1st Source Extends Record Profit Streak as Margin Reverses

The Tip Desk · October 27, 2026 · 4 min read

Tax-equivalent net interest income rose 2.62% to $95.74 million and the margin expanded 4 bps to 4.28% after a 1 bps contraction in the second quarter.

1st Source Corporation (SRCE), the largest locally controlled financial institution headquartered in northern Indiana and southwest Michigan, reported record third-quarter net income of $49.54 million, or $2.03 a share, up 4.20% from the second quarter and 17.13% from the third quarter of 2025.

The Indiana community bank extended a three-quarter run of record profits after $39.96 million in the first quarter and $47.54 million in the second. Return on average assets was 2.12%, and return on average common shareholders’ equity was 14.80%.

Tax-equivalent net interest income rose $2.45 million, or 2.62%, from the prior quarter, a slower sequential pace than the $3.00 million, or 3.33%, increase in the second quarter. The figure was $6.84 million, or 7.69%, above the year-ago third quarter.

The tax-equivalent net interest margin expanded 4 bps to 4.28% from 4.24% in the second quarter, reversing a 1 bps contraction in that prior period, and was 19 bps above 4.09% a year earlier. The company said the sequential lift came primarily from higher average loan and lease balances, improved yields on investments, and stable interest-bearing deposit costs. Net interest recoveries had no impact on the tax-equivalent margin in the third quarter, versus a positive 3 bps in the second quarter.

Average loans and leases increased $112.77 million, or 1.58%, from the second quarter to $7.26 billion, a slower sequential pace than the $119.93 million, or 1.71%, rise in the prior quarter. Average loans were $240.08 million, or 3.42%, above the third quarter of 2025. The company said growth occurred mainly in Construction Equipment, Renewable Energy, Medium and Heavy Duty Truck, Residential Real Estate and Home Equity, and Aircraft.

Average deposits rose only $16.45 million, or 0.22%, from the second quarter to $7.44 billion after a $236.03 million, or 3.28%, sequential increase in the prior quarter. Higher noninterest-bearing demand, time and savings balances primarily drove the increase, while seasonal decreases in interest-bearing demand deposits associated with municipal tax collection cycles partly offset it. Average brokered deposits were $320.56 million. Interest-bearing deposit cost was 2.38%.

Noninterest income of $24.70 million included $3.82 million of pre-tax losses from selling about $68 million of available-for-sale securities. The securities sold had a weighted average yield of 1.83% and were replaced with securities having a weighted average yield of 5.10%. The company said those realized losses drove the $0.32 million, or 1.29%, sequential decline in noninterest income. Partnership investment gains, including $3.03 million from renewable-energy tax-equity sales, higher deposit account fees, bank-owned life insurance claims, and mortgage banking income offset other fee declines.

Noninterest expense of $55.22 million was relatively flat versus the prior quarter. The efficiency ratio improved to 45.91% from 46.57% in the second quarter.

Credit costs eased. The provision for credit losses was $0.90 million, down from $1.54 million in the second quarter and unchanged from $0.90 million a year earlier, after a $7.27 million provision in the first quarter. The company said the sequential drop reflected a reduction in special-attention loans and lower net charge-offs, offset by loan growth. Net charge-offs were $0.33 million, or 0.02% of average loans.

Nonperforming assets to loans and leases declined to 0.81% at September 30, 2026, from 1.01% at June 30, 2026, with nonaccrual loans and leases down to $56.94 million from $69.68 million. The allowance for loan and lease losses was 2.28% of loans and leases.

The Common Equity Tier 1 ratio rose to 15.95% at September 30, 2026, from 15.49% at June 30, 2026. No shares were repurchased in the third quarter. The board approved a cash dividend of $0.45 a share, up five cents, or 12.50%, from the dividend declared a year ago, after a two-cent increase to $0.45 in the second quarter.