Hello, and welcome to the 2026 Virtual Annual Shareholders Meeting of 1st Source Corporation. Today's presentation will begin with remarks from 1st Source Executive Chairman, Chris Murphy.
Welcome to our virtual annual shareholders meeting. I am Chris Murphy, Executive Chairman of 1st Source. Thank you for joining us today. This morning, we will conduct our official business, review our financial performance, and address questions you may have for us. You may submit those questions via the text box on the meeting webpage. To start, I'd like to introduce the four members of our board of directors who are standing for re-election to the board. First, myself, Chris Murphy. I've had more than 53 years of banking and business experience, including serving as a director and/or President and Chief Executive Officer of both 1st Source Corporation and/or 1st Source Bank for 53 years. I continue to contribute long-term perspective, current knowledge, and have extensive contacts in all the communities in which the company does business.
I have extensive knowledge of 1st Source and 1st Source Bank and general knowledge in the finance banking industry, investments, insurance, venture capital, and real estate investments. I currently serve as a director of Aunalytics, Inc., representing 1st Source's investment in this provider of managed data center, data analysis, cloud, and other technology-related services. Also, I have served on numerous local, regional, and national for-profit and not-for-profit boards, including the Federal Reserve Bank of Chicago. I hold a BA in government from the University of Notre Dame, a JD from the University of Virginia School of Law, and an MBA from the Harvard Business School. Now, as I review the backgrounds of the next three board members standing for re-election to the board, you will understand why they are and have been strong board members for 1st Source.
First, Timothy Ozark, who has 46 years of financial experience, including 34 years as founder, chairman and chief executive officer of AIM Financial Corporation, a mezzanine lender to privately held companies. Mr. Ozark is also president and CEO of TKO Finance Corporation, a lender to financial services and manufacturing companies. He's also a lead director of White Lodging Services Corporation, one of America's leading hotel developers. From 1980 to 1983, Mr. Ozark served as Executive Vice President of Great American Management and Investment, Inc., a wholly owned subsidiary of American Financial Group, Inc. of Cincinnati, Ohio, which specialized in equipment leasing and lending. From 1984 to 1992, Mr. Ozark served as CEO and President of Meridian Leasing Corporation, one of North America's largest privately held leasing companies. He's an expert in mezzanine funding, lending, leasing, and has a general knowledge of business finance and real estate investing.
He contributes a long-term perspective in all of these areas. Mr. Ozark qualifies as an audit committee financial expert under the SEC guidelines. He currently serves as a member of the Visiting Committee to the Division of Biological Sciences and the Pritzker School of Medicine at the University of Chicago, and on the board of directors for a number of privately held companies. He holds a B.S. in business administration from the University of Minnesota and an M.B.A. from St. Cloud State University. Finally, he served as an officer in the United States Marine Corps from 1968 to 1974. Todd F. Schurz has 34 years of financial experience, including 15 years as president and chief executive officer, and before that, three years as president and chief operating officer of Schurz Communications, Inc., a diversified, privately owned communications company with six broadband companies and managed cloud service companies.
Schurz Communications, Inc., or SCI, has a presence in 13 states, including Indiana and Michigan, as well as in Great Britain and Romania. Prior to joining SCI, Mr. Schurz was president and editor of the Associated Desert Shoppers in Palm Desert, California from 1981 to 1995. From 1995 to 2000, he was president, editor, and publisher of the South Bend Tribune. He then served as SCI's Vice President of Technology from 2000 to 2005, and as President and General Manager of WSBT Television from 2002 to 2005 before becoming President and Chief Operating Officer of SCI in 2005. He currently serves as the Chair of SCI's board. He currently serves as an independent director of Herschend Enterprises, a themed entertainment company. Mr. Schurz is also an independent board advisor to EBSCO Industries and serves on the University of Notre Dame College of Arts and Letters Advisory Council.
He previously served on the boards of Mutual Insurance Company Limited, News Media Alliance, American Press Institute, and the CBS Television Network Affiliates Association. Mr. Schurz is also a former chair of the Memorial Hospital Board, Beacon Health Foundation, the Chamber of Commerce of St. Joseph County, Hoosier State Press Association Foundation, and the Poynter Institute's National Advisory Board. He is an expert in media, marketing, and communications, and has general knowledge of business and finance. He contributes long-term perspective in all of these areas. Mr. Schurz qualifies as an audit committee financial expert under the SEC guidelines. He holds a BA in industry and economics from Brown University and an MBA from the Wharton School of the University of Pennsylvania.
Andrea Short has over 41 years of banking and business experience, including serving as a director of 1st Source Corporation and 1st Source Bank and/or President and/or Chief Executive Officer, Treasurer, and Chief Financial Officer of both 1st Source Corporation and 1st Source Bank, and other positions for 27 years. Mrs. Short contributes long-term perspective, current knowledge, and contacts in all the communities in which the company does business. Prior to 1st Source, Mrs. Short worked at Crowe LLP and First of America Bank, now PNC. She has extensive knowledge of 1st Source and 1st Source Bank and general knowledge in the financial and banking industry. Mrs. Short serves on numerous boards, including those of the Medical Education Foundation, the South Bend Elkhart Regional Partnership, and ProSight Financial Association.
She holds a BA in business from Alma College and is a graduate of the Harvard University Graduate School of Business Administration Advanced Management program and the University of Chicago's Booth School of Business Chicago Management Institute. To these three and my other fellow directors, thank you for your service and commitment to 1st Source. Now, ladies and gentlemen, the items listed in your proxy on which you have the opportunity to vote are the election of the four directors just introduced, the advisory approval of the executive compensation, approval of the amended 1982 Executive Incentive Plan, approval of the amended Strategic Deployment Incentive Plan, approval of the amended 1982 Restricted Stock Award Plan, and ratification of our accounting firm, Forvis Mazars.
If you have your legal proxy and have not voted for these items, or if you have your legal proxy and already voted but wish to change your vote, please do so at this time via the link on the meeting webpage. The minutes of our last annual meeting are available from our secretary, Brian Duba, and without objection, we will dispense with the reading of those minutes. Now, let me introduce my colleague, Brett Bauer, our Chief Financial Officer, to review the financial results of the past year. Brett serves as Chief Financial Officer and Treasurer of 1st Source Corporation and 1st Source Bank. He has responsibility for accounting, finance, asset liability management, treasury management, and investor relations.
Prior to July 2021, he served as chief investment officer and was responsible for managing 1st Source's funding and treasury functions, bank liquidity, municipal and large CD pricing and services, a $1 billion+ investment portfolio, and setting and managing the bank's asset liability policy and approach. Brett's a great partner and lives our values and exhibits a balanced approach to managing our risk, as well as using a collaborative approach to working with his colleagues. Brett will review our 2025 and first quarter of 2026 financial performance. Afterwards, I will introduce Andrea Short, our new CEO, to make some comments about our operational and strategic successes in 2025. We will announce the voting results, and then they will address your questions. With that, Brett, it's over to you.
Thank you, Chris, and good morning, everyone. We have our disclosures on the screen for your review, but I'm going to start by saying that 2025 was a fantastic year for us. We continued to build a fortress-like balance sheet, we maintained disciplined credit management, we delivered record earnings, and we stayed focused on long-term shareholder value. With that, let's walk through our 2025 results and the first quarter of this year. I'm going to start with deposits on our balance sheet. We saw solid growth in 2025, with average deposits increasing to just over $7.3 billion. That growth was primarily driven by continued strength in our savings and interest-bearing deposits, and we also saw higher average CD balances during the year, which reflected customer preference for term products in this rate environment. In the first quarter of 2026, average deposits were modestly lower.
This primarily reflected our deliberate reduction of brokered CD balances as part of our funding strategy. We also saw the normal seasonal decline in public fund deposits during the first quarter. Overall, though, the mix and level of deposits continue to support strong balance sheet liquidity, both for 2025 and into the first quarter of 2026. Okay, let's move on to our loans and leases category. We continued to see solid growth in 2025. Average loans and leases increased to just under $6.9 billion. This momentum also carried into the first quarter of 2026, with average balances moving higher to just over $7 billion. The growth in 2025 and continuing into the first quarter of 2026 was largely supported by our commercial loans, which include our renewable energy lines of business, and then also our commercial real estate category also helped to support this growth as well.
In summary, for our loan and lease portfolios, growth for last year and into the first quarter this year reflected disciplined execution across our portfolio. Notably, this was achieved while maintaining a strong credit discipline, which we can take a look at on the next slide. Starting on the left, you can see that we continue to maintain appropriate levels of reserves that allow us to work closely with our clients even through times of stress in the economy. Then for non-performing assets, we did exprience an increase in 2025, largely due to a small number of isolated credits. Importantly, though, we are easily within a manageable range, especially relative to our historical levels, and we continue to see stability as we moved into the first quarter of 2026.
Taken together, this reflects disciplined credit management and a portfolio that remains appropriately reserved for good times and bad times in the economy. Okay. Let's move to our earnings. You can see that 2025 was an excellent year for us. Net income increased nearly 20% to $158 million, with diluted earnings per share rising to $6.41. This performance was driven by disciplined pricing for both our loans and deposits, which helped to support our net interest margin. Just as important, we continued to keep focused on expense management, which also flowed through to the bottom line. As a result, our metrics improved meaningfully during the year to 1.76% for return on assets and 13.16% for return on equity. You can also see that we carried that momentum into the first quarter of 2026 as well.
Overall, these results reflect the collective effort across the bank, driven by the work of our colleagues and their continued focus on serving our clients and our communities. The last item I wanted to mention is that 2025 marked another strong year of returning capital to our shareholders, and we accomplished this in two ways. The first is through stock buybacks. When we repurchase 1st Source shares in the market, each remaining share represents a larger ownership stake in the company, which directly benefit our shareholders. We repurchased approximately 13 million of 1st Source stock in 2025 and an additional 23 million in the first quarter of this year. Dividends are the other primary way we return value directly to our shareholders, and that's what this slide is highlighting.
In 2025, we increased our annual common dividend to $1.52 per share, extending our record to 38 consecutive years of dividend growth. This puts us within the top 2% of publicly traded companies that have either met or exceeded this streak, and this is something that we are very proud of. To further support this streak, we have just announced a $0.03 increase in our quarterly dividend to $0.43 per share, which works out to a 7.5% increase. Thank you to all of our shareholders for supporting and believing in 1st Source Bank. I can assure you that all of us here at 1st Source will stay true to our mission of helping our clients achieve security, build wealth, and realize their dreams. Thank you again, and I will turn the meeting back over to Chris.
Thank you, Brett. Clearly, it was a very successful year financially for 1st Source. Most importantly, it was a critical and equally successful year for our future as we transitioned the future leadership of the company and the bank to Andrea Short, Brett Bauer, and Kevin Murphy, along with a host of strong colleagues on their team. This was a clean and successful succession planned over a long period of time. As expected, Andrea has led her colleagues well since becoming CEO on October first, 2025. I've already read to you her background as part of her reelection to the board today. Let me just add that she bleeds terracotta, our corporate color, and lives deeply our values. I could not be more pleased with this selection. Now let me turn it over to Andrea for her remarks. Andrea?
Thank you, Chris. I'm honored to serve our colleagues, our clients, and our shareholders in my role as Chief Executive Officer and Director of 1st Source Corporation. As Brett reported, we had a strong 2025 and are off to a solid start in 2026. In 2025, we frequently spoke of uncertainty in financial markets in a shifting political environment. We prevailed with resilient operating fundamentals and prudent risk management, turning uncertainty into an opportunity to demonstrate our stability and consistency. In 2026, we continue to be well positioned to navigate whatever comes next. We have strong capital and ample liquidity, a diversified and growing client franchise, and a proven ability to manage risk through various cycles. Our balance sheet remains resilient. Our credit culture is strong, which gives us stability even in unsettled times. Most importantly, we have an unwavering purpose.
Our mission does not change with market conditions or new leadership. It is ingrained in who we are. We will continue to live our values and put clients' needs at the center of all we do, which inevitably leads to long-term growth in shareholder value. We remain focused on the fundamentals, balanced growth for the long term, excellent service, expense management, and community leadership. At the same time, we will seek smart opportunities to innovate and improve so that we can continue earning your trust in an ever-evolving banking landscape. Thank you for your continued support and confidence. Chris, I'll turn the meeting back to you.
Thank you, Andrea. Now that the voting is officially closed, I'd like to call on Brian Duba, Secretary and General Counsel of 1st Source Corporation, to report on the voting. Brian?
Thank you, Chris. As Secretary of 1st Source Corporation, I certify that notice of the annual meeting of shareholders was given by mail on or about March thirteenth, 2026 to all shareholders of record of 1st Source Corporation as of February twelfth of this year. The total number of outstanding shares eligible to vote at this meeting is 25,207,759. There are 23,345,733 shares present at the meeting by proxy or virtually, which is 92.61% of the outstanding shares constituting a quorum. The preliminary voting results are as follows. For the election of directors, the number of votes cast in favor of the election of each nominee represents a majority of the votes cast, resulting in the election of all four nominees.
For the advisory approval of executive compensation, the votes cast in favor represent more than a majority of the votes cast, resulting in approval. For the approval of the amended 1982 Executive Incentive Plan, approval of the amended Strategic Deployment Incentive Plan, and approval of the amended 1982 Restricted Stock Award Plan, the votes cast in favor represent a majority of the votes cast, resulting in approval. For the requested ratification of the appointment of Forvis Mazars, LLP as 1st Source Corporation's independent registered public accounting firm for the fiscal year, the number of votes cast in favor of ratification represent a majority of the votes cast, resulting in ratification. As these results are preliminary, we will be reporting the final vote results in a Form 8-K to be filed within three business days.
Thank you, Brian, and congratulations to all of our board members on your reelection. Those who are standing for reelection, and thank you to our shareholders for your participation. In closing, as I stated last year, I'm thankful for the experience and advice of our board. I could not be more pleased with the great work they do in living our mission and helping us serve our clients well by advising our leadership team well. To all of them, thank you. Now, Andrea and Brett, joined by Michael Fortman, a representative from Forvis Mazars, will be glad to address any questions you might have. Brett, do we have any questions?
There are no questions in the queue, Chris.
I see we have no questions in the queue, so with no questions there, we will call this meeting to a close. There's no other business to come before it. I hereby adjourn this annual meeting, and thank you all for your attendance.
The meeting has now concluded. Thank you for joining, and have a pleasant day.