NorthWest Indiana Bancorp (the “Bancorp” or “NWIN”), the holding company for Peoples Bank (the “Bank”), reported record net income of $16.6 million, or $4.80 per share, for the twelve months ended December 31, 2020. Net income for the twelve months ended December 31, 2020, increased by $4.5 million (37.3%), from the twelve months ended December 31, 2019, primarily due to lower interest expense and higher noninterest income. For the twelve months of ended December 31, 2020, the return on average assets (ROA) was 1.16% and the return on average equity (ROE) was 11.51%.
For the quarter ended December 31, 2020, the Bancorp’s net income totaled $3.4 million, or $1.00 per share. Net income for the quarter ended December 31, 2020, increased by $806 thousand (30.5%), from the quarter ended December 31, 2019, primarily due to lower interest expense and higher noninterest income. For the quarter ended December 31, 2020, the ROA was 0.93% and the ROE was 9.02%.
During the twelve months ended December 31, 2020, total assets increased by $168.8 million (12.7%), with interest-earning assets increasing by $177.7 million (14.5%). On December 31, 2020, interest-earning assets totaled $1.4 billion compared to $1.2 billion at December 31, 2019. Earning assets represented 93.5% of total assets at December 31, 2020, and 92.0% of total assets at December 31, 2019. The increase in total assets and interest earning assets for the twelve months was primarily the result of involvement in the U.S. Small Business Administration’s Paycheck Protection Program (PPP), and increased cash balances related to strong core deposit growth.
“2020 started with strong tailwinds that quickly turned to headwinds in the wake of COVID-19. As our team adjusted to new operating conditions during a time of extreme economic stress, we were able to meet customer demand and continue to create value for our shareholders by effectively capitalizing on opportunities in the local market. Peoples Bank had a record year for earnings, and at the same time was able to build capital for future growth and reserves to address any continued economic stress,” said Benjamin Bochnowski, president and chief executive officer. “Our primary concern during the pandemic has been the health and safety of our team, our customers, and our community. Operations adapted in order to maintain stability, and digital banking allowed our customers to do their banking as usual despite the unstable environment. During the year, the PPP was a resounding success, and we are looking forward to the opportunity to support our customers as another round of funding is released. Despite the hardships posed by the pandemic, our customers, team, shareholders, and community all answered the call and working together, helped produce a record year for the Bank in 2020. I want to recognize all of our stakeholders for stepping up to the challenge of 2020,” he continued. “That success has set the stage for Northwest Indiana Bancorp to take the next step as a public company, announcing our intention to apply for listing on the NASDAQ during the second quarter of 2021.”
“Despite the many difficulties faced during 2020, the Bancorp’s sales and operational teams managed to improve the efficiency ratio to 63.8% and drive record earnings. Falling yields on interest earning assets continued to challenge net interest income during the year. However, despite falling yields, the ability to increase investments in loans and securities, while also benefiting from additional liquidity and lower costs for deposits and borrowings has allowed for net interest income growth. We continue to closely monitor credit risk, despite relatively low net charge-offs for 2020, as the benefits of stimulus and opportunities for troubled borrowers to defer payments under the CARES Act may be muting the effects of the pandemic. As a result, the allowance for loan loss increased by 38.4%, primarily as general allowances at the portfolio level. By far the primary driver of the record net income achieved in 2020 was the 266.4% increase in gains on the sale of mortgage loans, which resulted in an increase of $5.5 million over 2019. All said, the Bancorp’s strong financial performance resulted in an increase of 36% in earnings per share, while also building reserves for potential loan losses,” said Peymon Torabi, chief financial officer.
Net Interest Income
Net interest income was $12.1 million for the quarter ended December 31, 2020, an increase of $1.5 million (14.6%), compared to $10.6 million for the quarter ended December 31, 2019. The Bancorp’s net interest margin on a tax-adjusted basis was 3.66% for the quarter ended December 31, 2020, compared to 3.53% for the quarter ended December 31, 2019. The increased net interest income and net interest margin for the quarter ended December 31, 2020, was primarily the result of the growth of interest-earning assets and lower interest expense attributable to the Bancorp’s ability to manage through the current historically low interest rate cycle. Net interest income was $45.9 million for the twelve months ended December 31, 2020, an increase of $2.7 million (6.3%), compared to $43.2 million for the twelve months ended December 31, 2019. The Bancorp’s net interest margin on a tax-adjusted basis was 3.63% for the twelve months ended December 31, 2020, compared to 3.73% for the twelve months ended December 31, 2019. The increased net interest income for the twelve months ended December 31, 2020, was primarily the result of the growth of interest-earning assets and lower interest expense attributable to the Bancorp’s ability to manage through the current historically low interest rate cycle. The decrease in the net interest margin for the twelve months ended December 31, 2020, is a result of lower reinvestment rates on the Bancorp’s loan and securities portfolios. Management has adjusted deposit pricing to align with the current interest rate cycle.
Noninterest Income
Noninterest income from banking activities totaled $4.7 million for the quarter ended December 31, 2020, compared to $2.5 million for the quarter ended December 31, 2019, an increase of $2.2 million or 85.4%. Noninterest income from banking activities totaled $18.1 million for the twelve months ended December 31, 2020, compared to $10.7 million for the twelve months ended December 31, 2019, an increase of $7.5 million or 70.1%. The increase in gain on sale of loans for the current quarter and twelve-month period is the result of the current economic and rate environment, and our ability to close loans in a timely fashion during a period of record demand. We anticipate the demand for mortgage loans will return to more normal levels as the current low rate environment persists or rates return to higher levels. The increase in fees and service charges for the current quarter and twelve-month period is primarily the result of increased lending fees earned as part of opportunities resulting from the current economic and rate environment and the Bancorp’s participation in the PPP. The increase in gains on the sale of securities for the current quarter and twelve-month period is a result of current market conditions and actively managing the portfolio. The increase in wealth management income for the current quarter and twelve-month period is the result of the Bancorp’s continued focus on expanding its wealth management line of business. In 2019, a death benefit from bank owned life insurance was recorded; no events of this nature occurred in 2020. The decrease in other noninterest income for the twelve-month period ended December 31, 2020, is the result of a one-time fixed asset sale for a gain in the prior year.
Noninterest Expense
Noninterest expense totaled $11.3 million for the quarter ended December 31, 2020, compared to $9.4 million for the quarter ended December 31, 2019, an increase of $1.9 million or 20.0%. Noninterest expense totaled $40.8 million for the twelve months ended December 31, 2020, compared to $37.4 million for the twelve months ended December 31, 2019, an increase of $3.5 million or 9.2%. The increase in compensation and benefits for the current quarter and twelve-month period is primarily the result of management’s continued focus on talent management and retention. The increase in occupancy and equipment for the current quarter and twelve-month period is primarily related to facilities improvement efforts aimed at enhancing technology and to accommodate recent growth. The increase in data processing for the quarter ended December 31, 2020, is primarily the result of increased system utilization. The decrease in data processing expense for the twelve-months ended December 31, 2020, is primarily the result of prior year data conversion expenses incurred in the first quarter of 2019 related to the acquisition of AJS Bancorp Inc. The increase in federal deposit insurance premiums for the quarter and twelve-months ended December 31, 2020, is a result of one-time credits received in the prior year. The decrease in marketing for the twelve months ended December 31, 2020, is a result of the timing of the Bancorp’s marketing initiatives. The increase in other operating expenses for the current quarter and twelve-month period is primarily the result of investments in strategic initiatives.
The Bancorp’s efficiency ratio was 67.24% for the quarter ended December 31, 2020, compared to 71.81% for the quarter ended December 31, 2019. The Bancorp’s efficiency ratio was 63.79% for the twelve months ended December 31, 2020, compared to 69.46% for the twelve months ended December 31, 2019. The improvement in the efficiency ratio is the result of higher noninterest and net interest income. The efficiency ratio is determined by dividing total noninterest expense by the sum of net interest income and total noninterest income for the period.
Lending
The Bancorp’s loan portfolio totaled $966.6 million at December 31, 2020, compared to $906.9 million at December 31, 2019, an increase of $59.7 million or 6.6%. The increase is primarily the result of the Bank’s involvement in the PPP. During the twelve months ended December 31, 2020, the Bancorp originated $333.3 million in new commercial loans, of which $91.5 million relates to the PPP, compared to $249.9 million during the twelve months ended December 31, 2019. During the twelve months ended December 31, 2020, the Bancorp originated $224.9 million in new fixed rate mortgage loans for sale, compared to $78.2 million during the twelve months ended December 31, 2019. The increase in new fixed rate mortgage loans originated is related to the refinance and purchase activity that has been occurring during 2020. The loan portfolio is 69.0% of earning assets and is comprised of 62.0% commercial related credits.
Investing
The Bancorp’s securities portfolio totaled $410.7 million at December 31, 2020, compared to $277.2 million at December 31, 2019, an increase of $133.5 million or 48.1%. The increase is primarily attributable to reallocating excess short-term investments to the securities portfolio while current market conditions provide the Bancorp with higher levels of liquidity. The securities portfolio represents 29.3% of earning assets and provides a consistent source of liquidity and earnings to the Bancorp. Cash and cash equivalents totaled $19.9 million at December 31, 2020, compared to $47.3 million at December 31, 2019, a decrease of $27.3 million or 57.8%. The decrease in cash and cash equivalents is primarily the result of the Bancorp funding investments in securities and loan growth.
Funding
At December 31, 2020, core deposits totaled $1.0 billion, compared to $826.7 million at December 31, 2019, an increase of $190.8 million or 23.1%. The increase is the result of the Bancorp’s efforts to maintain and grow core deposits and customer preferences for the security and liquidity of the Bancorp’s deposit product offerings. Core deposits include checking, savings, and money market accounts and represented 78.2% of the Bancorp’s total deposits at December 31, 2020. During the twelve months ended December 31, 2020, balances for noninterest bearing checking, interest bearing checking, savings, and money market accounts increased. The increase in these core deposits is a result of management’s sales efforts along with customer deposit account retention and preferences for the security the deposit products offer. At December 31, 2020, balances for certificates of deposit totaled $284.8 million, compared to $327.7 million at December 31, 2019, a decrease of $42.9 million or 13.1%. In addition, at December 31, 2020, borrowings and repurchase agreements totaled $19.9 million, compared to $25.5 million at December 31, 2019, a decrease of $5.6 million or 22.1%. The decrease in borrowings was a result of maturities on outstanding fixed rate advances.
Asset Quality
At December 31, 2020, non-performing loans totaled $14.4 million, compared to $7.4 million at December 31, 2019, an increase of $7.0 million or 94.8%. The Bancorp’s ratio of non-performing loans to total loans was 1.49% at December 31, 2020, compared to 0.81% at December 31, 2019. The increase in the non-performing loans to total loans is primarily the result of a single commercial real estate relationship with a carrying balance of $5.3 million that became nonperforming during the third quarter of 2020. The Bancorp’s ratio of non-performing assets to total assets was 1.06% at December 31, 2020, compared to 0.72% at December 31, 2019. The increase in non-performing assets at December 31, 2020, is primarily the result of higher nonperforming loans.
For the twelve months ended December 31, 2020, $3.7 million in provisions to the allowance for loan losses were required, compared to $2.6 million for the twelve months ended December 9, an increase of $1.1 million or 42.7%. For the twelve months ended December 31, 2020, charge-offs, net of recoveries, totaled $228 thousand. At December 31, 2020, the allowance for loan losses is considered adequate by management and totaled $12.5 million. The allowance for loan losses as a percentage of total loans was 1.29% at December 31, 2020, compared to 0.99% at December 31, 2019. The allowance for loan losses as a percentage of non-performing loans, or coverage ratio, was 86.72% at December 31, 2020, compared to 122.05% at December 31, 2019. The decrease in the coverage ratio is primarily the result of a single commercial real estate relationship with a carrying balance of $5.3 million that became nonperforming during the third quarter of 2020. Through management’s review of the loan relationship, a specific reserve within the allowance for loan losses has been allocated as of December 31, 2020. As of December 31, 2020, the borrower has opened a payment reserve account with the Bancorp to be used for future contractual payments and is currently in compliance with all modified loan terms.
Management also considers reserves on loans from acquisition activity that are not part of the allowance for loan losses. The Bancorp acquired loans for which there was evidence of credit quality deterioration since origination and it was determined that it was probable that the Bancorp would be unable to collect all contractually required principal and interest payments. At December 31, 2020, total purchased credit impaired loan reserves totaled $2.1 million compared to $2.2 million at December 31, 2019. Additionally, the Bancorp has acquired loans without evidence of credit quality deterioration since origination and has marked these loans to their fair values. As part of the fair value of loans receivable, there was a net fair value discount for loans acquired of $2.0 million at December 31, 2020, compared to $3.8 million at December 31, 2019. When these additional reserves are included on a pro forma basis, the allowance for loan losses as a percentage of total loans was 1.71% at December 31, 2020, and the allowance for loan losses as a percentage of non-performing loans, or coverage ratio, was 115.25% at December 31, 2020. See Table 1 below for a reconciliation of these non-GAAP figures to the Bancorp’s GAAP figures.
The Bancorp established a goodwill balance totaling $11.1 million with the acquisitions of AJSB, First Personal, First Federal, and Liberty Savings. Goodwill of $2.9 million, $5.4 million, $2.0 million, and $804 thousand were established with the acquisitions of AJSB, First Personal, First Federal, and Liberty Savings, respectively. Goodwill is tested annually for impairment, or when circumstances or events are deemed significant enough to test for impairment. As part of its interim and annual impairment tests, the Bancorp enlisted a third party expert to perform a quantitative goodwill valuation analysis. The analysis showed the implied fair value of goodwill was higher than its carrying value and no impairment was necessary. To date, there has not been any impairment of goodwill identified or recorded related to the listed acquisitions.
Capital Adequacy
At December 31, 2020, shareholders’ equity stood at $152.9 million, and tangible capital represented 9.2% of total assets. The Bancorp’s regulatory capital ratios at December 31, 2020, were 14.1% for total capital to risk-weighted assets, 12.8% for both common equity tier 1 capital to risk-weighted assets and tier 1 capital to risk-weighted assets, and 8.5% for tier 1 capital to adjusted average assets. Under all regulatory capital requirements, the Bancorp is considered well capitalized. The book value of the Bancorp’s stock stood at $44.16 per share at December 31, 2020.
Impacts of COVID-19
The COVID-19 pandemic began to affect the Bancorp’s operations during March 2020, and as of the date of this release, continues to influence operating decisions. In response to the pandemic, the Bancorp’s management implemented the following policy actions:
(Dollars in thousands) | ||||||||||||||||||||||||
As of December 31, 2020 | Mortgage loans | Commercial Loans | Manufactured Homes | |||||||||||||||||||||
Number of Loans |
Recorded Investment |
Number of Loans |
Recorded Investment |
Number of Loans |
Recorded Investment |
|||||||||||||||||||
Interest only | 26 | $ | 3,141 | 8 | $ | 10,053 | 2 | $ | 82 | |||||||||||||||
Full payment deferral | 4 | 250 | 6 | 1,398 | – | – | ||||||||||||||||||
Total $ | 30 | $ | 3,391 | 14 | $ | 11,451 | 2 | $ | 82 |
About NorthWest Indiana Bancorp
NorthWest Indiana Bancorp is a locally managed and independent financial holding company headquartered in Munster, Indiana, whose activities are primarily limited to holding the stock of Peoples Bank. Peoples Bank provides a wide range of personal, business, digital and wealth management financial services from its 22 locations in Lake and Porter Counties in Northwest Indiana and South Chicagoland. NorthWest Indiana Bancorp’s common stock is quoted on the OTC Pink Marketplace under the symbol NWIN. The website ibankpeoples.com provides information on Peoples Bank’s products and services, and NorthWest Indiana Bancorp’s investor relations.
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