1st Source has been treading water for the past six months, holding steady at $64.24. The stock also fell short of the S&P 500’s 10.3% gain during that period.
Is now the time to buy SRCE? Find out in our full research report, it’s free.
Why Does 1st Source Spark Debate?
Tracing its roots back to 1863 during the Civil War era, 1st Source Corporation (NASDAQ: SRCE) is a regional bank holding company that provides commercial, consumer, specialty finance, and wealth management services across Indiana, Michigan, and Florida.
Two Things to Like:
1. Increasing Net Interest Margin Juices Financials
The net interest margin (NIM) is a key profitability indicator that measures the difference between what a bank earns on its loans and what it pays on its deposits. This metric measures how efficiently one can generate income from its core lending activities.
Over the past two years, 1st Source’s net interest margin averaged 3.7%, climbing by 29 basis points (100 basis points = 1 percentage point) over that period.
This expansion was a tailwind for its net interest income, and while prevailing interest rates matter the most for industry net interest margins, banks that consistently increase this figure generally boast higher-earning loan books (all else equal such as the risk of those loans) or provide differentiated services that give them the ability to charge higher rates (pricing power).
2. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
1st Source’s EPS grew at an astounding 13.6% compounded annual growth rate over the last five years, higher than its 4.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to be Careful:
Long-Term Revenue Growth Disappoints
Net interest income and and fee-based revenue are the two pillars supporting bank earnings. The former captures profit from the gap between lending rates and deposit costs, while the latter encompasses charges for banking services, credit products, wealth management, and trading activities.
Over the last five years, 1st Source grew its revenue at a mediocre 4.8% compounded annual growth rate. This wasn’t a great result compared to the rest of the banking sector, but there are still things to like about 1st Source.
Final Judgment
1st Source has huge potential even though it has some open questions. With its shares underperforming the market lately, the stock trades at 1.3× forward P/B (or $64.24 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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