1st Source beats estimates, hikes dividend 11%
Regional bank reports record annual earnings and 38th consecutive year of dividend growth amid margin expansion
1st Source Corporation reported fourth quarter earnings that exceeded Wall Street expectations, alongside an 11.1% dividend increase that extends its streak of annual payout hikes to 38 consecutive years.
The South Bend, Indiana-based regional bank posted earnings per share of $1.67 for the quarter ended December 31, 2025, surpassing analyst estimates of $1.60. Revenue reached $110.8 million, compared with consensus projections of $109.4 million. Full-year net income rose 19.3% to a record $158.3 million, while diluted earnings per common share for the year increased 19.6% to $6.41.
The strong performance was driven by significant margin expansion. The company's tax-equivalent net interest margin for the fourth quarter expanded 51 basis points year-over-year to 4.29%, while the full-year margin increased 43 basis points to 4.07%. Average loans and leases grew 5.1% and average deposits increased 3.7% during 2025, according to company results.
The board of directors approved a quarterly dividend of $0.40 per share, up from $0.36 previously, payable February 13 to shareholders of record February 3. The increase marks nearly four decades of consecutive dividend growth, placing 1st Source among an elite group of financial institutions with such long-term payout consistency.
Despite the solid results, shares fell 2% to $66.15 in Thursday trading after rallying ahead of the report. The stock had reached an all-time high of $67.52 on January 22, according to market data. The decline follows a broader pattern among regional banks that have delivered strong earnings but faced investor skepticism about sustaining elevated margins as interest rates potentially peak.
"The company demonstrated growth in both loans and deposits, with average loans and leases increasing by 5.10% and average deposits by 3.70% in 2025," noted analysts following the company, who highlighted the 37.6% net profit margin improvement from 35.1% in the prior year.
Analysts maintain a consensus "Hold" rating on 1st Source, with an average 12-month price target of $72.67, suggesting approximately 10% upside from current levels. Of the five analysts covering the stock, two rate it a "Buy" and three maintain "Hold" recommendations, with no sell ratings, according to MarketBeat data.
1st Source operates 78 banking centers across 18 counties in Indiana and Michigan, with additional operations in Sarasota County, Florida. The company has established itself as the largest locally controlled financial institution in the northern Indiana-southwestern Michigan region. Its competitive position is bolstered by a diversified business model that includes traditional banking alongside specialty finance services for construction equipment, aircraft, and fleet vehicles.
The bank has garnered consistent industry recognition, recently ranking 26th on Forbes' "America's Best Banks" list for 2025 and claiming the top spot among Indiana banks in Forbes' "Best In State Bank" rankings. Forbes named the bank among the nation's top 100 banks, reflecting its strong customer satisfaction metrics and operational efficiency.
Regional banks face ongoing challenges including competition from fintech companies and larger institutions, pressure on deposit costs, and regulatory compliance expenses. However, 1st Source's focus on niche specialty lending, combined with its expanding digital capabilities through new online and mobile banking platforms for businesses, positions it to navigate a challenging rate environment.
Looking ahead, investors will be watching whether the bank can maintain its elevated net interest margin levels through 2026 and continue loan growth without significant credit deterioration. The company's 38-year dividend growth streak provides a strong signal of management confidence in sustainable earnings power, though the stock's modest post-earnings pullback suggests investors are weighing the sustainability of current profitability against potential margin pressure as interest rates normalize.