Finward Bancorp (then NorthWest Indiana Bancorp) — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet comparisons are with December 31, 2020. The filing reports consolidated results for the Bancorp and subsidiaries. Unless noted otherwise, amounts below are in millions of dollars.
Financial results and key metrics
| Metric | Q1 2021 | Q1 2020 or prior date |
|---|---|---|
| Net interest income | $12.0 | $10.7 |
| Noninterest income | $4.3 | $3.5 |
| Noninterest expense | $10.3 | $10.0 |
| Provision for loan losses | $0.6 | $0.5 |
| Net income | $4.7 | $3.2 |
| Diluted earnings per share | $1.35 | $0.92 |
| Net interest margin | 3.40% (3.58% tax-equivalent) | 3.50% (3.64% tax-equivalent) |
| Return on average assets / equity | 1.22% / 12.30% | 0.97% / 9.38% |
| Efficiency ratio | 63.2% | 70.3% |
| Cash flow from operations | $16.5 | $9.4 |
| Cash and cash equivalents | $68.0 | $19.9 at Dec. 31, 2020 |
Net income increased 46.6% year over year. The quarter-end balance sheet showed total assets of $1.557 billion, loans receivable of $974.1 million, net loans of $961.0 million, deposits of $1.367 billion, and stockholders’ equity of $150.1 million. Book value per share was $43.16. Equity was 9.64% of assets.
Interest-earning asset yield fell to 3.59% from 4.22%, while the cost of funds declined to 0.20% from 0.75%. Net interest income grew as lower funding costs outweighed lower asset yields and average earning assets increased. Reported net interest margin nevertheless compressed by 10 basis points.
Material changes and balance-sheet developments
- Total assets rose $59.2 million, or 4.0%, from year-end. Deposits increased $64.4 million, or 4.9%; noninterest-bearing deposits increased to $287.0 million.
- Cash and cash equivalents rose $48.1 million. Interest-bearing deposits at other financial institutions increased to $52.9 million.
- Available-for-sale securities increased to $422.9 million. A $6.5 million after-tax unrealized securities loss reduced accumulated other comprehensive income and contributed to equity falling $2.8 million during the quarter.
- Repurchase agreements were $15.9 million; borrowed funds were zero, down from $6.1 million at year-end. The quarter included repayment of $6.0 million of FHLB advances.
- Loans increased $7.5 million from year-end. Commercial real estate loans were $304.9 million, 31.3% of loans; residential real estate loans were $277.5 million, 28.5%. PPP balances were $66.3 million.
Credit quality, liquidity, and capital
- Nonperforming loans declined to $12.9 million from $14.4 million; nonperforming loans were 1.32% of total loans. The allowance for loan losses increased to $13.0 million, or 1.34% of loans, from $12.5 million, or 1.29%. Allowance coverage of nonperforming loans rose to 101.5% from 86.7%.
- Special-mention loans increased to $26.9 million from $22.7 million; substandard loans declined to $15.5 million from $16.6 million. The filing attributes changes partly to additions and reclassifications of commercial real estate and residential credits.
- Management said liquidity and contingent funding were sufficient. Outstanding loan commitments were $215.5 million, 53.2% variable-rate, and standby letters of credit were $11.8 million.
- The Bank’s March 31 capital ratios were 13.2% common equity Tier 1, 13.2% Tier 1 risk-based, 14.5% total risk-based, and 8.3% Tier 1 leverage. The filing states the Bank exceeded applicable minimums and “well capitalized” thresholds.
Outlook, risks, contingencies, and unusual items
- COVID-19: Management said the full effect remained uncertain and could worsen credit quality, collateral values, loan demand, liquidity, funding costs, earnings, and dividends. It anticipated further borrower deferral or modification requests in 2021. At quarter-end, 31 loans totaling $13.5 million were in interest-only or full-payment-deferral status.
- A hotel commercial real estate relationship with a $5.3 million balance remained in deferral and was classified nonperforming; a specific allowance had been allocated. Management noted hotel loans had a weighted-average debt-service coverage ratio of 0.85, versus 1.60 for restaurant loans and 1.64 for retail non-owner-occupied loans.
- PPP: The Bancorp approved 350 second-round applications totaling $34.6 million. It expected most originated PPP loans to qualify for forgiveness, but noted this depended on borrower behavior and SBA requirements and processes.
- Securities: The $6.5 million after-tax unrealized loss was recorded in other comprehensive income, not current-period earnings. Management attributed unrealized losses primarily to interest rates and market volatility and said it intended and was able to hold affected securities. Pooled trust preferred securities with $2.2 million cost basis were below investment grade and in payment-in-kind status; the company kept them on nonaccrual pending consistent resumption of interest payments.
- Other: Management anticipated mortgage demand would return toward more normal levels as rates persist or rise. No numerical earnings or margin guidance was provided. The allowance for credit losses standard was expected to become effective for the Bancorp in 2023; management was evaluating its impact. Legal proceedings in the ordinary course were not expected by management to have a material adverse effect.
Most important facts for investors to verify
- Whether earnings growth persists if mortgage-sale gains—$2.0 million in Q1, up from $1.2 million—normalize, and whether net interest margin stabilizes.
- Subsequent performance of the $5.3 million hotel relationship, remaining COVID-related modifications, and the trend in special-mention and nonperforming loans.
- Realized credit losses and the adequacy of the $13.0 million allowance as pandemic-related effects and PPP forgiveness progress.
- Further changes in available-for-sale securities’ fair values and accumulated other comprehensive income, given the quarter’s $6.5 million after-tax loss.
- Deposit retention, liquidity needs against $215.5 million of loan commitments, and capital/dividend capacity. The declared quarterly dividend was $0.31 per share.