbers from the third quarter of 2025 defintely give us a clear map. The headline is strong: 1st Source reported a record quarterly net income of $42.30 million for Q3 2025, a jump of over 21% from the same quarter last year, which translates to a diluted earnings per share (EPS) of $1.71, beating analyst consensus. Here's the quick math: that Q3 performance pushed their year-to-date net income to a solid $117.14 million, driven by a tax-equivalent Net Interest Margin (NIM) expansion to 4.09%. Plus, the credit quality picture improved, with nonperforming assets to loans and leases dropping to a manageable 0.91% as of September 30, 2025, which shows a realist's control over near-term risk. But the question remains: are these results a peak or a sustainable trend, and how does the company's current valuation stack up against the average analyst price target of around $72.67? Let's dig into the full financial health check.

Revenue Analysis

You're looking for a clear signal on 1st Source Corporation (SRCE)'s financial trajectory, and the revenue breakdown is the first place to look. The direct takeaway is this: SRCE is defintely a Net Interest Income (NII) story, and that core lending engine is running hot, but you need to watch the non-interest side for signs of diversification strain.

For the full fiscal year 2025, analysts project 1st Source Corporation (SRCE) will pull in an average of approximately $443.33 million in total revenue, representing a robust year-over-year growth rate of about 18.3% compared to 2024. This growth is largely a function of smart balance sheet management in a higher-rate environment, not a sudden surge in fee-based services.

The Dominance of Net Interest Income

As a regional bank holding company, 1st Source Corporation's primary revenue stream is Net Interest Income (NII), which is the difference between the interest earned on assets (like loans and securities) and the interest paid on liabilities (like deposits). For the third quarter of 2025 alone, NII hit $88.75 million. Here's the quick math: that NII figure accounted for over 80% of the total quarterly revenue of $110.7 million. The lending business is the foundation.

The strength here is clear: NII grew by a strong 17.6% year-over-year in Q3 2025, driven by an improved Net Interest Margin (NIM) of 4.09%, up from 3.64% in the prior year's quarter. That's a powerful tailwind from managing interest-earning assets effectively.

• Net Interest Income: Core lending revenue, the main driver.
• Noninterest Income: Fees from wealth management, mortgages, and other services.

Shifting Segment Contributions and Near-Term Risks

While NII is the star, the noninterest income segment provides necessary diversification, but it showed mixed results. Noninterest income totaled $21.90 million in Q3 2025, slightly down from the $22.44 million reported in Q3 2024. This is where you see the push and pull of the market.

On one hand, trust and wealth advisory fees increased, which is a positive sign for the long-term, sticky client relationships that are key to their Mission Statement, Vision, & Core Values of 1st Source Corporation (SRCE). On the other hand, mortgage banking income declined due to lower loan margins, a common pressure point across the industry. Also, the loan portfolio is strategically shifting: they saw growth in renewable energy, residential real estate, and home equity loans, but declines in the aircraft and auto portfolios. That tells you management is actively re-allocating capital to higher-growth, higher-margin areas, which is a smart move, but it means you're trading off volume in older segments.

The table below shows the Q3 2025 revenue composition, highlighting where the money is actually coming from:

The risk here is that if interest rates stabilize or decline, the NII growth rate will slow, so the noninterest segment needs to pick up the slack. Still, the current NII strength gives them a solid cushion.

Profitability Metrics

You want to know if 1st Source Corporation (SRCE) is truly profitable, not just growing. The short answer is yes, and their core banking engine-the Net Interest Margin-is running hotter than the industry average, which is a strong signal for disciplined management.

In the third quarter of 2025, 1st Source Corporation reported a record quarterly net income of $42.30 million on a total revenue of $110.7 million. This translates to a Net Profit Margin of roughly 38.21% for the quarter. To be fair, this is a very high number for a bank, reflecting strong revenue growth and effective cost controls, even after factoring in a $1.88 million pre-tax loss from strategic securities sales.

Margin Analysis: SRCE Outperforms Peers

For a bank, the Net Interest Margin (NIM) is the closest thing to a 'Gross Margin'-it shows the spread between what they earn on loans and what they pay on deposits. 1st Source Corporation's NIM for Q3 2025 was a robust 4.09%. Here's the quick math on why that's defintely good:

• SRCE's NIM of 4.09% is at the higher end of the typical 3.5% to 4.5% range for smaller community banks.
• It significantly outpaces the broader U.S. banking industry's aggregate NIM of 3.25% reported in Q1 2025.

The Trailing Twelve Months (TTM) Operating Margin, which is a good proxy for operational efficiency before taxes and non-operating items, sits at 44.42% as of November 2025. This high margin reflects a strong core business model that relies heavily on traditional lending and deposit-taking, which is typical for a regional bank.

Operational Efficiency and Profitability Trends

The key to sustained profitability is operational efficiency, which is measured by the Efficiency Ratio (noninterest expense as a percentage of net operating revenue). A lower number is better because it means the bank is spending less to generate a dollar of revenue.

1st Source Corporation's Q3 2025 Efficiency Ratio was 49.5%. This compares very favorably to the aggregate U.S. banking industry's Efficiency Ratio of 56.2% in Q1 2025. This difference of 6.7 percentage points suggests superior cost management and a more streamlined operation than many of its peers.

The trend in profitability is also positive. Q3 2025 net income was up 21.06% from the same quarter in 2024, driven by a NIM expansion of 45 basis points year-over-year. This shows they are successfully managing the interest rate environment to their advantage.

The Return on Average Assets (ROAA) of 1.86% and Return on Average Common Shareholders' Equity (ROAE) of 13.76% in Q3 2025 are both well above the industry averages of 1.16% and approximately 11.0%, respectively. This confirms that the bank is using its assets and shareholder capital very effectively to generate profit. This is a highly efficient bank. For a deeper look at the balance sheet and credit quality, check out the full post: Breaking Down 1st Source Corporation (SRCE) Financial Health: Key Insights for Investors.

Debt vs. Equity Structure

You want to know how 1st Source Corporation (SRCE) finances its growth, and the answer is clear: the company relies heavily on shareholder equity and retained earnings, keeping its debt load remarkably light. This conservative approach is a core part of their strategy, which is typical for a seasoned regional bank and a key indicator of stability.

As of the third quarter of 2025, 1st Source Corporation's total shareholders' equity stood strong at $1.24 billion. This substantial capital base is the primary engine for their lending activities and growth, reflecting a long-standing commitment to a historically conservative capital structure. They don't chase growth with excessive leverage.

Here's the quick math on their debt structure, showing a deliberate preference for stability:

• Total Short-Term Borrowings (Q3 2025): $73.574 million
• Long-Term Debt and Mandatorily Redeemable Securities (Q3 2025): $42.234 million
• Total Debt (approximate): $115.808 million

The company's financial leverage (the use of borrowed money to finance assets) is minimal, which is a defintely positive sign for long-term investors.

The Debt-to-Equity Benchmark

The Debt-to-Equity (D/E) ratio is the best way to gauge this balance, showing how much debt a company uses for every dollar of equity. For 1st Source Corporation, the D/E ratio is exceptionally low at just 0.08. This means for every dollar of shareholder equity, the company has only eight cents of debt.

To be fair, banks often have higher D/E ratios than industrial companies because their core business involves taking deposits (a form of liability) and lending it out. Still, 1st Source Corporation's ratio is significantly lower than the industry benchmark for Regional Banks, which averages around 0.5 as of November 2025. This gap highlights their disciplined, equity-focused financing model.

What this estimate hides is that a bank's balance sheet includes customer deposits as liabilities, but the D/E ratio typically focuses on interest-bearing debt and subordinated notes. The low 0.08 figure confirms the bank's operational debt is minimal compared to its capital base, giving it a huge buffer against economic downturns.

Financing Strategy and Credit Health

1st Source Corporation's management actively uses its strong capital position to fund growth and manage its existing debt. For instance, in the second quarter of 2025, the bank used the expected redemption of securities to fund loan growth and, importantly, to pay down short-term borrowings. This is a proactive refinancing strategy aimed at reducing interest expense.

The bank's focus on capital strength over debt is also reflected in its accolades, which serve as a proxy for traditional credit ratings. In March 2025, the bank was named to Forbes' America's Best Banks list, ranking #26 out of 100, a ranking driven by metrics like credit quality and profitability. They were also recognized by S&P Global Market Intelligence as a Top 50 Community Bank. This consistent recognition confirms their strong financial health and prudent risk management.

The balancing act is simple: prioritize retained earnings and organic capital growth over external debt financing, which allows them to maintain lower short-term borrowing costs. If you want to dive deeper into the philosophy behind this stability, you can review the Mission Statement, Vision, & Core Values of 1st Source Corporation (SRCE).

Liquidity and Solvency

You need to know if 1st Source Corporation (SRCE) can meet its short-term obligations, and for a bank, that means looking past the traditional liquidity ratios. The headline is clear: 1st Source has a $3.48 billion total net available liquidity position as of Q3 2025, a strong buffer that covers half of its total deposits net of brokered certificates.

For a regional bank, the standard Current Ratio (Current Assets divided by Current Liabilities) and Quick Ratio are less useful and often misleading. In a bank's case, the largest current liability is customer deposits, which are not a typical operational debt. For perspective, the 2024 fiscal year data showed a Current Ratio of roughly 0.94 ($7.22 billion in Current Assets / $7.65 billion in Current Liabilities), which would be a red flag for a manufacturing company but is normal for a bank. The real measure is the quality and availability of its liquid assets and capital.

Assessing 1st Source Corporation's Liquidity Position

The core of 1st Source Corporation's liquidity story is its ability to generate cash from its main business and maintain a deep pool of readily available funds. This is a crucial area for any investor to monitor, especially in a fluctuating rate environment.

• Total Net Available Liquidity: This is the most telling figure for a bank. At the end of Q3 2025, this figure stood at $3.48 billion, representing approximately 50% of total deposits net of brokered certificates. This is a defintely solid position to weather any unexpected deposit outflows or to seize new lending opportunities.
• Cash Flow from Operations: The company continues to generate strong operational cash. Trailing Twelve Months (TTM) Cash Flow from Operating Activities was a robust $201.24 million. This means the core business of lending and fee generation is consistently bringing in real cash.
• Working Capital Trends: While working capital (Current Assets minus Current Liabilities) is technically negative for a bank due to deposits, the trend in total assets and cash is positive. Total Assets increased to $9.06 billion as of September 30, 2025. Plus, the net change in cash for Q3 2025 alone was positive, increasing by $65.15 million.

Cash Flow Statements Overview

Looking at the three main components of the cash flow statement (CFS) over the Trailing Twelve Months (TTM) gives you a clear map of where the money is coming from and where it's going. The trends point to a healthy, but capital-intensive, business model.

The large negative Cash Flow from Investing Activities (CFI) of -$295.68 million is not a concern; it's simply the cost of doing business for a bank, as they must continuously invest in loans and investment securities to grow and earn interest income. The strong Cash Flow from Operating Activities (CFO) of $201.24 million is the engine funding a large part of that growth. The financing activities show a commitment to shareholders, with YTD dividends paid totaling $27.54 million. This is a sign of a mature, confident management team. You can read more about the company's long-term vision here: Mission Statement, Vision, & Core Values of 1st Source Corporation (SRCE).

Liquidity Strengths and Risks

The primary strength is the robust liquidity buffer and the high Common Equity Tier 1 (CET1) ratio, a key regulatory measure of a bank's capital strength. The CET1 ratio was 15.18% as of September 30, 2025, well above regulatory minimums. This shows a very conservative and well-capitalized balance sheet. The main near-term risk remains credit quality, as nonperforming assets to loans and leases, while improving, stood at 0.91% in Q3 2025. That's a metric to watch, but the allowance for loan and lease losses remains strong at 2.32%. The liquidity position is solid, but you should always monitor credit quality in a rising rate environment.

Valuation Analysis

You want to know if 1st Source Corporation (SRCE) is a bargain or a risk at its current price. Based on the latest 2025 fiscal year data, the stock appears to be moderately undervalued, trading at a discount to its peer group on earnings, but the market is still cautious-hence the 'Hold' consensus from analysts.

The core of a bank's valuation is always the Price-to-Earnings (P/E) and Price-to-Book (P/B) ratios. For 1st Source Corporation, the trailing P/E ratio sits at about 10.0x, which is notably cheaper than the Financial sector average of roughly 21.53x. Looking ahead, the forward P/E is even lower at approximately 9.31x, suggesting analysts expect earnings to grow and make the stock cheaper on a forward basis. This is a classic sign of potential undervaluation, but you have to check the book value to be sure.

The Price-to-Book (P/B) ratio, which compares the stock price to the net asset value per share, is currently around 1.14x. For a solid regional bank, a P/B slightly above 1.0x is healthy, showing the market values the company above its liquidation value. The stock has been volatile, with a 52-week price range between a low of $52.14 and a high of $68.12, but the overall trend has been flat to slightly negative, decreasing 5.38% over the last 12 months. Still, the stock is up 6.74% in the last month, showing a recent recovery.

Here's the quick math on the key valuation metrics:

• Trailing P/E: 10.0x (Sector Average: ~21.53x)
• Price-to-Book (P/B): 1.14x
• Annual Dividend Yield: 2.65%
• Payout Ratio: 25.30%

What this estimate hides is the market's concern over regional bank credit quality, which is why the P/E is so low relative to the sector. However, the dividend story is strong: 1st Source Corporation pays an annual dividend of $1.60 per share, and with a low payout ratio of about 25.30%, the dividend looks defintely sustainable. They've increased the dividend for 38 consecutive years, which tells you something about their management philosophy and capital discipline.

The Wall Street consensus leans toward caution but sees significant upside. The average analyst price target is between $71.25 and $72.67, which suggests an upside potential of approximately 18.30% to 20.47% from the current price of around $60.31-$61.43. The consensus rating is a 'Hold' or 'Moderate Buy,' with analysts waiting for more clarity on the economic outlook before moving to a strong 'Buy.' You can read more about the company's long-term goals here: Mission Statement, Vision, & Core Values of 1st Source Corporation (SRCE).

Here is a summary of the analyst sentiment:

The bottom line is that the market is pricing 1st Source Corporation like a slow-growth, higher-risk bank, but the fundamentals-especially the low P/E and the strong dividend coverage-suggest a margin of safety. Your action should be to treat this as a value play, not a growth stock, and monitor credit quality closely.

Risk Factors

You need to look beyond the headline earnings beat when assessing 1st Source Corporation (SRCE); the real story lies in the specific credit and operational risks they are managing right now. While the bank reported record quarterly net income of $42.30 million for Q3 2025, a closer look at their specialty lending and internal structure reveals near-term pressure points you must defintely factor into your valuation.

Credit Quality and Specialty Lending Exposure

The primary financial risk for 1st Source Corporation centers on credit quality, particularly in their niche specialty finance segments. The volatility is clear: the provision for credit losses was $7.69 million in Q2 2025, a significant jump that reflected a rise in net charge-offs and nonaccrual loans. That's a big swing.

While the provision dropped sharply to $0.90 million in Q3 2025, the underlying risk in the specialty market hasn't vanished. The CEO noted in November 2025 that the rental and trucking sectors are seeing a 'cyclical correction' due to 'over-fleeted' clients, which drives higher credit stress. This is an internal risk tied directly to their business model, where a slowdown in a specific industry can immediately impact their loan book.

Here's the quick math on their credit trend:

• Q3 2025 Net Charge-offs to Average Loans/Leases: 0.11%
• Nonperforming Assets to Loans and Leases (Sep 30, 2025): 0.91%
• Mitigation: Management points to strong collateral values, especially for equipment and aircraft, which helps mitigate the ultimate loss severity, plus they maintain an Allowance for Loan and Lease Losses at a strong 2.32% of total loans and leases.

Market Competition and Funding Costs

External market conditions are creating a clear financial headwind, specifically around funding. 1st Source Corporation is facing intense rate competition for deposits, forcing a shift toward more expensive funding sources. Total deposits grew to $7.41 billion in Q3 2025, but the growth was driven by higher-cost savings and time deposits, not the cheaper, core demand deposits.

Plus, the bank had to take a pre-tax loss of $1 million in Q2 2025 from the sale of approximately $26 million in available-for-sale securities. This is a classic interest rate risk problem, where rising rates reduce the value of existing, lower-yielding fixed-rate assets on the balance sheet. They sold those securities to reposition the portfolio, but it cost them a million dollars upfront.

Operational and Strategic Succession

Two key strategic and operational risks stand out: leadership transition and technology resilience. First, the Chief Risk Officer, John B. Griffith, is retiring by December 31, 2025. Losing the head of your risk function at a time of economic uncertainty creates a gap, even with other recent senior leadership promotions in place. You need to watch who they name as a permanent replacement and how quickly they integrate.

Second, cybersecurity remains a perennial, high-impact operational risk for any financial institution with $9.06 billion in total assets. The company highlights that they actively manage this through a robust program, including:

• Regular penetration testing of cyber defenses
• Annual PCI-certified penetration tests
• Third-party social engineering tests for employee training

Still, as cyber threats evolve, this is a cost center that will only grow, and a single breach could wipe out months of net income. For a deeper dive into these numbers, check out the full article at Breaking Down 1st Source Corporation (SRCE) Financial Health: Key Insights for Investors.

Growth Opportunities

You need to know where 1st Source Corporation (SRCE) is headed, and the numbers from the 2025 fiscal year paint a clear picture: they are executing a disciplined, rate-driven growth strategy. The core takeaway is that their focus on Net Interest Margin (NIM) expansion is working, driving impressive earnings beats and setting a solid foundation for future equity value growth.

For the full 2025 fiscal year, consensus estimates project 1st Source Corporation will hit revenue of approximately $421.8 million, with earnings per share (EPS) expected to be around $5.97 per share. This growth isn't accidental; it's a direct result of their ability to manage the current interest rate environment better than many peers. The regional bank sector is tough, but they're defintely holding their own.

Key Growth Drivers and Strategic Focus

The primary engine for 1st Source Corporation's near-term growth is its ability to expand its Net Interest Margin (NIM), which is the difference between the interest income generated and the amount of interest paid out. Honestly, this is the metric to watch for any bank right now.

• Net Interest Margin Expansion: As of the third quarter of 2025, the company reported a NIM of 4.1%, marking the seventh consecutive quarter of expansion. This is a huge sign of effective balance sheet management.
• Increased Loan and Lease Balances: Higher average loan and lease balances are directly contributing to the rise in interest income, plus they are managing to keep short-term borrowing costs lower.
• Product Innovation: A clear strategic move in late 2025 was the expansion of the Renewable Energy Financing Division, which diversifies their commercial lending portfolio and taps into a high-growth sector.

Competitive Advantages and Financial Health

1st Source Corporation isn't just growing; it's doing so with a level of profitability and risk management that sets it apart. The company's long history, tracing back to 1863, has built a competitive advantage around local decision-making and personalized service, especially across northern Indiana and southwestern Michigan.

Here's the quick math on their strength:

What this estimate hides is the continued pressure on deposit rates, but still, the company's ability to grow its Tangible Book Value per Share (TBVPS) is compelling. Analysts project TBVPS will grow by 10.5% over the next 12 months to reach $52.11, which is a key indicator of real, concrete per-share net worth. If you want a deeper dive into who is buying SRCE and why, check out Exploring 1st Source Corporation (SRCE) Investor Profile: Who's Buying and Why?

Actionable Next Step

Your next step should be to monitor the Q4 2025 earnings release for any management commentary on the pace of loan growth and the success of the Renewable Energy Financing division, as those will be the key to hitting the 2026 projections.