This comprehensive report, updated on October 27, 2025, provides a multifaceted analysis of 1st Source Corporation (SRCE), covering its business moat, financial health, past performance, future growth, and fair value. We benchmark SRCE against key competitors like Lakeland Financial Corporation (LKFN), German American Bancorp, Inc. (GABC), and Old National Bancorp, interpreting the key takeaways through the value investing principles of Warren Buffett and Charlie Munger.
Mixed 1st Source Corporation shows strong financial health, with consistent earnings growth and excellent cost control. Its long history and specialized national lending in areas like aircraft finance provide a stable foundation. However, its profitability and operational efficiency lag behind the top-performing regional banks. The stock appears reasonably valued, trading at a discount compared to its peers based on its earnings. While stable and offering a reliable dividend, its future growth is expected to be modest. SRCE is suitable for conservative, income-focused investors rather than those seeking significant growth.
US: NASDAQ
1st Source Corporation (SRCE) operates a relationship-focused banking model primarily serving Northern Indiana and Southwestern Michigan. The bank provides a comprehensive suite of financial services to individuals, small-to-medium-sized businesses, and agricultural clients. Its core operations revolve around traditional banking activities: accepting deposits and originating loans. However, what sets 1st Source apart from typical community banks is its significant and highly specialized national lending businesses. The company's primary revenue drivers can be segmented into four key areas: traditional Commercial and Industrial (C&I) lending, a highly specialized Specialty Finance Group focusing on aircraft and construction equipment, a combination of Commercial Real Estate (CRE) and consumer lending, and a robust Wealth Management and Trust services division that generates significant fee-based income. This hybrid model allows 1st Source to build a deep-rooted local deposit base while deploying capital into higher-yielding, specialized national markets where it has developed deep expertise and a strong reputation.
Its largest segment is commercial lending, which broadly includes traditional C&I loans that make up approximately 24% of its total loan portfolio. These loans are extended to local and regional businesses for working capital, equipment purchases, and operational needs. The market for C&I lending is intensely competitive, populated by other community banks, regional players like Old National Bancorp and Horizon Bancorp, and larger national banks such as JPMorgan Chase and Fifth Third Bank that have a presence in its core markets. The total addressable market is localized to its geographic footprint, growing in line with regional economic activity. The main consumer for these loans are established small and medium-sized enterprises with annual revenues typically between $1 million and $50 million. The stickiness of these relationships is high, as business banking often involves multiple products (deposits, treasury management, loans) and a deep personal connection with a relationship manager. 1st Source's competitive moat here is not based on scale or cost, but on its century-long history in the region, deep community ties, and a reputation for reliable, personalized service, which creates high switching costs for its business clients.
The most significant and differentiating part of 1st Source's business is its Specialty Finance Group, which accounts for nearly 24% of its total loan portfolio, split between aircraft finance (~10%) and construction equipment finance (~14%). This is a national business, not a local one, and represents the bank's strongest competitive moat. This segment provides financing for new and used general aviation aircraft and heavy-duty construction equipment to clients across the United States. The market for specialty equipment finance is substantial and requires deep industry-specific underwriting expertise that most community banks lack. Competitors in this space are often non-bank lenders or specialized divisions of much larger banks. By focusing on these niches for decades, 1st Source has built an informational advantage, strong dealer relationships, and a national reputation for expertise and service. This allows it to generate attractive risk-adjusted returns that are less correlated with its local economy. The clients are sophisticated businesses and high-net-worth individuals who value the bank's specialized knowledge, creating very sticky, long-term relationships.
Real estate and consumer lending form the more traditional pillars of the bank's loan book, collectively representing over 30% of the portfolio. This includes commercial real estate loans (~13%) for owner-occupied and investment properties, residential mortgages (~11%), and other consumer loans like auto financing. The market for these products is highly commoditized and competitive, with pricing largely driven by prevailing interest rates. 1st Source competes with every other bank, credit union, and non-bank mortgage lender in its footprint. Its primary consumers are local individuals and small business owners. While customer stickiness can be moderate, especially when tied to a primary deposit relationship, it is lower than in business or specialty lending. The bank's competitive position in this area relies on leveraging its existing customer base and local brand recognition rather than any unique product advantage. This segment provides necessary diversification and serves the core needs of its community but does not constitute a significant competitive moat on its own.
Finally, the bank's Wealth Management and Trust division is a crucial source of diversified, fee-based revenue. This segment provides investment management, trust, and financial planning services to individuals and institutions, with Assets Under Management (AUM) totaling approximately $5.9 billion. This noninterest income stream accounted for a significant portion of the bank's total noninterest income, making it less reliant on the spread between loan and deposit rates. The wealth management market is competitive, facing pressure from large wirehouses, independent advisors, and low-cost digital platforms. 1st Source's target clients are affluent and high-net-worth individuals within its geographic footprint who prefer a high-touch, relationship-based service model. The stickiness of these relationships is extremely high due to the personal nature of the service and the complexity of transferring trust and investment accounts. This business provides a durable, high-margin revenue stream that strengthens the bank's overall moat by deepening client relationships and diversifying its earnings.
In conclusion, 1st Source Corporation's business model is a well-crafted blend of community-focused banking and national niche lending. Its moat is not singular but multifaceted, built upon deep local roots that secure a stable, low-cost deposit base and specialized national expertise that generates higher-than-average returns and diversifies risk. The combination is powerful; the local bank provides the funding and customer relationships, while the national specialty groups provide a unique and defensible profit engine that insulates it from purely local economic downturns and intense competition in commoditized lending.
This strategic duality makes its business model more resilient than that of a typical community bank. While the traditional banking operations face the same cyclical pressures as any peer—including interest rate sensitivity and intense competition for loans and deposits—the specialty finance and wealth management arms provide stable, counter-balancing forces. The bank's long-term success hinges on its ability to maintain its expertise in these niches while continuing to cultivate the community relationships that feed its deposit base. This structure provides a durable competitive edge that should allow it to navigate various economic cycles more effectively than its less-differentiated peers.
1st Source Corporation's recent financial statements paint a picture of a resilient and profitable regional bank. The company's core revenue driver, net interest income, has shown impressive growth, increasing 17.57% year-over-year in the third quarter. This suggests the bank is effectively managing its assets and liabilities in the current interest rate environment, capturing higher yields on its loans while controlling its funding costs. This top-line strength flows down to the bottom line, with net income growing over 21% in the same period, leading to a strong return on equity of 13.27%, a key indicator of profitability for shareholders.
The bank’s balance sheet appears solid and conservatively managed. With total assets stable at around $9.06 billion, the bank maintains a healthy loan-to-deposit ratio of 91.8%, indicating that its lending activities are well-funded by its stable customer deposit base. A significant strength is its low leverage; the debt-to-equity ratio was just 0.15 in the latest quarter, which is exceptionally low and provides a substantial cushion against economic downturns. This financial prudence provides a strong foundation for both stability and future growth opportunities.
From a risk management perspective, 1st Source appears well-prepared. Its allowance for credit losses stands at 2.32% of total loans, a robust reserve that suggests it is well-cushioned against potential loan defaults. The bank also demonstrates impressive operational discipline, as evidenced by an efficiency ratio below 50%. This means it spends less than fifty cents to generate a dollar of revenue, a mark of a highly efficient operation. While the bank does have some unrealized losses in its securities portfolio due to higher interest rates, the impact appears manageable relative to its strong capital base. Overall, the financial foundation of 1st Source Corporation looks stable, characterized by strong profitability, a conservative balance sheet, and efficient operations.
In an analysis of its past performance from fiscal year 2020 through fiscal year 2024, 1st Source Corporation (SRCE) presents a track record of steady, conservative growth. The bank has successfully expanded its core operations, but its profitability and efficiency metrics have consistently lagged those of higher-performing regional peers. This history reflects a well-managed, traditional institution that prioritizes stability, sometimes at the expense of higher returns and operational leverage.
Looking at growth, SRCE has shown a resilient recovery and subsequent expansion. After a dip in 2020 due to the pandemic environment, earnings per share (EPS) grew from $3.17 in FY2020 to $5.36 in FY2024, representing a strong compound annual growth rate (CAGR) of approximately 14%. This was driven by consistent growth in net interest income, which increased from $225.8 million to $300.8 million over the same period. This fundamental growth was mirrored in its balance sheet, with gross loans growing at a 5.8% CAGR and total deposits at a 5.0% CAGR. This indicates the bank is steadily gaining share and expanding its core business in its operating footprint.
From a profitability and shareholder return perspective, the story is one of consistency. Return on Equity (ROE) has improved from 9.16% in FY2020 to a more respectable 11.79% in FY2024. While this is a positive trend, it still falls short of top-tier competitors like Lakeland Financial and Commerce Bancshares, which often post ROEs in the 13-15% range. The bank has been a reliable dividend payer, increasing its dividend per share from $1.13 to $1.42 over the five-year period, supported by a conservative payout ratio consistently under 30% in recent years. Share buybacks have been modest but consistent, helping to reduce the share count and prevent dilution.
In conclusion, the historical record for SRCE supports confidence in its execution as a stable and resilient community bank. It has successfully navigated the recent economic cycle, growing its earnings and balance sheet at a respectable pace. However, its past performance also reveals a persistent gap in efficiency and profitability when compared to best-in-class peers. While the bank's track record is solid, it has not demonstrated the operational excellence that typically leads to superior long-term shareholder returns.
The U.S. regional and community banking industry is navigating a period of significant transformation, with the next 3-5 years expected to be shaped by several key trends. The primary shift is the ongoing normalization of interest rates and its effect on bank profitability. After a period of rapid rate hikes, banks are now grappling with higher funding costs as depositors seek better yields, compressing net interest margins (NIMs). The industry is also undergoing a digital acceleration, where investment in technology for mobile banking, online loan origination, and digital account opening is no longer optional but essential for retaining and attracting customers. Competition is intensifying not just from other banks, but also from fintech companies and non-bank lenders who are capturing market share in specific product areas like personal loans and payment services. The regulatory environment is also tightening, particularly for mid-sized banks, which could increase compliance costs and capital requirements. The U.S. regional banking market is projected to grow at a modest CAGR of around 2-3%, closely tracking nominal GDP growth. Catalysts for demand could include a potential easing of monetary policy, which would lower funding costs, and increased regional infrastructure spending, which would boost commercial loan demand. However, the high capital requirements and regulatory hurdles make new bank charters rare, so competitive intensity will primarily involve market share shifts among existing players rather than new entrants.
Looking ahead, the industry will likely see continued consolidation as smaller banks struggle with the scale needed to invest in technology and manage regulatory burdens. This presents both an opportunity and a threat for banks like 1st Source. Furthermore, the shift in customer behavior towards digital channels will force banks to re-evaluate their physical branch footprint, leading to closures in some areas and reinvestment in more modern, advisory-focused centers in others. The ability to gather and retain low-cost core deposits will remain the single most important differentiator for profitability. Banks that can successfully integrate digital convenience with high-touch, personalized service for niche customer segments will be best positioned to thrive. The key challenge over the next 3-5 years will be balancing the need for technological investment with the pressure to manage costs and maintain profitability in a potentially lower-margin environment. Success will depend on disciplined underwriting, efficient operations, and the ability to cultivate deep customer relationships that create a sticky, low-cost deposit base.
1st Source's most significant growth driver is its Specialty Finance Group, focusing on aircraft and construction equipment lending nationwide. Current usage is high among businesses and high-net-worth individuals who require specialized financing that most banks cannot provide. Consumption is currently constrained by the overall economic outlook; high interest rates and fears of a slowdown can cause businesses to delay large capital expenditures on new equipment or aircraft. Over the next 3-5 years, consumption is expected to increase, particularly if interest rates stabilize or decline, lowering the cost of financing. Growth will come from expanding its roster of national clients and deepening relationships with equipment dealers. The addressable market for U.S. equipment finance is estimated to be over $1 trillion, with the general aviation market also being substantial. Competitors are typically other specialized lenders or the financing arms of large manufacturers. 1st Source outperforms by leveraging decades of expertise, allowing for faster and more knowledgeable underwriting and service, which creates high switching costs. The number of banks with true expertise in these national niches is small and unlikely to grow, given the high barriers to entry related to specialized knowledge and risk management. A key future risk is a severe recession (medium probability), which would directly hit demand for capital goods and could lead to higher credit losses in this concentrated portfolio.
In contrast, the bank's traditional Commercial and Industrial (C&I) lending within its Indiana and Michigan footprint offers more modest growth prospects. Current consumption is tied directly to the health of the local economy, serving the working capital and expansion needs of small-to-medium-sized businesses. Growth is limited by intense competition from other community banks, larger regional players like Old National Bancorp, and national banks. Over the next 3-5 years, consumption growth will likely mirror local GDP growth, in the low single digits. Any increase in consumption will come from taking market share by emphasizing its relationship-based service model against larger, less personal competitors. Growth could be accelerated by targeted economic development in Northern Indiana, such as in the electric vehicle or manufacturing sectors. However, competitors with larger balance sheets and broader product suites are likely to win larger corporate clients. The primary risk is a regional economic downturn (medium probability), which would simultaneously reduce loan demand and increase credit risk within its geographically concentrated C&I portfolio.
1st Source's Wealth Management and Trust division is a crucial and steady source of future fee income growth. Current consumption is driven by affluent and high-net-worth clients in its core markets seeking personalized financial planning and investment services. The main constraint is the intense competition from large wirehouses (like Morgan Stanley), independent registered investment advisors (RIAs), and low-cost digital platforms. Over the next 3-5 years, consumption is poised to increase due to demographic trends, specifically the transfer of wealth between generations and an aging population requiring retirement planning. Growth will come from deepening relationships with its existing affluent banking clients and attracting new assets. The U.S. wealth management market is projected to grow at a 4-6% CAGR. 1st Source will outperform with clients who value the integration of their banking, trust, and investment services under one roof. The risk to this segment is a prolonged equity market downturn (medium probability), which would reduce asset-based fees and could cause clients to become more risk-averse, slowing new asset inflows. A 10% drop in market values could directly reduce fee revenue by a similar percentage.
Finally, the bank's Commercial Real Estate (CRE) and consumer lending businesses are expected to be slow-growth areas. Current CRE demand is constrained by high interest rates and structural shifts, particularly in the office sector due to remote work. Consumer lending is highly competitive and sensitive to the economic cycle. Over the next 3-5 years, growth in these portfolios is likely to be muted. The bank will likely focus on high-quality, owner-occupied CRE loans and leverage its existing customer base for consumer loans rather than aggressively seeking new market share. The primary risk is credit quality deterioration, especially within its ~13% CRE portfolio (medium probability). A significant increase in vacancies or defaults in its local markets could lead to higher loan loss provisions, directly impacting earnings. The bank's relatively conservative underwriting and focus on its home market may mitigate this, but it cannot escape the broader industry headwinds facing this asset class.
Looking beyond specific product lines, a critical factor for 1st Source's future growth is its ability to manage the inherent tension between its two business models. The national specialty finance business requires a different risk appetite, talent pool, and marketing strategy than the community bank. Maintaining its leadership and underwriting expertise in these niches as senior employees retire will be a key challenge. Furthermore, while the specialty businesses provide diversification against local economic shocks, they also introduce concentration risk to specific industries (aviation, construction). A downturn that affects both the national construction industry and the local Indiana economy simultaneously could put significant stress on the bank's earnings and capital. Therefore, disciplined capital allocation and risk management will be paramount to ensuring that the growth from its specialty niches translates into sustainable long-term value for shareholders.
As of October 27, 2025, with a price of $61.02, a detailed valuation analysis suggests that 1st Source Corporation is trading near its fair value. A triangulated approach using multiples, dividends, and asset values points to a stock that is reasonably priced relative to its strong operational performance. A price check against a fair value range of $59.50–$66.00 indicates the stock is fairly valued, with a modest potential upside of around 2.8%, making it a solid candidate for a watchlist.
The multiples approach compares SRCE's valuation to its peers. The company's Trailing Twelve Months (TTM) P/E ratio is 10.16, which is attractive compared to the regional bank peer average of 13.6x. Applying a more conservative peer P/E of around 11.0x to SRCE's TTM EPS of $6.01 yields a fair value estimate of $66.11. The forward P/E of 9.75 also signals that earnings are expected to grow, making the current valuation look even more reasonable.
From a cash-flow and yield perspective, SRCE offers a dividend yield of 2.49%, supported by a very low and safe payout ratio of 25.3%. This indicates that the dividend is not only secure but also has substantial room for future growth, backed by a one-year dividend growth rate of 8.57%. This healthy, growing dividend provides strong income-based support for the stock's current price. The Price to Tangible Book Value (P/TBV), a primary valuation tool for banks, stands at 1.29x. This premium over its tangible book value is justified by strong profitability, reflected in a Return on Equity (ROE) of 13.27%. Applying a conservative 1.25x multiple to its tangible book value suggests a fair price of $58.96, reinforcing that its current valuation is reasonable.
In summary, a triangulation of these methods suggests a fair value range of approximately $59.50–$66.00. The P/E and P/TBV multiples, when compared to peers and justified by the bank's strong profitability, indicate that the stock is reasonably priced. The P/TBV approach is weighted most heavily due to its relevance and stability in valuing banking institutions.
Warren Buffett's investment thesis for banks hinges on finding durable, low-cost deposit franchises and conservative management that generates high returns on equity through economic cycles. He would appreciate 1st Source Corporation's long history since 1863 and its strong capital position, with a Tier 1 Capital Ratio of ~12.5%, seeing it as a stable and prudent institution. However, Buffett would be deterred by its mediocre operational metrics; an efficiency ratio of ~62% and a Return on Equity (ROE) around ~12% lag best-in-class peers, suggesting it is a fair, but not wonderful, business. The company uses its cash to pay a respectable dividend (yielding ~3.5%) and reinvests the remainder at this ~12% ROE, which creates value but at a rate below what Buffett would consider exceptional. In 2025, he would likely pass on SRCE, concluding that while it is a safe bank, its profitability doesn't justify an investment when superior operators exist. If forced to choose the best banks, Buffett would likely favor Commerce Bancshares (CBSH) for its fortress balance sheet and ~14-15% ROE, German American Bancorp (GABC) for its exceptional ~1.3% return on assets, and Stock Yards Bancorp (SYBT) for its diversified, high-margin wealth management business. Buffett might only consider 1st Source if its price fell significantly, perhaps below its tangible book value, creating a substantial margin of safety.
Bill Ackman would view 1st Source Corporation as a solid, durable regional bank with a long history, but one that is fundamentally under-earning its potential. He would be drawn to its simple, understandable business model and its defensible local moat, but would be concerned by its mediocre operational metrics, particularly its efficiency ratio of 62% which lags best-in-class peers like Lakeland Financial at 55%. This operational gap represents a potential activist opportunity to improve profitability, as closing this gap could significantly lift its Return on Equity from ~12% closer to the 14-15% range. However, at a Price-to-Tangible Book value of 1.3x, the stock isn't deeply undervalued, making the risk-reward for a turnaround campaign less compelling without a clear catalyst. Ackman would likely pass on investing today, viewing it as a good company but not a great one at the current price. If forced to choose top-tier banks, Ackman would favor Commerce Bancshares (CBSH) for its fortress balance sheet and diversified fee income, Stock Yards Bancorp (SYBT) for its high-margin wealth management moat, and Lakeland Financial (LKFN) for its pure operational excellence. His decision on SRCE could change if management announced a credible cost-cutting initiative or if the stock price fell to a level where the earnings yield became too attractive to ignore, perhaps below tangible book value.
Charlie Munger would view 1st Source Corporation as a fundamentally sound, but ultimately unremarkable, community bank that fails to meet his high bar for a truly 'great' business. He would appreciate its long operating history of over 160 years and its conservative capital position, reflected in a solid Tier 1 Capital Ratio of around 12.5%, as these traits help avoid the 'stupidity' that often sinks lesser banks. However, Munger's rigor would quickly focus on the bank's persistent operational mediocrity, highlighted by an efficiency ratio of ~62%, which is significantly weaker than best-in-class peers who operate in the mid-to-high 50s. This inefficiency directly impacts returns, leading to a respectable but unexceptional Return on Equity of ~12%, lagging the 14-15% generated by superior operators. The bank's specialty lending niches, like aircraft finance, would be viewed with suspicion as a potential source of concentrated, hard-to-analyze risk rather than a durable moat. For retail investors, the takeaway is that while SRCE is not a poorly run bank, Munger would argue against owning it, believing it's far better to pay a fair price for a wonderful business than a low price for a fair business. Forced to choose the best in the sector, Munger would likely point to Commerce Bancshares (CBSH) for its fortress balance sheet and diversified fee income, German American Bancorp (GABC) for its pristine credit quality and high ROAA of ~1.3%, and Lakeland Financial (LKFN) for its exceptional efficiency ratio of ~55%. Munger's decision on SRCE would only change if the company demonstrated a clear and sustained path to improving its efficiency ratio into the mid-50s, thereby boosting its return on equity closer to 15% without compromising its underwriting standards.
1st Source Corporation (SRCE) operates as a traditional, relationship-focused community bank, a model that fosters customer loyalty but can limit growth potential. Its competitive strategy is not built on being the largest or most technologically advanced bank, but on deep-rooted community ties in its Indiana and Michigan markets, supplemented by unique national lending verticals. This dual approach gives it a defensive character; the local banking provides a stable deposit base, while the national lending for specialty equipment offers higher-margin opportunities and diversification against regional economic downturns. This structure sets it apart from peers who are often purely focused on standard commercial and consumer lending within a limited geography.
When benchmarked against its competition, SRCE's performance is often a story of trade-offs. The bank's conservative underwriting and capital management have resulted in a strong balance sheet, consistently navigating economic cycles with fewer credit losses than many peers. This emphasis on safety and soundness is attractive to risk-averse investors and depositors. However, this conservatism can translate into slower loan and revenue growth compared to competitors who may take on more risk or pursue aggressive acquisition strategies. Its operational structure also tends to be less efficient, meaning a larger portion of its revenue is consumed by operating expenses compared to the most streamlined banks.
Financially, this translates to a profile of moderate but reliable profitability. SRCE has a long track record of uninterrupted dividend payments, a key attraction for income-seeking investors. Yet, its core profitability metrics, such as Return on Average Assets (ROAA) and Return on Average Equity (ROAE), frequently trail the industry's top performers. This suggests that while the bank is stable, it does not generate profits from its assets and capital as effectively as its more efficient rivals. Investors are therefore comparing a lower-risk, moderate-return institution against peers that may offer higher growth and profitability but potentially with greater volatility and credit risk.
In essence, SRCE's competitive position is that of a durable, old-guard institution. It competes by being a known and trusted entity in its core markets and a specialized expert in its national niches. It is unlikely to win head-to-head on metrics like growth rate or efficiency against the sector's leaders. Instead, it competes by offering stability, reliability, and a consistent dividend, making it a suitable holding for a specific type of investor rather than a market-beating growth stock.
Lakeland Financial Corporation (LKFN) presents a more focused and operationally efficient competitor to 1st Source. While both operate primarily in Northern Indiana, LKFN has consistently demonstrated superior profitability and efficiency. SRCE's key advantages are its larger asset base and its unique, diversified national lending businesses, which reduce its dependence on the local economy. In contrast, LKFN's strength lies in its execution of a pure-play community banking model, achieving better returns through disciplined cost control and strong credit quality. For investors, the choice is between SRCE's diversification and stability versus LKFN's higher profitability and operational excellence.
In Business & Moat, both banks have strong local brands and benefit from high switching costs typical of community banking. On brand, both are deeply entrenched, with SRCE's 160-year history and LKFN's multiple KBW Bank Honor Roll awards signifying their local dominance. Switching costs are high for both, evidenced by SRCE's long average deposit relationships and LKFN's core deposit base exceeding 90%. In terms of scale, SRCE has an edge with total assets around $8.7 billion versus LKFN's $6.4 billion. SRCE also has a slightly larger network with ~80 branches to LKFN's ~50. Critically, SRCE's moat is deepened by its national lending niches like aircraft finance, a differentiator LKFN lacks. Regulatory barriers are high and equal for both. Winner: 1st Source Corporation, due to its greater scale and unique, diversified lending businesses that provide a stronger, more resilient moat.
Financially, LKFN consistently outperforms SRCE on key profitability and efficiency metrics. LKFN's Net Interest Margin (NIM) is typically higher, recently around 3.5% compared to SRCE's 3.2%, meaning LKFN earns more from its lending activities. LKFN's efficiency is far superior, with an efficiency ratio around 55% versus SRCE's 62% (a lower number is better). This operational excellence drives a higher Return on Equity (ROE), often near 14% for LKFN, while SRCE's is closer to 12%. SRCE maintains a slightly stronger capital position with a Tier 1 Capital Ratio of ~12.5% versus LKFN's ~12.0%, and it offers a slightly higher dividend yield. However, LKFN's superior profitability is more compelling. Winner: Lakeland Financial Corporation, for its significantly better efficiency and higher returns on capital.
Looking at Past Performance, LKFN has delivered stronger shareholder returns and more consistent operational improvement. Over the past five years, LKFN's Total Shareholder Return (TSR) has often outpaced SRCE's, driven by better earnings growth. For example, in a typical five-year period, LKFN might post an EPS CAGR of ~8% while SRCE's is closer to ~5%. LKFN has also shown a better trend in improving its efficiency ratio, while SRCE's has remained stubbornly higher. In terms of risk, both are conservatively managed, with low net charge-offs and stable credit ratings, making them comparable on a risk-adjusted basis. However, LKFN's ability to generate superior growth from a similar economic environment gives it the edge. Winner: Lakeland Financial Corporation, due to its stronger historical earnings growth and total shareholder returns.
For Future Growth, both banks face similar prospects tied to the economic health of the Midwest, but their specific drivers differ. SRCE's growth hinges on expanding its specialized national lending portfolios and leveraging its larger balance sheet for bigger commercial deals. LKFN's growth is more organically focused on deepening its market share in Indiana through its efficient, relationship-based model. LKFN's demonstrated ability to control costs gives it an edge, as it can convert new revenue into profit more effectively. Consensus estimates often project slightly higher EPS growth for LKFN due to this operational leverage. SRCE has more diversification, which could provide an upside surprise, but LKFN's path to growth is clearer and more proven. Winner: Lakeland Financial Corporation, as its superior efficiency provides a more direct and reliable path to future earnings growth.
In terms of Fair Value, the market often awards LKFN a premium valuation for its superior quality, but it can still represent better value. LKFN typically trades at a higher Price-to-Tangible Book Value (P/TBV) multiple, for instance 1.8x versus SRCE's 1.3x, reflecting its higher ROE. However, on a Price-to-Earnings (P/E) basis, they can be closer, with both trading in the 10x-12x range. SRCE offers a higher dividend yield, recently around 3.5% versus LKFN's 3.2%, which may appeal to income investors. The quality vs. price argument favors LKFN; the valuation premium is justified by its superior profitability and efficiency. For a long-term investor, paying a slightly higher multiple for a much higher-quality operation is often the better deal. Winner: Lakeland Financial Corporation, as its premium valuation is well-supported by its superior financial metrics, arguably making it a better value on a risk-adjusted basis.
Winner: Lakeland Financial Corporation over 1st Source Corporation. While SRCE is a solid, stable bank with the advantages of larger scale and diversified national lending, LKFN is the superior operator. LKFN's key strengths are its best-in-class efficiency ratio of ~55% and a higher Return on Equity of ~14%, which consistently translate revenue into higher profits for shareholders. SRCE's primary weakness is its operational inefficiency, with a higher cost structure that dampens its profitability. The main risk for LKFN is its geographic concentration, while SRCE's risk is its inability to improve margins. Ultimately, LKFN's superior profitability and operational discipline make it the stronger investment.
German American Bancorp (GABC) is a close competitor to 1st Source, operating a similar community-focused banking model primarily in Southern Indiana. GABC has a strong reputation for disciplined growth and pristine credit quality, often ranking among the top-performing community banks in the nation. While SRCE is larger and more diversified with its national niches, GABC excels in core banking fundamentals, boasting better profitability and efficiency metrics. The comparison highlights a classic strategic choice: SRCE's broader, more diversified model versus GABC's focused, high-performance execution in its chosen markets.
Analyzing their Business & Moat, both banks have formidable local brands built over a century. GABC's brand is dominant in Southern Indiana, while SRCE's is concentrated in the North. GABC has roots dating back to 1910, and SRCE was founded in 1863, giving both immense local credibility. Switching costs are high for both due to entrenched customer relationships. In scale, SRCE is larger, with assets of ~$8.7 billion versus GABC's ~$7.0 billion. Network effects are comparable and localized. The key difference in moat lies in diversification; SRCE's national lending for aircraft and equipment provides a unique buffer against local economic issues, a feature GABC lacks. Regulatory barriers are identical for both. Winner: 1st Source Corporation, because its larger scale and, more importantly, its diversified national lending businesses create a more robust and resilient business model.
From a Financial Statement perspective, GABC consistently demonstrates superior operational capabilities. GABC's Return on Average Assets (ROAA) is often around 1.3%, a benchmark of excellence for community banks, while SRCE's is closer to 1.1%. This indicates GABC generates more profit from its asset base. Similarly, GABC's efficiency ratio is typically better, often in the high 50s (e.g., 58%), compared to SRCE's 62%, showing better cost management. On credit quality, GABC is a standout, with non-performing assets often below 0.25% of total assets, compared to SRCE's already strong 0.45%. SRCE's main financial advantages are its larger size and slightly higher dividend yield. Winner: German American Bancorp, due to its superior profitability (ROAA), efficiency, and best-in-class credit quality.
Reviewing Past Performance, GABC has a track record of more consistent and profitable growth. Over the last decade, GABC has compounded its earnings per share at a higher rate than SRCE, often achieving a five-year EPS CAGR closer to 9% versus SRCE's 5%. This stronger earnings growth has fueled superior Total Shareholder Returns (TSR) for GABC investors over multiple timeframes. Both banks have shown remarkable stability and have long histories of paying dividends, but GABC has grown its dividend at a faster pace. In terms of risk, GABC's exceptionally low credit losses through various cycles makes it a slightly safer bet from a credit perspective. Winner: German American Bancorp, for delivering higher growth in earnings and dividends, leading to better long-term shareholder returns.
Regarding Future Growth prospects, both are mature banks with growth tied to their regional economies. However, GABC has a more defined strategy of expanding its footprint into adjacent markets like Kentucky, supported by a successful M&A track record. SRCE's growth is more reliant on its niche national businesses, which can be more volatile and dependent on specific industry cycles. Analysts often favor GABC's clear, organic growth-plus-acquisition strategy, which has proven effective. While SRCE's diversification offers a hedge, GABC's focused execution and market expansion strategy appear more potent for driving future earnings. Winner: German American Bancorp, due to its clearer and more proven strategy for future market expansion and growth.
In terms of Fair Value, the market typically awards GABC a premium valuation for its high quality. GABC's Price-to-Tangible Book (P/TBV) ratio is often higher, around 1.7x versus SRCE's 1.3x. This premium is a direct reflection of GABC's superior ROA and ROE. On a P/E basis, they might trade at similar multiples, but the story is in the quality you get for that price. SRCE's primary valuation appeal is its higher dividend yield, which might be ~3.5% when GABC's is ~3.0%. Even with the premium, GABC arguably offers better long-term value, as investors are paying for a more profitable and efficient banking operation with a strong growth track record. Winner: German American Bancorp, as its premium valuation is justified by its superior operational performance and credit quality, making it a better buy for quality-focused investors.
Winner: German American Bancorp over 1st Source Corporation. GABC is the superior choice due to its exceptional operational execution and pristine credit quality. Its strengths are clearly visible in its higher ROAA (~1.3%), better efficiency ratio (~58%), and a history of stronger EPS growth. SRCE's main advantage is its diversification through national lending, but this does not compensate for its weaker core profitability. The primary risk for GABC is its geographic concentration, while SRCE's is persistent operational inefficiency. GABC consistently proves its ability to execute the fundamentals of banking at a higher level, making it the more compelling investment.
Old National Bancorp (ONB) represents a larger, more acquisitive regional bank compared to 1st Source. With a much larger footprint across the Midwest, ONB competes on a different scale, leveraging its size to achieve efficiencies and offer a broader range of services. SRCE is a more traditional community bank with unique national niches, while ONB is a regional powerhouse built through a consistent strategy of mergers and acquisitions. The comparison pits SRCE's focused, niche strategy against ONB's scale-driven, diversified regional banking model.
Regarding Business & Moat, ONB's key advantage is scale. With total assets exceeding $48 billion, it dwarfs SRCE's $8.7 billion. This scale provides significant advantages in terms of operating leverage, technology investment, and brand recognition across a wider geography. ONB's brand is well-established throughout Indiana, Illinois, Michigan, and Wisconsin. While SRCE has a strong local brand and high switching costs in its specific markets, its moat is geographically limited. SRCE's national lending niches offer some diversification, but they don't match the geographic and product diversification that ONB's sheer size affords. Regulatory barriers are high for both. Winner: Old National Bancorp, due to its massive scale advantage, which creates a wider and deeper competitive moat.
From a Financial Statement analysis, the picture is more mixed. ONB's scale allows it to generate significantly more revenue and net income in absolute terms. However, on a per-unit basis, its metrics can be less impressive than smaller, more focused banks. ONB's efficiency ratio, often in the low 60s (e.g., 61%), is comparable to SRCE's 62%, suggesting it hasn't fully translated its scale into superior cost efficiency, often due to M&A integration costs. ONB's Return on Equity (ROE) is typically around 10-11%, often slightly lower than SRCE's ~12%. ONB maintains a strong capital position, with a Tier 1 ratio around 11%, but SRCE is often slightly better capitalized. Winner: 1st Source Corporation, because despite its smaller size, it often delivers slightly better profitability (ROE) and maintains a stronger capital base.
In Past Performance, ONB's history is defined by growth through acquisitions. This has led to rapid growth in assets and revenue, but earnings per share (EPS) growth can be lumpy and diluted by share issuance for deals. Over a five-year period, ONB's revenue CAGR might be in the double digits due to M&A, far outpacing SRCE's low-single-digit organic growth. However, ONB's Total Shareholder Return (TSR) can be more volatile, influenced by the market's perception of its latest acquisition. SRCE offers a more stable, predictable trajectory of performance. SRCE's risk profile is lower due to its simpler business model and lack of integration risk from large-scale M&A. Winner: 1st Source Corporation, for providing more stable and predictable per-share growth and lower operational risk.
Looking at Future Growth, ONB has a clear and aggressive growth playbook: acquire smaller banks to expand its footprint and gain market share. This strategy provides a direct, albeit challenging, path to growth that is less dependent on the slow organic growth of the Midwest economy. SRCE's growth is more reliant on the performance of its niche lending businesses and the local economy. While SRCE's path is more stable, ONB's potential for growth is structurally higher, assuming it can successfully execute its M&A strategy. Consensus estimates will almost always project higher absolute growth for ONB. Winner: Old National Bancorp, as its proven M&A strategy provides a much larger and more dynamic engine for future growth.
When considering Fair Value, both banks often trade at similar valuation multiples. For example, both might trade at a Price-to-Tangible Book Value (P/TBV) of around 1.2x-1.4x and a P/E ratio in the 10x-12x range. SRCE typically offers a slightly higher dividend yield, perhaps 3.5% to ONB's 3.2%. Given their similar valuations, the choice comes down to investor preference. ONB offers exposure to a large, growing regional bank with M&A upside (and risk). SRCE offers a simpler, more stable investment with slightly better underlying profitability metrics. On a risk-adjusted basis, SRCE's stability and slightly higher dividend can make it a better value for conservative investors. Winner: 1st Source Corporation, as it offers comparable, if not slightly better, profitability metrics for a similar valuation without the integration risk associated with ONB's M&A model.
Winner: 1st Source Corporation over Old National Bancorp. While ONB's massive scale is a significant competitive advantage, SRCE wins this matchup due to its superior execution on a smaller scale. SRCE consistently delivers a better Return on Equity (~12% vs. ONB's ~11%) and maintains a stronger capital position, all while carrying less operational risk from M&A integration. ONB's key weakness is that its scale has not yet translated into superior profitability or efficiency compared to SRCE. The primary risk for SRCE is its limited growth, while for ONB, it is the potential for a misstep in its aggressive acquisition strategy. For an investor focused on quality and stability, SRCE's more predictable and profitable model is the more attractive choice.
Stock Yards Bancorp (SYBT) is a high-performing community bank headquartered in Louisville, Kentucky, with operations extending into Indiana and Ohio. It competes with 1st Source by offering a similar suite of community banking services, but with a notable emphasis on a large and successful wealth management and trust division. This gives SYBT a more diversified and fee-heavy revenue stream compared to SRCE's more traditional interest-income-focused model. The comparison pits SRCE's unique specialty lending against SYBT's powerful wealth management engine.
In terms of Business & Moat, both banks have strong, century-old brands in their home markets. SYBT's moat is significantly enhanced by its wealth management arm, which managed over $5 billion in assets. This division creates extremely sticky customer relationships and generates high-margin, non-interest income, insulating it from swings in interest rates. SRCE's moat comes from its specialized national lending. On scale, the two are very comparable, both with total assets in the $7-$9 billion range. Both have strong local networks and benefit from high switching costs. However, SYBT's wealth management business is a more stable and scalable moat than SRCE's more cyclical specialty lending. Winner: Stock Yards Bancorp, due to its powerful wealth management division, which provides a durable, high-margin, and less cyclical competitive advantage.
Financially, SYBT consistently demonstrates a superior and more balanced earnings profile. A key differentiator is its revenue mix; non-interest income often accounts for over 30% of SYBT's total revenue, a much higher percentage than SRCE's. This leads to a more stable revenue stream. SYBT's profitability is also typically stronger, with a Return on Average Assets (ROAA) often around 1.2% compared to SRCE's 1.1%. Its efficiency ratio is also generally better, often below 60%, versus SRCE's 62%. Both banks are well-capitalized and have good credit quality, but SYBT's financial model is simply more robust. Winner: Stock Yards Bancorp, for its diversified revenue stream, higher profitability, and greater efficiency.
Looking at Past Performance, SYBT has a history of delivering stronger and more consistent growth. The fee income from its wealth management division has provided a steady tailwind to earnings, allowing SYBT to grow its EPS at a faster and more predictable rate than SRCE over the past decade. This has translated into superior Total Shareholder Returns (TSR) for SYBT investors. Both banks are reliable dividend payers, but SYBT has often been able to grow its dividend more rapidly, fueled by its stronger earnings growth. On risk, SYBT's model is arguably less risky due to its revenue diversification. Winner: Stock Yards Bancorp, for its superior historical growth in earnings, dividends, and total shareholder return.
For Future Growth, SYBT's primary driver is the continued expansion of its wealth management business and leveraging that into its banking operations in new markets like Indianapolis and Cincinnati. The wealth management industry is growing, and SYBT is well-positioned to capture that growth. SRCE's growth is more tied to the health of the capital equipment and aviation industries, which can be more volatile. While both have solid prospects, SYBT's growth engine appears more secular and less cyclical. Analysts often project more stable, long-term growth for SYBT. Winner: Stock Yards Bancorp, due to its exposure to the growing wealth management sector, which provides a more reliable growth path.
In Fair Value, SYBT's higher quality and more stable business model typically earn it a premium valuation from the market. It often trades at a higher Price-to-Earnings (P/E) ratio, perhaps 13x versus SRCE's 11x, and a higher Price-to-Tangible Book (P/TBV) multiple. SRCE's main appeal from a value perspective is its higher dividend yield. However, the valuation premium for SYBT is well-deserved. Investors are paying for a business with a superior revenue mix, higher profitability, and better growth prospects. Over the long term, this premium is likely to be justified by superior performance. Winner: Stock Yards Bancorp, as its premium valuation is backed by a fundamentally stronger and more diversified business model.
Winner: Stock Yards Bancorp over 1st Source Corporation. SYBT is the clear winner due to its superior business model, which is powered by a large and profitable wealth management division. This key strength provides a diversified, high-margin revenue stream that SRCE lacks, leading to higher profitability (ROAA ~1.2%), better efficiency, and more stable growth. SRCE's primary weakness in this comparison is its heavier reliance on net interest income and more cyclical specialty lending. The main risk for SYBT is execution in expanding its model into new markets, while SRCE's risk is its exposure to cyclical industries. SYBT's more balanced and profitable model makes it the more compelling long-term investment.
Simmons First National Corporation (SFNC) is a dynamic, growth-oriented regional bank with a footprint across the central and southern United States. Like Old National, SFNC's strategy has been heavily focused on growth through acquisition, having completed numerous bank purchases over the last decade. This makes it a starkly different competitor to the more organically focused, traditional 1st Source. The comparison highlights the contrast between a disciplined M&A roll-up strategy and a steady, conservative community banking model.
In the realm of Business & Moat, SFNC's primary advantage is its broad geographic diversification. With operations in states like Arkansas, Texas, and Tennessee, it has exposure to faster-growing economic regions than SRCE's Midwest footprint. Its scale, with assets around $27 billion, also provides advantages over SRCE's $8.7 billion. However, SFNC's moat can be viewed as a collection of smaller, acquired moats that are still being integrated, potentially lacking the deep, century-old cohesion of SRCE's brand in its home market. SRCE's moat is deeper but narrower, while SFNC's is wider but potentially shallower. SRCE's national lending niches also provide a different kind of diversification. Winner: Simmons First National Corporation, as its significant scale and exposure to faster-growing economies provide a more powerful, albeit complex, competitive position.
From a Financial Statement perspective, SFNC's profile is heavily influenced by its M&A activity. Its revenue and asset growth numbers are impressive, but this often comes at the cost of operational complexity and integration challenges. SFNC's efficiency ratio can be volatile but has trended in the low 60s, similar to SRCE's ~62%. Its profitability, as measured by Return on Equity (ROE), is often in the 9-11% range, which is typically lower than SRCE's ~12%. This lower profitability reflects the costs and share dilution associated with acquisitions. SRCE, with its simpler model, is able to generate better returns on its capital. SFNC is well-capitalized, but SRCE often maintains a slightly higher capital ratio. Winner: 1st Source Corporation, for its superior profitability (ROE) and more straightforward, efficient use of shareholder capital.
Looking at Past Performance, SFNC's story is one of rapid, M&A-fueled expansion. Its five-year revenue and asset growth rates will dwarf SRCE's. However, this top-line growth has not always translated into superior shareholder returns. SFNC's Total Shareholder Return (TSR) can be choppy, reflecting the market's fluctuating confidence in its M&A strategy and integration efforts. SRCE's performance has been less spectacular but more stable. From a risk perspective, SFNC carries significant integration risk and the risk of overpaying for acquisitions, which SRCE does not. For investors seeking predictability, SRCE has been the better performer on a risk-adjusted basis. Winner: 1st Source Corporation, for delivering more stable returns with a lower-risk business model.
For Future Growth, SFNC's path is clearly defined by continued M&A. It operates in a target-rich environment and has a proven, if aggressive, playbook for acquiring and integrating smaller banks. This gives it a high-octane growth potential that SRCE lacks. SRCE's growth is more modest and organic. While SFNC's strategy is riskier, its ceiling for growth is substantially higher. The bank's presence in high-growth states like Texas also provides a significant organic tailwind that SRCE's Midwest markets do not offer. Winner: Simmons First National Corporation, due to its aggressive M&A strategy and its presence in faster-growing economic regions, which together provide a more powerful growth outlook.
In terms of Fair Value, the market often values SFNC at a discount to reflect the risks and complexities of its M&A model. It frequently trades at a lower Price-to-Tangible Book (P/TBV) multiple than SRCE, for example 1.1x for SFNC versus 1.3x for SRCE. This is a direct result of its lower ROE. It also typically offers a comparable or slightly higher dividend yield. For a value-oriented investor, SFNC can look compelling. One is buying into a high-growth story at a discounted valuation. The question is whether management can successfully integrate its acquisitions and improve profitability. If they can, the stock is cheap. If not, it's a value trap. SRCE is the safer, higher-quality choice at a fair price. Winner: Simmons First National Corporation, but with a significant caveat; it is the better value only for investors with a higher risk tolerance who are willing to bet on the successful execution of its M&A strategy.
Winner: 1st Source Corporation over Simmons First National Corporation. This is a victory for quality and stability over high-risk growth. SRCE is the superior operator, consistently delivering a higher Return on Equity (~12% vs. SFNC's ~10%) from a simpler, lower-risk business model. SFNC's key strength is its aggressive M&A-driven growth, but its primary weakness is the resulting lower profitability and significant integration risk. While SFNC offers the potential for higher growth, SRCE provides a more certain and profitable investment. The main risk for SRCE is slow growth, while the risk for SFNC is a failed acquisition that could impair book value and earnings for years. SRCE's proven ability to generate better returns makes it the more prudent choice.
Based on industry classification and performance score:
1st Source Corporation operates a dual-engine business model, combining traditional community banking in Indiana and Michigan with high-value national lending niches in aircraft and construction equipment finance. This specialized lending provides a distinct competitive advantage and diversifies its revenue streams beyond typical community banking. While the bank faces industry-wide pressures on deposit costs, its strong local relationships and differentiated niche businesses create a defensible moat. For investors, 1st Source presents a mixed but leaning positive profile: its unique business mix offers resilience, but its performance remains tied to the broader economic cycle and interest rate environment affecting all regional banks.
The bank's strong wealth management and trust business drives a healthy level of fee income, providing valuable revenue diversification that reduces its dependence on lending.
1st Source generates a substantial portion of its revenue from noninterest (fee-based) income, which is a significant advantage. In the most recent quarter, noninterest income constituted 26.3% of its total revenue, a figure that is ABOVE AVERAGE for a community bank of its size. The quality of this fee income is high, with a large contribution from its wealth management and trust services, which generate stable, recurring fees from over $5.9 billion in assets under management. This is supplemented by other sources like service charges and card income. This strong fee income stream provides a buffer during periods of compressed net interest margins—when the profit from lending is squeezed—making the bank's overall earnings profile more resilient and less volatile than peers who are more heavily reliant on loans.
1st Source has a well-diversified deposit base with minimal reliance on volatile funding sources, reflecting its strong community ties and a conservative funding strategy.
The bank exhibits a healthy and diversified deposit mix, which is a key strength for a community-focused institution. It has very low reliance on brokered deposits, which are less stable, 'hot money' funds. This indicates that its deposit base is primarily sourced from its local retail and commercial customers, which tend to be more loyal. The bank's public filings do not indicate any significant deposit concentrations from a small number of customers, reducing the risk of a large, sudden outflow. This diversified and granular deposit base is a direct result of its long-standing community presence and successful relationship banking model. This conservative approach to funding provides a stable foundation for its lending operations, even if it's not the absolute lowest-cost funding in the industry.
1st Source's national specialty lending businesses in aircraft and construction equipment finance represent a powerful and distinct competitive moat that sets it apart from nearly all of its peers.
The bank's most compelling strength is its specialized lending expertise. Its Specialty Finance Group, which provides financing for private aircraft and construction equipment nationwide, makes up nearly a quarter of its entire loan portfolio. This is highly unusual and advantageous for a bank of its size. These niches require deep, specialized underwriting knowledge and industry relationships, creating high barriers to entry for competitors. This expertise allows 1st Source to generate attractive, risk-adjusted returns that are not correlated with its local Indiana/Michigan economy. This national franchise provides critical diversification and a source of pricing power, making it the cornerstone of the bank's competitive moat and a key driver of its long-term value proposition.
The bank faces industry-wide pressure on its deposit costs and has a lower-than-average base of noninterest-bearing deposits, indicating a vulnerability to rising interest rates.
A bank's strength is often measured by its access to low-cost, stable funding. In the first quarter of 2024, 1st Source's noninterest-bearing deposits represented 22.2% of total deposits. This is slightly BELOW the regional bank average, which hovers around 25%. A smaller base of these 'free' deposits means the bank is more sensitive to interest rate changes, as seen in its cost of total deposits rising to 2.01%. Furthermore, its estimated uninsured deposits were 36.6% of total deposits at year-end 2023. While this is IN LINE with the industry average post-SVB, it's not a low figure and represents a potential risk of outflows if client confidence were to be shaken. The combination of a below-average noninterest-bearing deposit base and rising funding costs points to a less sticky and less advantageous deposit franchise compared to top-tier peers.
1st Source maintains a dense and efficient branch network in its core markets, but its deposits per branch are average, indicating solid local presence without superior operational leverage from its physical footprint.
1st Source operates 79 banking centers concentrated in 18 counties across Northern Indiana and Southwestern Michigan. This creates significant local density, which is crucial for its relationship-based community banking model. With approximately $6.9 billion in deposits, the bank's average deposits per branch stand at around $88 million. This figure is generally IN LINE with many community banks of a similar size but does not suggest a significant scale advantage over peers. The bank's strategy appears focused on optimizing its existing footprint rather than aggressive expansion or contraction, which supports stable customer relationships. While its concentrated network is a strength for brand recognition and deposit gathering in its home turf, the lack of superior efficiency on a per-branch basis means it doesn't translate into a standout competitive advantage on its own.
1st Source Corporation demonstrates strong financial health, marked by consistent growth in its core earnings. The bank's net interest income grew over 17% in the most recent quarter, supported by a healthy loans-to-deposits ratio of 91.8% and excellent cost control, with an efficiency ratio around 49.5%. Furthermore, its profitability is robust, with a return on equity of 13.27%. While exposed to interest rate risk like all banks, its financial statements show resilience. The overall takeaway for investors is positive, reflecting a well-managed bank with a stable financial foundation.
The bank exhibits a very strong capital position and a healthy liquidity profile, providing a substantial cushion against economic stress.
1st Source maintains a robust capital base, which is crucial for absorbing potential losses and supporting growth. The bank's ratio of tangible common equity to total assets was 12.7% ($1.15 billion / $9.06 billion) in the most recent quarter. This is significantly above the typical 8-10% range for regional banks, indicating a strong capital buffer. This strength is further reinforced by a very low debt-to-equity ratio of 0.15.
On the liquidity side, the bank's loans are well-funded by customer deposits. The loans-to-deposits ratio stood at 91.8% ($6.8 billion in net loans to $7.4 billion in deposits). This is in line with industry norms, suggesting the bank does not rely excessively on less stable, higher-cost wholesale funding to support its lending activities. This combination of strong capital and stable funding provides a resilient foundation for the bank's operations.
The bank maintains a strong credit loss reserve relative to its loan portfolio, and recent provisions for losses are low, suggesting stable credit quality.
Credit discipline appears to be a strength for 1st Source. The bank's allowance for credit losses was $161.4 million against a gross loan portfolio of $6.96 billion, resulting in a reserve coverage ratio of 2.32%. This is a strong level of reserves compared to the industry average, which is often closer to 1.5%, indicating the bank is well-prepared for potential future loan losses.
Furthermore, the provision for credit losses in the most recent quarter was a very low $0.9 million, down from $7.7 million in the prior quarter. This low figure suggests that management perceives the current credit risk in its portfolio to be stable and under control. While non-performing loan data is not explicitly provided, the minimal amount of foreclosed real estate ($0.56 million) on its books is another positive sign of a healthy loan portfolio.
The bank shows positive results from rising interest rates with strong net interest income growth, and its balance sheet shows only a modest negative impact from unrealized securities losses.
1st Source Corporation appears to be managing its interest rate sensitivity effectively. A key indicator of this is the 17.57% year-over-year growth in net interest income in the latest quarter, which shows the bank is earning more on its loans and investments than it is paying for deposits and other funding. This suggests a well-positioned balance sheet for a higher-rate environment.
Like many banks, 1st Source has unrealized losses on its investment securities portfolio due to rate increases. This is reflected in the Accumulated Other Comprehensive Income (AOCI) which was negative -$45.86 million in the latest quarter. However, this represents only about 4% of the bank's tangible common equity of $1.15 billion, a manageable figure that is less severe than at many peers. This indicates the bank's capital is not unduly exposed to swings in securities values, preserving its financial flexibility.
The bank is generating strong growth in its core lending income, indicating a healthy and expanding spread between what it earns on assets and pays for funding.
The bank's ability to generate profit from its core lending and investing activities is robust. Net interest income (NII), the difference between interest earned on loans and interest paid on deposits, grew 17.57% year-over-year in the third quarter to $88.75 million. This strong growth highlights the bank's success in repricing its loans at higher rates while managing its deposit costs effectively.
While the specific net interest margin (NIM) is not reported, an estimate based on its annualized NII and total assets places it near a strong 3.9%. This is above the industry average for regional banks, which typically falls in the 3.2-3.5% range. The combination of strong NII growth and a healthy estimated NIM demonstrates a high-quality earnings stream that is a primary driver of the bank's overall financial success.
The bank operates with excellent efficiency, keeping its costs low relative to revenue, which directly boosts its profitability.
1st Source demonstrates strong discipline in managing its expenses. In the latest quarter, its efficiency ratio was calculated at 49.5%. This ratio measures noninterest expenses as a percentage of total revenue, and a result below 50% is considered excellent in the banking industry, where peers often operate in the 55-60% range. This means the bank is highly effective at converting revenue into profit.
Breaking down the expenses, salaries and benefits represent the largest component of noninterest expense at $32.2 million, but total overhead appears well-managed relative to the bank's revenue generation. Maintaining this high level of efficiency allows the bank to remain highly profitable and reinvest in its business even in competitive or challenging economic environments.
Over the past five years, 1st Source Corporation has demonstrated a solid and steady, albeit unspectacular, performance. The bank has reliably grown its loans, deposits, and earnings, with EPS growing at a compound annual rate of about 14% from FY2020 to FY2024. Its primary strengths are consistent dividend growth and prudent balance sheet management. However, its key weakness is its operational inefficiency, with an efficiency ratio of around 62%, which is higher than more profitable peers like Lakeland Financial and German American Bancorp. The investor takeaway is mixed; SRCE is a stable and reliable community bank, but its historical performance suggests it struggles to match the profitability and growth of its top competitors.
The bank has demonstrated steady and consistent growth in both its loan portfolio and deposit base over the past five years, reflecting stable market share gains.
Over the analysis period of FY2020-FY2024, 1st Source has successfully grown its core balance sheet. Gross loans increased from $5.51 billion to $6.90 billion, a compound annual growth rate of 5.8%. In parallel, total deposits grew from $5.95 billion to $7.23 billion, representing a CAGR of 5.0%. This balanced growth in both sides of the balance sheet is a positive sign of a healthy community bank that is expanding its relationships with both borrowers and depositors.
The loan-to-deposit ratio has remained stable and prudent, moving from 92.7% in FY2020 to 95.4% in FY2024. This indicates that the bank's loan growth has not been funded by excessively risky borrowing but rather by its growing core deposit franchise. This steady performance demonstrates disciplined management and a solid competitive position within its markets.
While net interest income has grown steadily, the bank's operational efficiency has historically been a notable weakness, lagging behind more disciplined peers and weighing on profitability.
A key area of weakness in SRCE's past performance is its operational efficiency. Competitor comparisons consistently highlight that SRCE's efficiency ratio runs around 62%. A lower ratio is better, and top-performing peers like Lakeland Financial (~55%) and German American Bancorp (~58%) operate with a significantly lower cost structure. This historical inefficiency means that a larger portion of SRCE's revenue is consumed by operating expenses, which ultimately dampens profitability and returns to shareholders.
On a more positive note, the bank's core earning asset base has performed well. Net interest income grew from $225.8 million in FY2020 to $300.8 million in FY2024, a healthy CAGR of 7.4%. This shows the bank's ability to grow its loan book and generate more income. However, the lack of improvement in cost discipline has been a persistent drag, preventing the bank from achieving the higher returns seen at more efficient institutions.
The company has delivered strong earnings per share growth over the last five years, recovering well from a 2020 dip, though it lags the growth rates of top-tier peers.
1st Source has produced a strong overall earnings growth trend over the past five years. Earnings per share (EPS) grew from $3.17 in FY2020 to $5.36 in FY2024, a compound annual growth rate of 14%. This performance is impressive, showcasing the bank's ability to rebound powerfully after a challenging 2020, where EPS fell by 11.2%. The subsequent growth, including a 48.2% jump in FY2021, demonstrates significant earnings power.
However, this growth has not been as smooth as some competitors. After the large rebound, annual EPS growth moderated to the low-to-mid single digits. Furthermore, competitor analysis suggests that peers like German American Bancorp (GABC) have historically delivered more consistent growth. The bank's Return on Equity (ROE) has also improved from 9.16% to 11.79% over the period, which is solid but below the 13%+ levels often seen in best-in-class regional banks.
SRCE has a history of prudent credit management, with its allowance for loan losses appearing robust relative to its loan portfolio and provisions managed proactively through the economic cycle.
While specific data on non-performing loans and net charge-offs is not provided, we can infer credit stability from the provision and allowance for credit losses. The bank took a significant provision for loan losses of $36 million in FY2020, likely in response to the pandemic's economic uncertainty. This was followed by a negative provision (-$4.3 million) in FY2021 as conditions improved, and more normalized provisions since. This pattern suggests proactive and responsive risk management.
The allowance for loan losses has grown from $140.7 million in FY2020 to $155.5 million in FY2024. As a percentage of gross loans, the allowance has remained strong, though it declined slightly from 2.55% to 2.25%. This level of reserves appears conservative and suggests the bank is well-prepared to handle potential credit issues. This aligns with competitor commentary suggesting SRCE is a conservatively managed bank with good credit quality.
SRCE has a reliable history of rewarding shareholders with consistently growing dividends and modest share repurchases, all supported by a conservative payout ratio.
1st Source Corporation has a strong track record of returning capital to its shareholders. The dividend per share has grown steadily from $1.13 in FY2020 to $1.42 in FY2024, a compound annual growth rate of about 5.8%. This growth is backed by a healthy and conservative payout ratio, which stood at 26.7% in FY2024, indicating that the dividend is well-covered by earnings and has room to grow further. This provides a reliable income stream for investors.
In addition to dividends, the company has engaged in consistent, if not aggressive, share repurchases. The total number of common shares outstanding has decreased from 25.39 million at the end of FY2020 to 24.52 million at the end of FY2024. This gradual reduction in share count helps boost earnings per share and shows a commitment to preventing shareholder dilution. Overall, the bank's capital return policy appears prudent and shareholder-friendly.
1st Source Corporation's future growth outlook is mixed, presenting a dual narrative for investors. The bank's key growth engine is its national specialty finance division for aircraft and construction equipment, which offers above-average, diversified growth potential that insulates it from purely local economic trends. This is complemented by a steady wealth management business. However, its traditional community banking operations face significant headwinds, including intense competition and persistent pressure on net interest margins due to rising deposit costs. While the niche businesses provide a distinct advantage, the core banking segment's slower growth profile tempers the overall outlook. The takeaway is cautiously optimistic, contingent on the performance of its specialized lending, but investors should be aware of the margin pressures facing the core business.
Despite a challenging economic environment, the bank's specialized national lending niches provide a unique avenue for loan growth that should allow it to outperform a typical community bank focused solely on its local economy.
While 1st Source has not provided explicit numerical loan growth guidance, its growth outlook is supported by its differentiated business model. The national specialty finance groups (aircraft, construction equipment) serve markets driven by factors beyond the local Indiana/Michigan economy. This provides an opportunity for growth even if local C&I or CRE demand is soft. These niche markets have high barriers to entry, allowing for better pricing power and deep client relationships. Although overall loan growth may appear modest in line with the broader banking industry (low-to-mid single digits), the quality and profitability of this growth are likely to be superior. The bank's ability to generate loans in these specialized, nationwide markets is a distinct advantage and a credible driver of future earnings.
While the company engages in modest share buybacks, its capital deployment strategy lacks a clear, transformative catalyst from M&A, suggesting future growth will be primarily organic and incremental.
1st Source's capital deployment strategy is conservative, focused on supporting organic growth and returning a modest amount of capital to shareholders via dividends and opportunistic buybacks. The bank repurchased 101,848 shares in the first quarter of 2024, demonstrating a willingness to be active, but there is no large-scale buyback authorization that would significantly boost EPS. Furthermore, the bank has not signaled any intention to pursue major acquisitions. Given its unique business mix with national specialty lending, finding a suitable M&A target that wouldn't dilute its strategic focus is difficult. As a result, investors should not expect M&A to be a significant driver of growth in the next 3-5 years. The focus on organic growth is prudent but limits the potential for rapid expansion in shareholder value through strategic transactions.
The bank appears focused on maintaining its existing branch network to support its relationship model, with no clear public targets for consolidation or efficiency gains that would signal a significant future impact on growth or profitability.
1st Source has not announced significant plans for branch network consolidation or provided specific targets for cost savings or digital user growth. The bank's strategy appears to be one of stability, leveraging its dense local network to foster community relationships, which is core to its deposit-gathering efforts. While this approach supports customer retention, it fails to present a compelling case for future operational leverage or efficiency-driven earnings growth. The bank's deposits per branch are in line with peers but not superior. Without a clear initiative to optimize its physical footprint or aggressively drive digital adoption to lower its cost-to-serve, this area represents a missed opportunity for boosting future profitability. This lack of a forward-looking optimization plan is a weakness compared to peers who are actively reducing costs through branch rationalization.
The bank faces significant pressure on its net interest margin due to a below-average level of noninterest-bearing deposits and rising funding costs, which will likely constrain earnings growth in the near term.
The outlook for 1st Source's net interest margin (NIM) is a key concern and a significant headwind to future growth. The bank's NIM compressed to 3.15% in the first quarter of 2024, down substantially from 3.62% a year prior, reflecting intense pressure on funding costs. A key vulnerability is its relatively low level of noninterest-bearing deposits, which stood at 22.2% of total deposits—below the peer average. This means the bank is more reliant on higher-cost funding sources like interest-bearing checking and money market accounts. Without a clear catalyst to significantly lower its cost of funds in the current rate environment, the bank's NIM is likely to remain under pressure or decline further, acting as a drag on net interest income and overall earnings growth.
The bank's strong wealth management division and above-average reliance on noninterest income provide a clear and stable path for future growth that is less dependent on volatile interest rate cycles.
1st Source is well-positioned for future growth in fee-based income. Noninterest income already constitutes a healthy 26.3% of total revenue, significantly higher than many community bank peers. The main driver is its established wealth management and trust business, with approximately $5.9 billion in assets under management. This division provides a stable and recurring revenue stream. Future growth is likely to come from deepening relationships with its existing commercial and specialty finance clients, who often have significant wealth management needs. This provides a tangible runway for growing assets and, consequently, fee income. This strategic emphasis on noninterest income diversifies the bank's revenue streams and makes its earnings profile more resilient, which is a clear positive for the future.
Based on its current valuation metrics as of October 27, 2025, 1st Source Corporation (SRCE) appears to be fairly valued with signs of being slightly undervalued. With a stock price of $61.02, the company trades at a Price-to-Earnings (P/E) ratio of 10.16 (TTM), which is below the peer average of 13.6x, suggesting a potential discount. Key indicators supporting this view include a solid Return on Equity (ROE) of 13.27%, a reasonable Price to Tangible Book Value (P/TBV) of approximately 1.29x, and a healthy dividend yield of 2.49%. The overall takeaway for investors is neutral to positive, as the bank's strong profitability and reasonable valuation present a solid case, though significant upside may be tempered by broader market conditions for regional banks.
The stock trades at a reasonable premium to its tangible book value, which is well-justified by the company's high profitability and strong returns.
For a bank, the relationship between its market price and its balance sheet value is crucial. SRCE's Price to Tangible Book Value (P/TBV) is approximately 1.29x, based on the current price of $61.02 and a tangible book value per share of $47.17. A P/TBV ratio above 1.0x indicates that investors value the bank's franchise and earnings power at more than the stated value of its net assets. This premium is justified by the company’s excellent Return on Equity (ROE) of 13.27% and Return on Assets of 1.86%, which are strong figures for a regional bank. These returns demonstrate that management is effectively generating profits from its equity and asset base. Compared to industry averages where banks with similar profitability trade at P/TBV multiples between 1.15x and 1.5x, SRCE's valuation appears appropriate and fairly priced for its performance.
The company's high Return on Equity justifies its Price-to-Book multiple, indicating that the market is appropriately valuing its ability to generate strong profits from its capital.
A key test for bank valuation is whether the Price-to-Book (P/B) multiple is aligned with the bank's profitability, measured by Return on Equity (ROE). SRCE has a very healthy current ROE of 13.27%. This level of return is significantly above the typical cost of equity for banks, meaning it creates substantial value for shareholders. The current 10-Year Treasury yield, a proxy for the risk-free rate, is approximately 4.0%. SRCE's ROE provides a very strong premium over this rate. A bank that can generate such high returns deserves to trade at a premium to its book value. With a P/B ratio of 1.21 (and a P/TBV of 1.29x), the valuation is well-supported by its superior profitability. This alignment confirms that the stock is not overvalued despite trading above its book value.
The stock's P/E ratio is attractive, trading at a discount to its peers while being supported by solid recent and expected earnings growth.
SRCE's valuation based on its earnings is appealing. Its TTM P/E ratio of 10.16 is notably lower than the peer average for regional banks, which stands around 11.7x to 13.6x. This suggests that the stock is cheaper than its competitors relative to its earnings. This valuation is further supported by strong growth; the most recent quarter showed EPS growth of 21.28% year-over-year. The forward P/E of 9.75 is lower than the TTM P/E, which implies that analysts expect earnings to continue growing in the next fiscal year. This combination of a below-average P/E multiple and positive earnings momentum indicates that the stock may be undervalued based on its growth prospects.
The company offers a secure and growing dividend, supported by a low payout ratio and modest share repurchases, indicating a healthy return of capital to shareholders.
1st Source Corporation provides a compelling income profile for investors. Its dividend yield of 2.49% is attractive in the current market. More importantly, the dividend is well-covered, with a payout ratio of only 25.3% of earnings. This low ratio means the company retains a significant portion of its profits for growth while still rewarding shareholders, and it suggests the dividend is safe from being cut. Furthermore, the company has demonstrated a commitment to increasing this dividend, with 8.57% growth over the past year. The company also engages in share buybacks, as evidenced by a -0.18% change in shares outstanding, which further enhances shareholder value. This combination of a solid yield, low payout, and consistent growth makes it a strong performer in this category.
Compared to its peers, SRCE appears attractively valued across key metrics like P/E and P/TBV, especially when considering its lower-than-market volatility.
When stacked against its peers in the regional banking sector, 1st Source Corporation shows signs of being a good value. Its P/E ratio of 10.16 is below the industry average. Similarly, its P/TBV of ~1.29x is reasonable given its high ROE. The dividend yield of 2.49% adds to its appeal. Another important factor is its beta of 0.66, which suggests the stock is significantly less volatile than the overall market. This can be attractive for investors seeking stability. While the stock has performed well, trading in the upper half of its 52-week range, its core valuation metrics remain compelling relative to the competition, suggesting a favorable risk/reward profile.
The primary macroeconomic risk for 1st Source is the uncertain path of interest rates and the overall health of the economy. Like most regional banks, its profitability is heavily tied to its net interest margin (NIM)—the difference between the interest it earns on loans and what it pays for deposits. A sustained period of high interest rates could force the bank to pay more to keep customer deposits, compressing this margin. More importantly, a potential economic downturn would heighten credit risk, leading to an increase in loan defaults. Since 1st Source has significant exposure to commercial and industrial loans, a slowdown in business activity could result in higher charge-offs and increased provisions for credit losses, directly impacting its bottom line.
From an industry perspective, the banking sector is undergoing significant structural changes. Competition is fierce, not just from other community and regional banks, but increasingly from large, money-center banks with vast technological resources and marketing budgets. These larger players can often offer more competitive rates and a wider array of digital services, making it a challenge for smaller banks like 1st Source to attract and retain customers. Additionally, the regulatory landscape has become more stringent following the regional banking turmoil of 2023. This translates to higher compliance costs and potentially stricter capital requirements, which can limit the bank's flexibility, curb its ability to grow, and reduce returns for shareholders.
Company-specific risks are centered on its business and geographic concentrations. While 1st Source has successfully carved out niches in specialty financing for trucks, aircraft, and construction equipment, this specialization creates a vulnerability. These industries are highly cyclical and among the first to suffer during an economic recession, which could expose the bank to concentrated losses in its key portfolios. Furthermore, its operations are primarily focused in Indiana and Michigan, making its performance heavily dependent on the economic vitality of those specific regions. A localized downturn could have a disproportionately negative impact compared to a bank with a more diverse national footprint. Managing its deposit base will also be a key challenge, as it must balance paying competitive rates to prevent deposit outflows without excessively damaging its profitability.
Click a section to jump