Introduction and History

Finward Bancorp, a locally managed and independent financial holding company headquartered in Munster, Indiana, has a long and storied history of serving the financial needs of its community. With its primary subsidiary, Peoples Bank, Finward has weathered various economic storms, emerging stronger and more resilient with each challenge.

Founded in 1910, Finward Bancorp has a rich heritage spanning over a century. The Bank started as a small, community-focused institution, catering to the financial requirements of local residents and businesses. Over the years, Finward has undergone strategic expansions, carefully managing its growth to ensure it remains true to its community-centric roots.

Today, Finward Bancorp boasts a strong presence in Lake and Porter Counties in Northwest Indiana, operating 26 branch locations and providing a comprehensive suite of personal, business, electronic, and wealth management financial services. The Bank's commitment to its customers and the local community has been a driving force behind its success, fostering deep-rooted relationships and a reputation for reliable and personalized service.

Employee Retention Strategy

In 2015, Finward Bancorp took a significant step in its employee retention strategy by adopting a stock option and incentive plan. This plan initially permitted the grant of equity awards for up to 250,000 shares of common stock and was later amended and restated in 2022. The implementation of this stock-based compensation approach has been instrumental in attracting and retaining key talent within the organization.

Financials

Finward's financial performance has been a testament to its prudent management and adaptability. As of September 30, 2024, the Bank reported total assets of $2.07 billion, a loan portfolio of $1.51 billion, and total deposits of $1.75 billion. The Bank's capital position remains robust, with a Common Equity Tier 1 Capital ratio of 11.10% and a Total Risk-Based Capital ratio of 12.14%, well above the regulatory requirements for a "well-capitalized" institution. Furthermore, the company's total stockholders' equity stood at $159.6 million, representing 7.7% of total assets, underscoring its strong capital position.

During the nine months ended September 30, 2024, Finward Bancorp reported net income of $10.0 million, or $2.35 per diluted share, compared to $6.9 million, or $1.60 per diluted share, for the corresponding prior-year period. The Bank's return on average assets (ROA) for the nine-month period was 0.64%, while its return on average equity (ROE) was 4.50%.

For the most recent quarter, Finward reported revenue of $14,873,000 and net income of $606,000. The operating cash flow (OCF) for the quarter was -$3,725,000, while the free cash flow (FCF) stood at -$4,233,000. These figures reflect the Bank's current performance amidst challenging market conditions.

Liquidity

Finward's ability to navigate challenging times has been further tested in recent years. In November 2023, the Bank entered into a Consent Order with the FDIC and the Indiana Department of Financial Institutions related to compliance with the Bank Secrecy Act (BSA). The Bank has taken proactive steps to address the findings and strengthen its BSA compliance program, including enhancing its risk management infrastructure, increasing compliance staffing, and implementing system upgrades.

Additionally, in August 2024, the Bank entered into a Memorandum of Understanding (MOU) with the FDIC and the Indiana Department of Financial Institutions, which outlines various actions and requirements the Bank must comply with to enhance its operations, capital, and strategy. Finward's management team has been working diligently to address the MOU's requirements and strengthen the Bank's overall performance. As part of the MOU, the Bank has agreed to refrain from paying cash dividends without prior regulatory approval and is developing and implementing plans regarding its operations, capital, and strategy.

The Bank's liquidity position remains strong, with $71.65 million in cash and access to $685.91 million in available credit lines. Finward Bancorp also has borrowing capacity from the Federal Home Loan Bank (FHLB) and Federal Reserve facilities. The current ratio and quick ratio both stand at 63.86, indicating a solid ability to meet short-term obligations.

Customer Focus and Innovation

Despite these regulatory challenges, Finward Bancorp has remained focused on its core mission of serving its customers and community. The Bank has continued to invest in its digital capabilities, enhancing its online and mobile banking platforms to meet the evolving needs of its clients. Finward has also maintained its commitment to supporting local businesses and individuals, providing lending solutions and tailored financial services to help its community thrive. The Bank has placed a particular emphasis on building lasting customer relationships and expanding its wealth management and electronic banking services to diversify its revenue streams.

Loan Portfolio and Asset Quality

Finward Bancorp's loan portfolio, which serves as its largest asset and primary source of interest and fee income, is well-diversified across several key segments. The portfolio includes residential real estate loans, commercial real estate and multifamily loans, commercial business and farmland loans, consumer loans, manufactured home loans, and government loans.

As of September 30, 2024, commercial real estate loans constituted the largest segment at 35.9% of the total loan portfolio. Given current market conditions, the Bank is closely monitoring these loans for any signs of credit quality deterioration. Finward's lending strategy focuses on quality loan growth, product diversification, and competitive pricing.

The Bank maintains a strong focus on asset quality, with non-performing loans at 0.92% of total loans and an allowance for credit losses at 1.23% of total loans as of September 30, 2024. Finward has established a comprehensive loan grading system and maintains an adequate allowance for credit losses based on its assessment of expected losses in the loan portfolio.

Investment Portfolio and Funding

Finward Bancorp's investment portfolio, designated as available-for-sale, totaled $350 million as of September 30, 2024. The portfolio primarily consists of U.S. government agency securities, municipal securities, and mortgage-backed securities, and is managed to provide liquidity and stable earnings.

The Bank's primary funding source is its deposit base, which totaled $1.75 billion as of September 30, 2024, with core deposits representing 67.9% of total deposits. Finward also utilizes borrowings, such as FHLB advances and repurchase agreements, to fund asset growth not supported by deposit generation. Total borrowings were $128 million as of the end of the third quarter.

Future Outlook

Looking ahead, Finward Bancorp remains cautiously optimistic. The Bank is closely monitoring economic conditions, interest rate movements, and the potential impact of regulatory changes on its operations. Finward's management team is dedicated to implementing prudent strategies, diversifying its revenue streams, and exploring strategic growth opportunities that align with its community-oriented approach.

Conclusion

In conclusion, Finward Bancorp's longstanding history, resilient financial performance, and unwavering commitment to its customers and community have positioned the Bank for continued success, even in the face of challenging times. As Finward navigates the evolving landscape, it remains focused on delivering innovative solutions, maintaining strong risk management practices, and upholding its legacy of being a trusted financial partner in Northwest Indiana. The Bank's diversified loan portfolio, focus on asset quality, and strong liquidity position have enabled it to navigate the current interest rate environment and economic conditions, positioning it well for future growth and stability.