Finward Bancorp's Q1 2025 Earnings: Margins Improve, but Costs and Volatility Linger

Finward Bancorp (NASDAQ: FNWD) reported its first-quarter 2025 earnings on April 30, 2025, with results that highlight both progress and persistent challenges for the regional bank. While the net interest margin inched higher as borrowing costs fell, rising expenses and a sharp drop in net income have investors questioning whether the bank can stabilize its profitability.

Key Metrics: Margins Up, Net Income Down

Net income available to common shareholders fell to $456,000 (or $0.11 per diluted share) in Q1 2025, a 98% decline from $2.1 million ($0.49/share) in Q4 2024 and a 95% drop from $9.3 million ($2.17/share) in the same quarter a year ago. The slide was driven by higher compensation costs, a lingering provision for credit losses, and a drop in non-interest income.

However, Finward’s net interest margin (NIM) improved to 2.81%, up from 2.65% in Q4 2024, as lower deposit and borrowing costs offset reduced loan yields. This metric—critical for banks’ profitability—suggests the Federal Reserve’s rate cuts in late 2024 are starting to benefit the bank. Yet, the NIM remains below industry averages, underscoring Finward’s struggle to generate consistent returns.

The Efficiency Ratio Problem

A glaring red flag in the report is the efficiency ratio, which ballooned to 93.11% in Q1 2025 from 87.20% in the prior quarter. This measure compares operating expenses to revenue, and a ratio above 100% means expenses exceed revenue—a warning sign. The jump was largely due to a 3.7% year-over-year increase in compensation and benefits, reflecting merit-based salary hikes and stock-based compensation.

CEO Benjamin Bochnowski noted efforts to cut third-party expenses, but the trend suggests Finward is still grappling with cost discipline. With the efficiency ratio now near 93%, the bank needs significant revenue growth or expense cuts to return to a sustainable level below 80%.

Asset Quality Shows Signs of Life

On the positive side, asset quality metrics improved. Non-performing loans (NPLs) fell to $12.5 million (0.84% of total loans), down from $13.7 million (0.91%) in Q4 2024. The allowance for credit losses (ACL) rose to $17.9 million, covering 143.8% of NPLs—a strong buffer. Meanwhile, net charge-offs plummeted to $32,700, a 97% drop from Q4 2024’s $2.2 million. This suggests Finward’s credit portfolio is stabilizing, though the NPL ratio remains above historical lows.

Strategic Priorities: Capital Preservation and Liquidity

Bochnowski emphasized capital preservation and liquidity management as top priorities. Total assets dipped slightly to $2.04 billion, but Finward maintained $697 million in available funds, including borrowing capacity at the Federal Home Loan Bank. Deposits stayed robust at $1.8 billion, with non-interest-bearing accounts growing 6.9%.

However, the bank’s return on equity (ROE) and return on assets (ROA) fell to 1.17% and 0.09%, respectively—levels that trail most regional banks. This underscores the uphill battle Finward faces in delivering shareholder returns.

Risks and Outlook

Finward’s Q1 results reflect a sector-wide dilemma: banks are benefiting from falling rates, but thin margins and rising expenses are squeezing profits. The bank’s path to recovery hinges on:
1. Cost control: Reducing expenses to lower the efficiency ratio.
2. Loan growth: Commercial lending rose to $36.7 million in Q1, but total loans remain flat at $1.5 billion.
3. Margin sustainability: Whether the NIM can hold near 3% as rates stabilize.

Conclusion: Proceed with Caution

Finward’s Q1 report is a mixed bag. While lower interest rates and improving credit quality provide hope, the bank’s inability to manage costs and the drastic drop in net income raise concerns. Investors should closely watch operating expenses (specifically compensation trends) and NIM performance over the next two quarters.

Until Finward proves it can stabilize profitability, its stock—down nearly 30% year-to-date—will likely remain volatile. For now, the bank’s story remains one of incremental progress amid a challenging environment.