Business context and reporting period
The filing is an unaudited Form 10-Q for the quarter and six months ended June 30, 2020. It identifies the registrant as NorthWest Indiana Bancorp, a bank holding company whose principal subsidiary is Peoples Bank; the bank converted to an Indiana-chartered commercial bank on May 22, 2020. The request metadata names Finward Bancorp, so investors should verify the issuer identity and any subsequent name change.
Financial results and condition
Unless noted otherwise, dollar amounts are in millions. Quarterly and six-month income comparisons are against the corresponding 2019 periods; balance-sheet comparisons are against December 31, 2019.
| Metric | Q2 / June 30, 2020 | Comparison / change |
|---|---|---|
| Net income | $5.06; diluted EPS $1.46 | Q2 2019: $4.02; $1.17 per share |
| Net interest income | $11.42 | Q2 2019: $11.20 |
| Noninterest income | $5.05 | Q2 2019: $2.67 |
| Noninterest expense | $9.76 | Q2 2019: $8.42 |
| Net interest margin | 3.48%; 3.60% tax-equivalent | Q2 2019: 3.89%; 3.96% tax-equivalent |
| Efficiency ratio | 59.3% | Q2 2019: 60.7% |
| Total assets | $1,474.0 | Up $145.3, or 10.9%, since year-end |
| Loans receivable | $981.9 | Up $75.0 since year-end |
| Deposits | $1,277.6 | Up $123.3, or 10.7%, since year-end |
| Cash and cash equivalents | $97.3 | Up $50.0 since year-end |
| Stockholders’ equity | $145.2; 9.85% of assets | Up $11.1 since year-end; book value $41.92 per share |
For the six months, net income was $8.26 million ($2.39 diluted EPS), up 32.2% from $6.25 million; net interest income was $22.09 million, up 1.3%. Six-month net interest margin was 3.49% (3.61% tax-equivalent), versus 3.81% (3.88%) in 2019; ROA was 1.20% and ROE 11.90%.
Six-month cash flows were $11.6 million provided by operations, $86.3 million used in investing, and $124.8 million provided by financing. The investing outflow primarily reflected loan growth and securities purchases; financing inflows primarily reflected deposit growth. The allowance for loan losses was $9.87 million, or 1.00% of loans, versus $9.00 million and 0.96% at June 30, 2019. Nonperforming loans were $9.31 million, or 0.95% of loans, compared with $7.37 million and 0.81% at year-end 2019. The Bank’s capital ratios exceeded applicable minimums: CET1 12.3%, Tier 1 12.3%, total capital 13.3%, and leverage 8.2% at June 30.
Material changes and notable items
- Net income growth reflected sharply higher mortgage-sale gains and securities-sale gains, alongside higher expenses. Q2 mortgage-sale gains were $2.46 million versus $0.40 million; securities-sale gains were $0.67 million versus $0.30 million. Six-month figures were $3.62 million and $1.18 million, respectively.
- Interest-earning asset yields and net interest margins declined amid lower market rates, although lower funding costs partly offset the pressure. Q2 cost of funds declined to 0.47% from 0.78%, while asset yield declined to 3.93% from 4.65%.
- Commercial business loans increased to $178.9 million from $103.1 million at year-end, principally reflecting PPP lending. The Bank approved 773 PPP applications totaling $91.5 million by June 30, supporting an estimated 10,744 jobs. PPP loans carry a 1% rate and are SBA-guaranteed; management expected most to qualify for forgiveness by year-end, but noted that timing and outcomes depend on borrower actions and changing SBA requirements.
- COVID-19-related payment modifications at June 30 covered 234 loans: mortgage loans of $11.6 million and commercial loans of $69.5 million, including interest-only and full-payment-deferral arrangements. Management anticipated additional requests in the remainder of 2020.
- Cash dividends declared were $0.31 per share for Q2, unchanged from Q2 2019. The dividend was paid July 3, 2020.
Outlook, risks and contingencies
No formal earnings or financial guidance is provided. Management said the full effects of COVID-19 were uncertain and could depend on the duration of the outbreak, economic reopening, unemployment, and other developments. Potential effects include increased delinquencies, problem assets, foreclosures, credit-loss provisions and charge-offs; lower collateral values; margin pressure; reduced fee and wealth-management revenue; and effects on liquidity, vendors, employees, and dividends. Management stated that it believed the Bancorp and Bank were well prepared and that liquidity was sufficient, but warned that worsening conditions could increase the allowance and provision for loan losses.
Management reported an interim goodwill impairment test at June 30, 2020, with no impairment identified; goodwill was $11.1 million. At June 30, $2.2 million of pooled trust preferred securities remained in payment-in-kind status and below investment grade; no additional impairment was recorded. Management reported sufficient funding capacity for $213.7 million of outstanding loan commitments and $11.4 million of standby letters of credit. It considered the allowance adequate, while noting that asset quality could deteriorate if pandemic effects persisted. The filing states that ordinary-course legal proceedings are not expected to have a material adverse effect. The company’s 2020 Form 10-Q risk-factor section is marked “Not Applicable,” but the filing discusses extensive COVID-19 risks.
Investor verification points
- Confirm the registrant’s legal name and relationship to “Finward Bancorp,” given the filing’s NorthWest Indiana Bancorp identification.
- Track PPP loan forgiveness, fee recognition, remaining balances, and the effect of loan repayments on reported loan growth and liquidity.
- Monitor COVID-19 deferrals, delinquencies, nonperforming and classified loans, charge-offs, and the allowance for credit losses.
- Assess whether mortgage and securities gains are sustainable; they materially contributed to reported income growth.
- Review net interest margin sensitivity to low rates, deposit pricing, and asset repricing, as well as the concentration and credit performance of commercial real estate and commercial business loans.
- Verify subsequent dividend decisions, capital levels, and any changes in goodwill or trust preferred security impairment assessments.