Finward Bancorp (NorthWest Indiana Bancorp) — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020; unaudited consolidated results. The filing identifies the registrant as NorthWest Indiana Bancorp, not Finward Bancorp. Dollar amounts below are in millions unless otherwise stated.
Business context
The Bancorp is a bank holding company whose principal operating subsidiary is Peoples Bank, serving northwest Indiana and northeastern Illinois. The Bank converted from an Indiana-chartered savings bank to a commercial bank effective May 22, 2020.
Financial results and condition
| Metric | Q3 / September 30, 2020 | Comparison |
|---|---|---|
| Net income | $4.9 million; $1.42 per diluted share | Q3 2019: $3.6 million; $1.04 per share; net income increased 37.0% |
| Nine-month net income | $13.2 million; $3.80 per diluted share | 2019: $9.8 million; $2.88 per share; net income increased 34.0% |
| Net interest income | Q3: $11.7 million; nine months: $33.8 million | Up 8.3% for Q3 and 3.6% for nine months year over year |
| Noninterest income | Q3: $4.9 million; nine months: $13.4 million | Up 67.6% and 65.3%, respectively; mortgage-sale gains were a major contributor |
| Noninterest expense | Q3: $9.8 million; nine months: $29.5 million | Up 5.5% and 5.6%, respectively |
| Net interest margin | Q3: 3.41%; nine months: 3.46% | 2019: 3.56% and 3.73%, respectively |
| Efficiency ratio | Q3: 59.1%; nine months: 62.6% | 2019: 67.7% and 68.7%, respectively |
| Return on assets / equity | Q3: 1.33% / 13.42%; nine months: 1.25% / 12.43% | Both improved versus the corresponding 2019 periods |
| Total assets | $1,481.0 million | Up 11.5% from December 31, 2019 |
| Loans / deposits | $975.9 million / $1,280.7 million | Loans up 7.6%; deposits up 10.9% from year-end 2019 |
| Allowance for loan losses | $10.7 million; 1.10% of loans | Year-end 2019: $9.0 million; 0.99% of loans |
| Cash and cash equivalents | $84.4 million | Year-end 2019: $47.3 million |
| Stockholders’ equity | $148.9 million; 10.1% of assets; book value $43.01 per share | Equity increased $14.8 million since year-end 2019 |
Cash flow: For the first nine months, operating activities provided $20.3 million, investing activities used $111.8 million, and financing activities provided $128.7 million. Cash and cash equivalents increased $37.2 million.
Debt and liquidity: At September 30, repurchase agreements were $19.1 million and borrowed funds were $12.0 million, for total borrowings of $31.1 million. Management said on- and off-balance-sheet liquidity sources were sufficient to meet funding needs. Loan commitments totaled $229.3 million and standby letters of credit $10.9 million.
Capital: The Bank exceeded regulatory “well-capitalized” thresholds: common equity Tier 1 12.6%, Tier 1 12.6%, total capital 13.7%, and leverage 8.2%. The Bancorp also reported capital ratios above applicable minimums.
Material changes versus comparable periods
- Profitability rose despite lower asset yields and narrower margins: funding costs fell, while net interest income increased.
- Mortgage originations for sale were $171.2 million for the nine months, versus $54.6 million in 2019; related gains rose to $6.0 million from $1.3 million. Management attributed the increase to low rates, home purchases, and refinancing activity.
- Loan balances grew, particularly commercial business loans, which increased to $182.2 million from $103.1 million at year-end. Commercial real estate loans were $285.7 million.
- Credit indicators weakened: nonperforming loans rose to $15.1 million, or 1.54% of loans, from $7.4 million, or 0.81%, at year-end; allowance coverage of nonperforming loans fell to 71.1% from 122.1%.
- Deposits grew $126.3 million, led by checking and savings; certificates of deposit declined $42.3 million. Cash balances and available-for-sale securities also increased.
Outlook, risks and unusual items
- COVID-19: Management described the pandemic’s impact as uncertain and warned of possible weaker borrower repayment, higher delinquencies and losses, falling collateral values, increased credit provisions, lower asset yields, reduced wealth-management revenue, operational disruption, and pressure on liquidity and dividends. The filing provides no formal earnings or margin guidance.
- Borrower assistance and PPP: As of September 30, the Bank had approved 782 PPP applications totaling $91.5 million. Management expected most originated PPP loans to qualify for forgiveness and to have forgiveness applications submitted by year-end, subject to borrower behavior and SBA processes. COVID-related interest-only or full-deferral modifications covered 49 loans totaling $13.0 million. Of 169 loans that had exited deferral, totaling $68.8 million, management said the loans remained performing.
- Credit concentration: One hotel-related commercial real estate relationship with a $5.3 million balance exited deferral and was classified as nonperforming; a specific reserve was allocated. Management reported no other exited-deferral loans classified as nonperforming at that date. Restaurant, hotel, and retail commercial real estate exposure was $22.1 million, $23.8 million, and $59.5 million, respectively.
- Loan-loss estimates: The allowance increased to $10.7 million and nine-month provision expense to $1.9 million, versus $1.3 million in 2019. Management considered the allowance adequate but warned that prolonged or worsening economic conditions could require further provisions. The filing also presents a non-GAAP allowance ratio of 1.57% including $4.6 million of acquisition-related reserves; this is distinct from the GAAP ratio of 1.10%.
- Goodwill and securities: An interim COVID-related goodwill impairment test at June 30 found no impairment; the third-quarter review also found none. The annual test was planned for December 31, 2020. The Bancorp held $2.2 million cost basis in pooled trust preferred securities in payment-in-kind status; management recorded no additional impairment in the period and planned another review at year-end.
- Other items: The 2019 comparison included a $205,000 bank-owned life insurance death benefit and a gain on a fixed-asset sale. These did not recur in 2020. The quarterly dividend was $0.31 per share, unchanged from Q3 2019.
- Contingencies: The Bancorp is involved in ordinary-course legal proceedings; management, after consulting counsel, did not expect resulting liabilities to have a material adverse effect. No risk factors were reported as applicable in Part II.
Key facts for investors to verify
- Confirm the issuer identity and any relationship between the requested “Finward Bancorp” name and the filing’s registrant name, NorthWest Indiana Bancorp.
- Track whether COVID-19-related deferrals, especially the $5.3 million hotel relationship, lead to further nonperforming loans, charge-offs, or allowance increases.
- Assess whether unusually strong mortgage-sale gains and PPP-related fees persist as rates, refinancing demand, and loan forgiveness activity change.
- Monitor net interest margin, deposit costs and mix, and the effect of elevated cash and securities balances on future earnings.
- Review the adequacy of allowance coverage, including the distinction between GAAP and acquisition-reserve-adjusted non-GAAP measures, and the year-end goodwill and trust-preferred-security reviews.
- Verify actual PPP forgiveness timing and the status of the $229.3 million in loan commitments and $10.9 million in standby letters of credit.