Finward Bancorp(US:FNWD)2021-03-21 16:00Loan Portfolio and Performance - The Bancorp's loan portfolio totaled $966,578,000 at the end of 2020, showing an increase from $906,869,000 in 2019, representing a growth of approximately 11.5%[30] - Construction and development loans increased to $93,562,000 in 2020 from $87,710,000 in 2019, marking a growth of about 6.5%[31] - The average loans outstanding during 2020 were $961,187,000, up from $876,611,000 in 2019, indicating a year-over-year increase of approximately 9.6%[31] - Adjustable Rate Mortgage Loans (ARMs) originated totaled $9.9 million in 2020, accounting for 3.2% of total mortgage loan originations[43] - The Bancorp's primary lending area includes Lake County in Indiana and Cook County in Illinois, where the majority of loan activity is concentrated[35] - The maximum loan-to-value ratio for residential construction loans is set at 89% of the lower of the current appraised value or the cost of construction[44] - The Bancorp's fixed-rate mortgage loans generally conform to Freddie Mac guidelines, with maturities exceeding fifteen years[41] - The 15-year mortgage loan program has gained significant acceptance, with borrowers typically having larger down payments[42] - The Bancorp had no loans exceeding regulatory limitations as of December 31, 2020, with the maximum loan amount to a single borrower capped at approximately $20,315,000[27] - There were no concentrations of loans in any industry exceeding 10% of total loans as of December 31, 2020[28] Non-Performing Assets - The Bancorp's total non-performing assets as of December 31, 2020, amounted to $15,840,000, an increase from $9,149,000 in 2019[59] - The ratio of non-performing loans to total assets increased to 0.96% in 2020 from 0.56% in 2019[59] - The total of non-accrual, 90 days past due, and accruing loans that qualify as troubled debt restructurings was $15,840,000 in 2020, compared to $9,149,000 in 2019[59] - Residential real estate loans classified as substandard increased to $6,387,000 in 2020 from $4,491,000 in 2019[62] - The Bancorp's special mention loans totaled $22,684,000 in 2020, up from $12,624,000 in 2019[63] - The Bancorp's total impaired loans increased to $11,821,000 in 2020 from $7,218,000 in 2019, representing a 63.5% increase[65] - The number of troubled debt restructured loans rose to 25 in 2020, with a recorded investment of $2,121,000, compared to 22 loans with a recorded investment of $2,100,000 in 2019[66] Loan Losses and Allowances - The allowance for loan losses at the end of 2020 was $12,458,000, up from $8,999,000 at the end of 2019, marking a 38.5% increase[68] - The total charge-offs for 2020 were $286,000, a decrease from $1,621,000 in 2019, indicating improved loan performance[68] - The allowance for loan losses to loans outstanding ratio increased to 1.29% in 2020 from 0.99% in 2019[68] - The Bancorp's net charge-offs to average loans outstanding during the period was -0.02% in 2020, an improvement from -0.18% in 2019[68] Investment Portfolio - The Bancorp's investment portfolio totaled $410.7 million at December 31, 2020, an increase from $277.2 million in 2019[70] - The carrying value of mortgage-backed securities increased to $97,941,000 in 2020 from $77,316,000 in 2019, reflecting a 26.7% growth[72] - The Bancorp had $13.7 million in repurchase agreements and $6.1 million in other borrowings as of December 31, 2020[76] Deposits and Interest Rates - Retail and commercial deposits are primarily sourced from the Bancorp's primary market area, with a broad selection of deposit instruments offered[77] - Total deposits increased to $1,239,314,000 in 2020, up from $1,108,687,000 in 2019, representing an increase of 11.75%[79] - The average rate on interest-bearing deposits decreased to 0.43% in 2020 from 0.75% in 2019[79] Financial Performance - The Wealth Management Group's assets reached $351.0 million, an increase of $8.1 million compared to December 31, 2019[85] - The return on average assets improved to 1.16% in 2020, up from 0.94% in 2019[89] - The interest rate spread for 2020 was 3.46%, compared to the previous year's spread[87] - Total loans amounted to $961,187,000 in 2020, with a weighted average yield of 4.67%[90] - The average outstanding balance of repurchase agreements increased to $16,975,000 in 2020 from $12,928,000 in 2019[83] - The total stockholders' equity to total assets ratio was 10.21% at the end of 2020, slightly up from 10.09% in 2019[89] - The average balance of interest-earning assets was $1,321,159,000 in 2020, generating interest income of $51,621,000[90] - The total interest-bearing liabilities were $1,266,568,000 in 2020, with a weighted average cost of 0.45%[90] - Total stockholders' equity increased to $1,427.176 million from $1,285.964 million, reflecting a growth of approximately 11% year-over-year[92] - Net interest income rose to $45.881 million, up from $43.158 million, marking an increase of about 6.3% compared to the previous year[92] - The net interest margin decreased slightly to 3.47% from 3.66%, indicating a decline of approximately 5.2% year-over-year[92] - Total interest-earning assets saw a net change of $(629) thousand, with a total of $12,800 thousand in interest-earning assets for the year[95] - Interest expense on deposits decreased by $3.038 million, while total interest-bearing liabilities decreased by $3.352 million[95] Capital Requirements and Compliance - The Bancorp's capital requirements include a common equity Tier 1 capital ratio of 4.5% and a total capital to risk-based assets ratio of 8%[117] - The formation of NWIN Funding, Inc. as a REIT allows the Bancorp to raise capital using portfolio mortgages as collateral, enhancing financial flexibility[99] - As of December 31, 2020, the common equity Tier 1 capital ratio was 12.8%, significantly above the minimum required ratio of 4.5%[131] - Total capital to risk-weighted assets was 14.0%, exceeding the minimum requirement of 8.0%[131] - The Tier 1 capital to risk-weighted assets ratio was 12.8%, well above the minimum requirement of 6.0%[131] - The Bank's capital exceeded all applicable regulatory capital requirements as of December 31, 2020, with common equity Tier 1 capital amounting to $125.3 million[130] - The capital conservation buffer requirement was fully implemented at 2.5% on January 1, 2019, impacting capital distribution policies[121] - The Economic Growth Act established a new optional Community Bank Leverage Ratio (CBLR) for qualifying community banks, set between 8% and 10%[127] - The CBLR was temporarily lowered to 8% under the CARES Act, with a transition back to 9% planned for subsequent years[129] - The Bank's Tier 1 capital to adjusted average assets ratio was 8.5%, exceeding the minimum requirement of 4.0%[131] - The Dodd-Frank Act mandates stringent capital levels for bank holding companies, aligning them with those required for insured depository subsidiaries[123] - Institutions are classified based on capital adequacy, with "well capitalized" defined as having a total risk-based capital ratio of 10.0% or greater[124] - As of December 31, 2020, the Common Equity Tier 1 capital to risk-weighted assets ratio was 12.7%, significantly above the minimum required ratio of 4.5%[133] - The Tier 1 capital to risk-weighted assets ratio stood at 12.7%, exceeding the minimum requirement of 6.0%[133] - Total capital to risk-weighted assets ratio was 13.9%, well above the minimum requirement of 8.0%[133] - The Bancorp's Tier 1 capital to adjusted average assets ratio was 8.3%, surpassing the minimum requirement of 4.0%[133] Regulatory and Compliance Issues - The Bancorp recognized dividend income of approximately $120 thousand from its Federal Home Loan Bank stock in 2020[148] - The Bancorp had outstanding borrowings of $6.0 million from the Federal Home Loan Bank of Indianapolis as of December 31, 2020[148] - The Bancorp's excess borrowing capacity based on collateral from the Federal Home Loan Bank was $168.0 million[148] - The Bank paid net deposit insurance assessments of $731 thousand during the year ended December 31, 2020[139] - The deposit insurance assessment rate for 2020 was approximately 0.059% of insured deposits[139] - The Bank was rated "satisfactory" with respect to its Community Reinvestment Act compliance during its most recent regulatory examination[150] - The Bancorp has consolidated total deferred tax assets of $6.8 million and total deferred tax liabilities of $5.8 million, resulting in a net deferred tax asset of $981 thousand[169] - The Bank is subject to Indiana's Financial Institutions Tax at a flat rate of 6.25%, which is scheduled to decrease to 6.0% in 2020, 5.5% in 2021, 5.0% in 2022, and 4.9% in 2023 and thereafter[168] - The Bancorp's earnings and growth are influenced by the monetary and credit policies of the Federal Reserve, which regulate the national supply of bank credit[164] - The Dodd-Frank Act requires the Bancorp to provide shareholders an opportunity to vote on executive compensation and golden parachute payments, with votes being non-binding and advisory[163] - Under the Dodd-Frank Act, interchange fees for debit card transactions must be reasonable and proportional to the issuer's incremental costs, impacting smaller depository institutions[160] - The Bancorp has elected to become a financial holding company under the Gramm-Leach-Bliley Act, allowing it to offer a wider range of financial services[151] - The federal banking agencies have adopted guidelines for establishing cybersecurity standards, which the Bancorp must adhere to, although it did not discover any material cybersecurity incidents in 2020[156] - The Consumer Financial Protection Bureau (CFPB) has broad rulemaking and enforcement powers affecting the Bancorp, particularly regarding consumer financial protection laws[157] - The Bancorp's operations may be subject to additional compliance burdens due to potential changes in federal preemption standards as per the Dodd-Frank Act[158] - The federal banking regulators have issued guidance on cybersecurity in response to recent cyberattacks, emphasizing the need for robust security measures and business continuity programs[156]