[PART I. Financial Information](index=3&type=section&id=PART%20I.%20Financial%20Information) [Item 1. Unaudited Financial Statements and Notes](index=3&type=section&id=Item%201.%20Unaudited%20Financial%20Statements%20and%20Notes) Finward Bancorp's unaudited condensed consolidated financial statements and notes are presented for the specified reporting periods [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Presents Finward Bancorp's financial position, detailing assets, liabilities, and stockholders' equity at specific dates Condensed Consolidated Balance Sheets (June 30, 2025 vs. December 31, 2024) | (Dollars in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :---------------- | | **ASSETS** | | | | Total cash and cash equivalents | $ 103,414 | $ 70,584 | | Securities available-for-sale | $ 327,845 | $ 333,554 | | Net loans receivable | $ 1,466,094 | $ 1,492,065 | | Total assets | $ 2,057,911 | $ 2,060,699 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total deposits | $ 1,754,850 | $ 1,760,566 | | Total liabilities | $ 1,903,658 | $ 1,909,285 | | Total stockholders' equity | $ 154,253 | $ 151,414 | - Total assets decreased slightly by **$2.788 million** from December 31, 2024, to June 30, 2025. Cash and cash equivalents increased significantly by **$32.83 million**, while net loans receivable decreased by **$25.971 million** and securities available-for-sale decreased by **$5.709 million**. Total deposits saw a minor decrease of **$5.716 million**, and total stockholders' equity increased by **$2.839 million**[8](index=8&type=chunk) [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Details Finward Bancorp's revenues, expenses, and net income for the three and six months ended June 30, 2025 and 2024 Consolidated Statements of Income (Three Months Ended June 30, 2025 vs. 2024) | (Dollars in thousands, except per share data) | 2025 | 2024 | Change ($) | Change (%) | | :------------------------------------------ | :-------- | :-------- | :--------- | :--------- | | Total interest income | $ 22,670 | $ 22,127 | $ 543 | 2.45% | | Total interest expense | $ 8,725 | $ 10,073 | $ (1,348) | -13.38% | | Net interest income | $ 13,945 | $ 12,054 | $ 1,891 | 15.69% | | Provision for (benefit from) credit losses | $ (274) | $ 76 | $ (350) | -460.53% | | Total non-interest income | $ 2,683 | $ 2,573 | $ 110 | 4.28% | | Total non-interest expense | $ 14,786 | $ 14,417 | $ 369 | 2.56% | | Net income | $ 2,151 | $ 143 | $ 2,008 | 1404.20% | | Basic EPS | $ 0.50 | $ 0.03 | $ 0.47 | 1566.67% | | Diluted EPS | $ 0.50 | $ 0.03 | $ 0.47 | 1566.67% | Consolidated Statements of Income (Six Months Ended June 30, 2025 vs. 2024) | (Dollars in thousands, except per share data) | 2025 | 2024 | Change ($) | Change (%) | | :------------------------------------------ | :-------- | :-------- | :--------- | :--------- | | Total interest income | $ 45,011 | $ 44,111 | $ 900 | 2.04% | | Total interest expense | $ 17,753 | $ 20,277 | $ (2,524) | -12.45% | | Net interest income | $ 27,258 | $ 23,834 | $ 3,424 | 14.37% | | Provision for (benefit from) credit losses | $ 180 | $ 76 | $ 104 | 136.84% | | Total non-interest income | $ 4,912 | $ 16,049 | $ (11,137) | -69.40% | | Total non-interest expense | $ 29,258 | $ 29,421 | $ (163) | -0.55% | | Net income | $ 2,606 | $ 9,423 | $ (6,817) | -72.34% | | Basic EPS | $ 0.61 | $ 2.21 | $ (1.60) | -72.40% | | Diluted EPS | $ 0.61 | $ 2.21 | $ (1.60) | -72.40% | [Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Reports Finward Bancorp's net income and other comprehensive income (loss) for the three and six months ended June 30, 2025 and 2024 Consolidated Statements of Comprehensive Income (Loss) (Three Months Ended June 30, 2025 vs. 2024) | (Dollars in thousands) | 2025 | 2024 | Change ($) | Change (%) | | :--------------------- | :-------- | :-------- | :--------- | :--------- | | Net income | $ 2,151 | $ 143 | $ 2,008 | 1404.20% | | Other comprehensive income (loss), net of tax | $ 684 | $ (2,626) | $ 3,310 | -126.05% | | Comprehensive income (loss) net of tax | $ 2,835 | $ (2,483) | $ 5,318 | -214.18% | Consolidated Statements of Comprehensive Income (Loss) (Six Months Ended June 30, 2025 vs. 2024) | (Dollars in thousands) | 2025 | 2024 | Change ($) | Change (%) | | :--------------------- | :-------- | :-------- | :--------- | :--------- | | Net income | $ 2,606 | $ 9,423 | $ (6,817) | -72.34% | | Other comprehensive income (loss), net of tax | $ 524 | $ (7,326) | $ 7,850 | -107.19% | | Comprehensive income (loss) net of tax | $ 3,130 | $ 2,097 | $ 1,033 | 49.26% | [Consolidated Statements of Changes in Stockholder's Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholder's%20Equity) Outlines changes in Finward Bancorp's stockholders' equity, including net income, OCI, and dividends, for periods ended June 30, 2025 and 2024 Consolidated Statements of Changes in Stockholder's Equity (June 30, 2025 vs. June 30, 2024) | (Dollars in thousands) | June 30, 2025 | June 30, 2024 | | :--------------------- | :------------ | :------------ | | Total Stockholders' Equity (End of Period) | $ 154,253 | $ 148,631 | | Net income (Six Months) | $ 2,606 | $ 9,423 | | Other comprehensive income (loss), net of tax (Six Months) | $ 524 | $ (7,326) | | Stock-based compensation expense (Six Months) | $ 229 | $ 305 | | Cash dividends (Six Months) | $ (520) | $ (1,034) | - Total stockholders' equity increased by **$2.839 million** from January 1, 2025, to June 30, 2025, primarily driven by net income and other comprehensive income, partially offset by cash dividends. For the six months ended June 30, 2025, net income was **$2.606 million**, and other comprehensive income was **$0.524 million**, while cash dividends paid were **$0.520 million**[15](index=15&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Summarizes Finward Bancorp's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 Consolidated Statements of Cash Flows (Six Months Ended June 30, 2025 vs. 2024) | (Dollars in thousands) | 2025 | 2024 | Change ($) | | :--------------------- | :-------- | :-------- | :--------- | | Net cash provided by operating activities | $ 960 | $ 2,725 | $ (1,765) | | Net cash provided by investing activities | $ 29,891 | $ 42,404 | $ (12,513) | | Net cash provided by (used in) financing activities | $ 1,979 | $ (47,930) | $ 49,909 | | Net change in cash and cash equivalents | $ 32,830 | $ (2,801) | $ 35,631 | | Cash and cash equivalents at end of period | $ 103,414 | $ 83,207 | $ 20,207 | - Net cash provided by operating activities decreased significantly in 2025 compared to 2024, while net cash provided by investing activities also saw a notable decrease. However, financing activities shifted from a net cash outflow in 2024 to a net cash inflow in 2025, primarily due to changes in deposits and borrowed funds, leading to a substantial increase in cash and cash equivalents at the end of the period[17](index=17&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures supporting Finward Bancorp's condensed consolidated financial statements [Note 1 - Basis of Presentation](index=9&type=section&id=Note%201%20-%20Basis%20of%20Presentation) Finward Bancorp's consolidated financial statements include the Company and its wholly-owned subsidiary, Peoples Bank, with earnings primarily dependent on the Bank - Finward Bancorp's financial statements are consolidated, including Peoples Bank and its subsidiaries. The Company's earnings are primarily dependent on the Bank's performance[19](index=19&type=chunk) - The Company's revenue is primarily derived from banking, and financial performance is monitored on a consolidated basis by the CEO, who is the Chief Operating Decision Maker (CODM)[20](index=20&type=chunk) - All of the Company's operations are aggregated into one reportable operating segment, as the CODM evaluates financial performance on a company-wide basis[21](index=21&type=chunk) [Note 2 - Use of Estimates](index=9&type=section&id=Note%202%20-%20Use%20of%20Estimates) Financial statements require management estimates, particularly for credit losses, which can materially impact reported amounts - Financial statements require management estimates and assumptions, affecting reported asset/liability amounts and revenue/expense during the reporting period[23](index=23&type=chunk) - Estimates related to the allowance for credit losses are particularly susceptible to material change in the near term[23](index=23&type=chunk) [Note 3 – Accounting Pronouncements Recently Adopted or Issued](index=9&type=section&id=Note%203%20%E2%80%93%20Accounting%20Pronouncements%20Recently%20Adopted%20or%20Issued) Recent FASB ASUs are not expected to materially impact Finward Bancorp's financial statements or disclosures - ASU 2023-06 (Disclosure Improvements) is not expected to materially impact financial statements as the Company is already subject to related SEC requirements[24](index=24&type=chunk)[25](index=25&type=chunk) - ASU 2023-09 (Income Tax Disclosures), effective for fiscal year 2025, is not expected to have a material impact[26](index=26&type=chunk) - ASU 2024-03 (Expense Disaggregation Disclosures), effective after December 15, 2026, is not expected to have a material impact[27](index=27&type=chunk) - ASU 2024-04 (Debt-Debt With Conversion and Other Options), effective after December 15, 2025, is not expected to have a material impact[28](index=28&type=chunk) [Note 4 - Securities](index=10&type=section&id=Note%204%20-%20Securities) Finward Bancorp's available-for-sale securities portfolio decreased to $327.8 million, with unrealized losses not recognized due to high credit quality and holding intent Securities Available-for-Sale (June 30, 2025 vs. December 31, 2024) | (Dollars in thousands) | June 30, 2025 Estimated Fair Value | December 31, 2024 Estimated Fair Value | | :---------------------------------------------------- | :--------------------------------- | :--------------------------------- | | U.S. government sponsored entities | $ 8,307 | $ 8,061 | | Collateralized mortgage obligations and residential mortgage-backed securities | $ 107,972 | $ 109,325 | | Municipal securities | $ 209,950 | $ 214,749 | | Collateralized debt obligations | $ 1,616 | $ 1,419 | | **Total securities available-for-sale** | **$ 327,845** | **$ 333,554** | Gross Unrealized Losses on Securities Available-for-Sale (June 30, 2025 vs. December 31, 2024) | (Dollars in thousands) | June 30, 2025 Gross Unrealized Losses | December 31, 2024 Gross Unrealized Losses | | :---------------------------------------------------- | :------------------------------------ | :------------------------------------ | | U.S. government sponsored entities | $ (577) | $ (823) | | Collateralized mortgage obligations and residential mortgage-backed securities | $ (22,288) | $ (26,649) | | Municipal securities | $ (52,327) | $ (48,205) | | Collateralized debt obligations | $ (533) | $ (737) | | **Total securities available-for-sale** | **$ (75,725)** | **$ (76,414)** | - Unrealized losses on securities are not recognized in income because the securities are of high credit quality or have undisrupted cash flows, and management intends and has the ability to hold them for the foreseeable future, expecting fair values to recover as they approach maturity[33](index=33&type=chunk) [Note 5 - Loans Receivable](index=13&type=section&id=Note%205%20-%20Loans%20Receivable) Finward Bancorp's loan portfolio slightly decreased to $1.484 billion, with the allowance for credit losses increasing to $18.184 million Loans Receivable, Net of Deferred Fees and Costs (June 30, 2025 vs. December 31, 2024) | (Dollars in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :---------------- | | Loans secured by real estate | $ 1,334,686 | $ 1,364,054 | | Commercial business | $ 105,636 | $ 104,246 | | Consumer | $ 2,347 | $ 551 | | Manufactured homes | $ 25,146 | $ 26,708 | | Government | $ 14,628 | $ 11,024 | | **Loans receivable, net of deferred fees and costs** | **$ 1,484,278** | **$ 1,508,976** | Allowance for Credit Losses (ACL) Activity (Six Months Ended June 30, 2025) | (Dollars in thousands) | Beginning Balance | Charge-offs | Recoveries | Provisions | Ending Balance | | :--------------------- | :---------------- | :---------- | :--------- | :--------- | :------------- | | Residential real estate | $ 4,481 | $ - | $ 35 | $ (1,761) | $ 2,755 | | Home equity | $ 835 | $ - | $ - | $ (97) | $ 738 | | Commercial real estate | $ 6,444 | $ - | $ 4 | $ 2,702 | $ 9,150 | | Construction and land development | $ 2,651 | $ - | $ - | $ (1,156) | $ 1,495 | | Multifamily | $ 1,003 | $ (46) | $ 10 | $ 1,334 | $ 2,301 | | Commercial business | $ 1,185 | $ (61) | $ 460 | $ 19 | $ 1,603 | | Consumer | $ 5 | $ (21) | $ 1 | $ 17 | $ 2 | | Manufactured homes | $ 252 | $ - | $ - | $ (127) | $ 125 | | Government | $ 55 | $ - | $ - | $ (40) | $ 15 | | **Total** | **$ 16,911** | **$ (128)** | **$ 510** | **$ 891** | **$ 18,184** | - Loans modified for borrowers experiencing financial difficulty during the three months ended June 30, 2025, included **$1.851 million** in Commercial business loans with payment delays. For the six months ended June 30, 2025, Residential real estate loans had **$0.168 million** in term extensions, and Commercial business loans had **$1.851 million** in payment delays[70](index=70&type=chunk)[72](index=72&type=chunk) [Note 6 – Intangibles and Acquisition-Related Accounting](index=27&type=section&id=Note%206%20%E2%80%93%20Intangibles%20and%20Acquisition-Related%20Accounting) Goodwill remained stable at $22.395 million, while core deposit intangible decreased due to amortization Goodwill Balance (June 30, 2025 vs. December 31, 2024) | (Dollars in thousands) | 2025 | 2024 | | :--------------------- | :-------- | :-------- | | Goodwill balance January 1, | $ 22,395 | $ 22,395 | | Goodwill balance June 30, | $ 22,395 | $ 22,395 | - The Company's core deposit intangible balances were **$1.4 million** at June 30, 2025, and **$1.9 million** at December 31, 2024, reflecting a decrease due to amortization[93](index=93&type=chunk) Intangibles Amortization (Three and Six Months Ended June 30, 2025 vs. 2024) | (Dollars in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Amortization | $ 221 | $ 356 | $ 446 | $ 717 | [Note 7 – Deposits](index=28&type=section&id=Note%207%20%E2%80%93%20Deposits) Total deposits slightly decreased to $1.755 billion, with certificates of deposit being the largest component and significant maturities in 2025 End-of-Period Deposit Portfolio Balances (June 30, 2025 vs. December 31, 2024) | (Dollars in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------- | :------------ | :---------------- | | Checking | $ 593,471 | $ 591,487 | | Savings | $ 266,070 | $ 275,121 | | Money market | $ 352,616 | $ 333,705 | | Certificates of deposit | $ 542,693 | $ 560,253 | | **Total deposits** | **$ 1,754,850** | **$ 1,760,566** | Selected Maturities of Certificates of Deposit (June 30, 2025) | (Dollars in thousands) | Total | | :--------------------- | :-------- | | 2025 | $ 418,263 | | 2026 | $ 118,422 | | 2027 | $ 4,931 | | 2028 | $ 875 | | 2029 and thereafter | $ 202 | | **Total** | **$ 542,693** | [Note 8 - Concentrations of Credit Risk](index=28&type=section&id=Note%208%20-%20Concentrations%20of%20Credit%20Risk) Credit risk is concentrated in real estate and business loans primarily within specific Indiana and Illinois counties, generally secured by collateral - The Company's credit risk is concentrated in residential, commercial real estate, commercial business, and installment loans, primarily in Lake County, Indiana, and Cook County, Illinois, and surrounding areas[97](index=97&type=chunk) - Substantially all loans are secured by specific collateral, including residences, commercial real estate, land development, business assets, and consumer assets[97](index=97&type=chunk) [Note 9 - Earnings per Share](index=29&type=section&id=Note%209%20-%20Earnings%20per%20Share) Basic and diluted EPS for Q2 2025 significantly increased to $0.50, while six-month EPS decreased to $0.61 Earnings per Common Share (Three and Six Months Ended June 30, 2025 vs. 2024) | (dollars in thousands except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income as reported | $ 2,151 | $ 143 | $ 2,606 | $ 9,423 | | Weighted average common shares outstanding—basic | 4,271,952 | 4,259,695 | 4,269,478 | 4,258,181 | | Basic earnings per common share | $ 0.50 | $ 0.03 | $ 0.61 | $ 2.21 | | Weighted average common shares outstanding—diluted | 4,296,418 | 4,271,052 | 4,288,716 | 4,266,415 | | Diluted earnings per common share | $ 0.50 | $ 0.03 | $ 0.61 | $ 2.21 | [Note 10 - Stock Based Compensation](index=29&type=section&id=Note%2010%20-%20Stock%20Based%20Compensation) Finward Bancorp adopted a new equity incentive plan, with stock-based compensation expense decreasing and $0.7 million in future expense expected - The Company adopted the Finward Bancorp 2025 Omnibus Equity Incentive Plan, authorizing **265,174 shares** for issuance[99](index=99&type=chunk) Stock-Based Compensation Expense (Three and Six Months Ended June 30, 2025 vs. 2024) | (Dollars in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stock-based compensation expense | $ 131 | $ 133 | $ 229 | $ 306 | - Unvested awards are anticipated to result in approximately **$0.7 million** in additional compensation expense with a weighted average life of **2.0 years**[100](index=100&type=chunk) [Note 11 – Derivative Financial Instruments](index=30&type=section&id=Note%2011%20%E2%80%93%20Derivative%20Financial%20Instruments) The Company uses non-hedging interest rate swaps and lock commitments to manage interest rate risk, recorded at fair value - The Company uses interest rate swaps and interest rate lock commitments as non-hedging derivative financial instruments to manage interest rate risk[103](index=103&type=chunk)[104](index=104&type=chunk) Non-Hedging Derivative Financial Instruments (June 30, 2025 vs. December 31, 2024) | (Dollars in thousands) | June 30, 2025 Fair Value (Assets) | June 30, 2025 Fair Value (Liabilities) | December 31, 2024 Fair Value (Assets) | December 31, 2024 Fair Value (Liabilities) | | :--------------------- | :-------------------------------- | :------------------------------------- | :------------------------------------ | :------------------------------------- | | Interest rate swap contracts | $ 4,074 | $ 4,074 | $ 5,486 | $ 5,486 | | Interest rate lock commitments | $ 66 | $ - | $ 24 | $ - | | **Total** | **$ 4,140** | **$ 4,074** | **$ 5,510** | **$ 5,486** | Amounts Included in Statements of Income for Non-Hedging Derivatives (Six Months Ended June 30, 2025 vs. 2024) | (Dollars in thousands) | 2025 | 2024 | | :--------------------- | :-------- | :-------- | | Interest rate swap contracts (Fees and service charges) | $ (30) | $ (30) | | Interest rate lock commitments (Gain on sale of loans held-for-sale, net) | $ (16) | $ 2 | | **Total** | **$ (46)** | **$ (28)** | [Note 12 - Fair Value](index=32&type=section&id=Note%2012%20-%20Fair%20Value) Fair value measurements use a hierarchy of inputs, with most securities available-for-sale valued using Level 2 inputs - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs), and Level 3 (significant unobservable inputs)[108](index=108&type=chunk)[109](index=109&type=chunk) Assets and Liabilities Measured at Fair Value on a Recurring Basis (June 30, 2025) | (Dollars in thousands) | Estimated Fair Value | Level 1 | Level 2 | Level 3 | | :--------------------- | :------------------- | :------ | :------ | :------ | | **Assets:** | | | | | | Interest rate swap contracts | $ 4,074 | $ - | $ 4,074 | $ - | | Interest rate lock commitments | $ 66 | $ - | $ 66 | $ - | | Available-for-sale debt securities: | | | | | | U.S. government sponsored entities | $ 8,307 | $ - | $ 8,307 | $ - | | Collateralized mortgage obligations and residential mortgage-backed securities | $ 107,972 | $ - | $ 107,972 | $ - | | Municipal securities | $ 209,950 | $ - | $ 209,950 | $ - | | Collateralized debt obligations | $ 1,616 | $ - | $ - | $ 1,616 | | **Total securities available-for-sale** | **$ 327,845** | **$ -** | **$ 326,229** | **$ 1,616** | | **Liabilities:** | | | | | | Interest rate swap contracts | $ 4,074 | $ - | $ 4,074 | $ - | - The allowance for collateralized debt credit losses was **$0.173 million** at both June 30, 2025, and December 31, 2024, for collateralized debt obligations with previously recorded impairment[111](index=111&type=chunk) [Note 13 - Borrowings](index=37&type=section&id=Note%2013%20-%20Borrowings) Total borrowed funds remained at $65.0 million, with significant available liquidity from FHLB and Federal Reserve facilities Borrowed Funds (June 30, 2025 vs. December 31, 2024) | (Dollars in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------- | :------------ | :---------------- | | FHLB Fixed rate advances | $ 65,000 | $ 65,000 | | **Total** | **$ 65,000** | **$ 65,000** | Scheduled Maturities of Borrowed Funds (June 30, 2025) | (Dollars in thousands) | Total | | :--------------------- | :-------- | | 2025 | $ 10,000 | | 2026 | $ - | | 2027 | $ - | | 2028 | $ 20,000 | | 2029 | $ 25,000 | | 2030 | $ 10,000 | | **Total** | **$ 65,000** | - The Company has available liquidity of **$932.0 million**, including borrowing capacity from FHLB and Federal Reserve facilities, and maintains a **$25.0 million** line of credit with the Federal Home Loan Bank of Indianapolis[127](index=127&type=chunk) [Note 14 - Leases](index=38&type=section&id=Note%2014%20-%20Leases) Finward Bancorp completed a sale-leaseback transaction in 2024, recognizing a gain and establishing 15-year operating lease agreements - On February 22, 2024, the Bank completed a sale-leaseback transaction for five branch locations, selling them for **$17.2 million** and entering into **15-year** triple net lease agreements[128](index=128&type=chunk)[130](index=130&type=chunk) Operating Lease Information (Six Months Ended June 30, 2025 vs. 2024) | (Dollars in thousands) | 2025 | 2024 | | :--------------------- | :-------- | :-------- | | Gain on sale-leaseback transaction, net | $ - | $ (11,772) | | Cash paid for lease liabilities | $ 800 | $ 570 | | ROU assets obtained in exchange for lease liabilities | $ - | $ 16,140 | | Weighted-average remaining lease terms (in years) | 13 | 15 | | Weighted-average discount rate | 7.67% | 7.68% | | Total lease costs | $ 1,102 | $ 807 | Maturity Analysis of Operating Lease Liabilities (June 30, 2025) | (Dollars in thousands) | Total | | :--------------------- | :-------- | | Remainder 2025 | $ 797 | | 2026 | $ 1,622 | | 2027 | $ 1,657 | | 2028 | $ 1,692 | | 2029 | $ 1,679 | | 2030 | $ 1,688 | | Thereafter | $ 15,110 | | **Total** | **$ 24,245** | | Less: Present value discount | $ (9,471) | | **Lease liability** | **$ 14,774** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Finward Bancorp's financial condition and operating results, including key metrics, asset quality, liquidity, and capital resources [Summary](index=42&type=section&id=Summary) Finward Bancorp reported total assets of $2.1 billion, net loans of $1.5 billion, and net income of $2.2 million for Q2 2025 Key Financial Metrics (June 30, 2025) | Metric | Amount (Dollars in millions) | | :-------------------------- | :--------------------------- | | Total assets | $ 2.1 | | Loans receivable, net | $ 1.5 | | Total deposits | $ 1.8 | | Stockholders' equity | $ 154.3 | | Book value per share | $ 35.67 | Net Income and Performance Ratios (Three and Six Months Ended June 30, 2025) | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :-------------------------- | :------------------------------- | :----------------------------- | | Net income | $ 2.2 million | $ 2.6 million | | Diluted EPS | $ 0.50 | $ 0.61 | | Return on average assets (ROA) | 0.42% | 0.25% | | Return on average stockholders' equity (ROE) | 5.66% | 3.39% | [Recent Developments Regarding the Company and the Bank](index=42&type=section&id=Recent%20Developments%20Regarding%20the%20Company%20and%20the%20Bank) Recent developments include the OBBBA tax act, termination of a BSA Consent Order, and an ongoing MOU limiting dividends and expansion - President Trump signed the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, which permanently extends and expands tax provisions and enacts broad reductions in government spending. The long-term impact on the Company is still being evaluated[136](index=136&type=chunk) - The FDIC and Indiana DFI terminated the Consent Order related to the Bank's BSA compliance on August 6, 2025, following successful resolution of deficiencies[137](index=137&type=chunk) - A Memorandum of Understanding (MOU) with the FDIC and DFI, effective August 9, 2024, requires the Bank to refrain from paying cash dividends without prior regulatory approval and to implement plans to enhance operations, capital, and strategy. This may limit expansion and business acquisitions[138](index=138&type=chunk)[139](index=139&type=chunk) [Financial Condition](index=43&type=section&id=Financial%20Condition) Finward Bancorp's total assets slightly decreased, with stable loan portfolio, decreased investments, and minor deposit reduction [General](index=43&type=section&id=General_Financial_Condition) Total assets and interest-earning assets saw a slight decrease, with interest-earning assets representing 92.3% of total assets - Total assets decreased by **$2.8 million** (**0.14%**) to **$2.1 billion** during the six months ended June 30, 2025[140](index=140&type=chunk) - Interest-earning assets decreased by **$2.7 million** (**0.14%**) and represented **92.3%** of total assets at June 30, 2025[140](index=140&type=chunk) [Loan Portfolio](index=43&type=section&id=Loan%20Portfolio) The loan portfolio remained stable at $1.5 billion, with commercial real estate as the largest segment, under careful monitoring - Loans receivable, net of deferred fees and costs, totaled **$1.5 billion** at June 30, 2025, remaining stable compared to December 31, 2024[141](index=141&type=chunk) Loan Portfolio Composition (June 30, 2025 vs. December 31, 2024) | (Dollars in thousands) | June 30, 2025 Balance | June 30, 2025 % Loans | December 31, 2024 Balance | December 31, 2024 % Loans | | :--------------------- | :-------------------- | :-------------------- | :------------------------ | :------------------------ | | Residential real estate | $ 457,248 | 30.8% | $ 467,293 | 31.0% | | Home equity | $ 51,112 | 3.4% | $ 49,758 | 3.3% | | Commercial real estate | $ 551,091 | 37.2% | $ 551,674 | 36.6% | | Construction and land development | $ 74,795 | 5.1% | $ 82,874 | 5.5% | | Multifamily | $ 200,440 | 13.5% | $ 212,455 | 14.1% | | Commercial business | $ 105,636 | 7.1% | $ 104,246 | 6.9% | | Consumer | $ 2,347 | 0.2% | $ 551 | —% | | Manufactured homes | $ 25,146 | 1.7% | $ 26,708 | 1.8% | | Government | $ 14,628 | 1.0% | $ 11,024 | 0.7% | | **Loans receivable** | **$ 1,482,443** | **100.0%** | **$ 1,506,583** | **100.0%** | - Commercial real estate loans remained the largest segment, accounting for **37.2%** of the total loan portfolio at June 30, 2025. The Company is carefully monitoring these loans due to prevailing market conditions like elevated interest rates and reduced occupancy from hybrid work[141](index=141&type=chunk)[143](index=143&type=chunk) [Asset Quality](index=45&type=section&id=Asset%20Quality) Non-performing loans slightly decreased, while the allowance for credit losses increased, improving the coverage ratio Non-Performing Loans (June 30, 2025 vs. December 31, 2024) | (Dollars in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------- | :------------ | :---------------- | | Residential real estate | $ 5,633 | $ 4,665 | | Home equity | $ 983 | $ 483 | | Commercial real estate | $ 1,179 | $ 1,280 | | Construction and land development | $ 726 | $ 658 | | Multifamily | $ 2,161 | $ 3,362 | | Commercial business | $ 2,844 | $ 3,290 | | **Total** | **$ 13,526** | **$ 13,738** | | Non-performing loans to total loans | 0.92% | 0.91% | | Non-performing loans to total assets | 0.66% | 0.67% | Substandard Loans (June 30, 2025 vs. December 31, 2024) | (Dollars in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------- | :------------ | :---------------- | | Residential real estate | $ 5,719 | $ 4,754 | | Home equity | $ 989 | $ 490 | | Commercial real estate | $ 1,181 | $ 1,598 | | Construction and land development | $ 2,329 | $ 2,285 | | Multifamily | $ 2,161 | $ 3,550 | | Commercial business | $ 2,844 | $ 3,290 | | Consumer | $ 2 | $ - | | Manufactured homes | $ 95 | $ 54 | | **Total** | **$ 15,320** | **$ 16,021** | Allowance for Credit Losses (ACL) and Coverage Ratios (June 30, 2025 vs. December 31, 2024) | (Dollars in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------- | :------------ | :---------------- | | Allowance for credit losses | $ 18,184 | $ 16,911 | | Total loans | $ 1,484,278 | $ 1,508,976 | | Non-performing loans | $ 13,526 | $ 13,738 | | ACL-to-total loans | 1.23% | 1.12% | | ACL-to-non-performing loans (coverage ratio) | 134.4% | 123.1% | [Investment Portfolio](index=49&type=section&id=Investment%20Portfolio) The available-for-sale securities portfolio decreased by $5.7 million, primarily due to CMO and RMBS payoffs - The securities portfolio, all designated as available-for-sale, decreased by **$5.7 million** (**1.7%**) to **$327.8 million** at June 30, 2025, primarily due to payoffs of collateralized mortgage obligations and residential mortgage-backed securities[155](index=155&type=chunk) Investment Portfolio Composition (June 30, 2025 vs. December 31, 2024) | (Dollars in thousands) | June 30, 2025 Balance | June 30, 2025 % Securities | December 31, 2024 Balance | December 31, 2024 % Securities | | :--------------------- | :-------------------- | :------------------------- | :------------------------ | :------------------------- | | U.S. government sponsored entities | $ 8,307 | 2.5% | $ 8,061 | 2.4% | | Collateralized mortgage obligations and residential mortgage-backed securities | $ 107,972 | 32.9% | $ 109,325 | 32.8% | | Municipal securities | $ 209,950 | 64.1% | $ 214,749 | 64.4% | | Collateralized debt obligations | $ 1,616 | 0.5% | $ 1,419 | 0.4% | | **Total securities available-for-sale** | **$ 327,845** | **100.0%** | **$ 333,554** | **100.0%** | - Interest bearing deposits in other financial institutions increased by **$27.9 million** (**53.7%**) to **$79.976 million** at June 30, 2025, due to timing of loan fundings, payoffs, and deposit flows[157](index=157&type=chunk) [Deposits](index=50&type=section&id=Deposits) Total deposits decreased slightly by $5.7 million, driven by certificate of deposit reductions and pricing adjustments - Total deposits decreased by **$5.7 million** (**0.32%**) to **$1.755 billion** at June 30, 2025, compared to December 31, 2024, primarily due to a reduction in depositor certificate of deposit activity and planned adjustments to deposit pricing[161](index=161&type=chunk) Deposit Portfolio Balances (June 30, 2025 vs. December 31, 2024) | (Dollars in thousands) | June 30, 2025 | December 31, 2024 | $ Change | % Change | | :--------------------- | :------------ | :---------------- | :------- | :------- | | Checking | $ 593,471 | $ 591,487 | $ 1,984 | 0.3% | | Savings | $ 266,070 | $ 275,121 | $ (9,051) | (3.3%) | | Money market | $ 352,616 | $ 333,705 | $ 18,911 | 5.7% | | Certificates of deposit | $ 542,693 | $ 560,253 | $ (17,560) | (3.1%) | | **Total deposits** | **$ 1,754,850** | **$ 1,760,566** | **$ (5,716)** | **(3.6%)** | - Core deposits (checking, savings, money market) increased by **$11.8 million** (**1.0%**) to **$1.2 billion** at June 30, 2025, representing **69.1%** of total deposits[161](index=161&type=chunk) [Borrowed Funds](index=51&type=section&id=Borrowed%20Funds_Financial_Condition) Total borrowings increased by $8.2 million due to repurchase agreement activity, while liquidity remains strong - Total borrowings and repurchase agreements increased by **$8.2 million** (**7.8%**) to **$113.3 million** at June 30, 2025, primarily due to additional repurchase agreement activity[167](index=167&type=chunk) Borrowed Funds Balances (June 30, 2025 vs. December 31, 2024) | (Dollars in thousands) | June 30, 2025 | December 31, 2024 | $ Change | % Change | | :--------------------- | :------------ | :---------------- | :------- | :------- | | Repurchase agreements | $ 48,331 | $ 40,116 | $ 8,215 | 20.5% | | Borrowed funds | $ 65,000 | $ 65,000 | $ — | —% | | **Total borrowed funds** | **$ 113,331** | **$ 105,116** | **$ 8,215** | **7.8%** | - The Company maintains a strong liquidity position with **$728.5 million** in available liquidity, including borrowing capacity from FHLB and Federal Reserve facilities[167](index=167&type=chunk) [Market Risk and Interest Rate Sensitivity](index=52&type=section&id=Market%20Risk%20and%20Interest%20Rate%20Sensitivity) Finward Bancorp identifies interest rate risk as its primary market risk, managed by ALCO through income and EVE simulations [General](index=52&type=section&id=General_Market_Risk) Market risk is the potential for loss from changes in asset and liability market values, with interest rate risk being the primary concern - Market risk is the risk of loss due to changes in market values of assets and liabilities, with interest rate risk identified as the primary source for the Company[169](index=169&type=chunk) [Interest Rate Risk](index=52&type=section&id=Interest%20Rate%20Risk) Interest rate risk stems from repricing, options, yield curve, and basis differences, managed by ALCO to stabilize net interest income - Interest rate risk arises from repricing differences, embedded options, yield curve changes, and basis risk. The ALCO manages this risk to ensure stable net interest income[170](index=170&type=chunk)[171](index=171&type=chunk) - An asset-sensitive position benefits from rising short-term rates, while a liability-sensitive position is negatively impacted[172](index=172&type=chunk) [Evaluation of Interest Rate Risk](index=52&type=section&id=Evaluation%20of%20Interest%20Rate%20Risk) The Company uses income and EVE simulations to assess interest rate risk, showing EVE sensitivity and varied NII impacts - The Company uses income simulations, core funding utilization analysis, and Economic Value of Equity (EVE) simulations to measure and manage interest rate risk[174](index=174&type=chunk) Impact of Interest Rate Changes on Net Interest Income and EVE (June 30, 2025) | Interest Rate Scenario | EVE* ($ millions) | Percent Change (EVE) | Net Interest Income ($ millions) | Percent Change (NII) | | :--------------------- | :---------------- | :------------------- | :------------------------------- | :------------------- | | +400 Bps | $ 274 | -36.5% | $ 60.8 | -2.8% | | +300 Bps | $ 327 | -24.0% | $ 62.2 | -0.6% | | +200 Bps | $ 377 | -12.5% | $ 62.9 | 0.6% | | +100 Bps | $ 412 | -4.4% | $ 62.9 | 0.6% | | No change | $ 431 | 0.0% | $ 62.5 | 0.0% | | -100 Bps | $ 439 | 1.9% | $ 62.4 | -0.2% | | -200 Bps | $ 434 | 0.7% | $ 62.1 | -0.7% | | -300 Bps | $ 413 | -4.2% | $ 62.6 | 0.2% | | -400 Bps | $ 378 | -12.3% | $ 62.9 | 0.6% | - A uniform decrease in interest rates suggests relatively neutral to positive improvements in net interest income over the next twelve months, while a uniform increase suggests a reduction[180](index=180&type=chunk) [Liquidity and Capital Resources](index=53&type=section&id=Liquidity%20and%20Capital%20Resources) Finward Bancorp manages liquidity to fund operations, with $728.5 million in available sources, and maintains capital ratios exceeding regulatory requirements - Primary liquidity sources include deposits, principal and interest payments on loans and securities, and proceeds from calls, maturities, and sales of securities[184](index=184&type=chunk) Sources of Liquidity (June 30, 2025 vs. December 31, 2024) | (Dollars in thousands) | As of June 30, 2025 Outstanding | As of June 30, 2025 Additional Capacity | As of December 31, 2024 Outstanding | As of December 31, 2024 Additional Capacity | | :--------------------- | :------------------------------ | :------------------------------------ | :---------------------------------- | :------------------------------------ | | FHLB Advances | $ 65,000 | $ 433,715 | $ 65,000 | $ 459,648 | | Fed Discount Window | $ - | $ 253,768 | $ - | $ 186,788 | | Fed Funds Lines | $ - | $ 16,000 | $ - | $ 16,000 | | Other Line of Credit | $ - | $ 25,000 | $ - | $ 25,000 | | **Total** | **$ 65,000** | **$ 728,483** | **$ 65,000** | **$ 687,436** | Bank's Capital Ratios (June 30, 2025) | Capital Ratio | Actual Amount ($ thousands) | Actual Ratio | Minimum Required For Capital Adequacy Purposes Ratio | Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations Ratio | | :------------------------------------------ | :-------------------------- | :----------- | :--------------------------------------------------- | :--------------------------------------------------------------------------------------- | | Common equity tier 1 capital to risk-weighted assets | $ 181,428 | 11.30% | 4.50% | 6.50% | | Tier 1 capital to risk-weighted assets | $ 181,428 | 11.30% | 6.00% | 8.00% | | Total capital to risk-weighted assets | $ 201,494 | 12.55% | 8.00% | 10.00% | | Tier 1 leverage ratio | $ 181,428 | 8.69% | 4.00% | 5.00% | [Results of Operations - Comparison of the Three Months Ended June 30, 2025 and June 30, 2024](index=56&type=section&id=Results%20of%20Operations%20-%20Comparison%20of%20the%20Three%20Months%20Ended%20June%2030%2C%202025%20and%20June%2030%2C%202024) Net income significantly increased to $2.2 million, driven by higher net interest income from reduced funding costs and increased loan yields Key Financial Performance (Three Months Ended June 30, 2025 vs. 2024) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :-------- | :-------- | :--------- | :--------- | | Net income | $ 2,151 | $ 143 | $ 2,008 | 1404.20% | | ROA | 0.42% | 0.03% | 0.39% | 1300.00% | | ROE | 5.66% | 0.39% | 5.27% | 1351.28% | | Net interest income | $ 13,945 | $ 12,054 | $ 1,891 | 15.69% | | Net interest margin (tax-equivalent) | 3.11% | 2.67% | 0.44% | 16.48% | | Total non-interest income | $ 2,683 | $ 2,573 | $ 110 | 4.28% | | Total non-interest expense | $ 14,786 | $ 14,417 | $ 369 | 2.56% | - The increased net interest income and net interest margin were primarily due to reduced deposit and borrowing costs, resulting from Federal Reserve rate reductions, and increased loan yields as commercial loans matured or repriced[203](index=203&type=chunk) - Non-interest expenses increased mainly due to higher compensation and benefits and data processing expenses, partially offset by lower occupancy and equipment expenses and professional services fees[207](index=207&type=chunk) [Results of Operations - Comparison of the Six Months Ended June 30, 2025 to June 30, 2024](index=60&type=section&id=Results%20of%20Operations%20-%20Comparison%20of%20the%20Six%20Months%20Ended%20June%2030%2C%202025%20to%20June%2030%2C%202024) Net income decreased by $6.8 million due to lower non-interest income, despite an increase in net interest income Key Financial Performance (Six Months Ended June 30, 2025 vs. 2024) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :-------- | :-------- | :--------- | :--------- | | Net income | $ 2,606 | $ 9,423 | $ (6,817) | -72.34% | | ROA | 0.25% | 0.91% | -0.66% | -72.53% | | ROE | 3.39% | 12.81% | -9.42% | -73.54% | | Net interest income | $ 27,258 | $ 23,834 | $ 3,424 | 14.37% | | Net interest margin (tax-equivalent) | 3.03% | 2.62% | 0.41% | 15.65% | | Total non-interest income | $ 4,912 | $ 16,049 | $ (11,137) | -69.40% | | Total non-interest expense | $ 29,258 | $ 29,421 | $ (163) | -0.55% | - The significant decrease in net income was primarily due to a **$11.1 million** (**69.4%**) decrease in non-interest income, largely attributable to the absence of a **$11.8 million** gain from a sale-leaseback transaction and a **$0.531 million** loss from securities sales, both occurring in Q1 2024[217](index=217&type=chunk) - Net interest income increased due to reduced deposit and borrowing costs (Federal Reserve rate reductions) and increased loan yields[215](index=215&type=chunk) [Critical Accounting Policies](index=62&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies involve significant management judgments and estimates that materially affect reported financial results - The Company's significant accounting policies, detailed in its 2024 Form 10-K, require management to make difficult, complex, or subjective judgments, particularly for inherently uncertain matters[221](index=221&type=chunk) [Forward-Looking Statements](index=62&type=section&id=Forward-Looking%20Statements) Statements not based on historical facts are forward-looking and subject to risks and uncertainties that could cause actual results to differ - Statements not historical facts are forward-looking and subject to risks and uncertainties, including future business prospects, M&A, interest income/expense, net income, liquidity, and capital needs[222](index=222&type=chunk) - Factors identified in the Company's 2024 Form 10-K could cause actual results to differ materially from forward-looking statements[222](index=222&type=chunk) [Non-GAAP Financial Measures](index=62&type=section&id=Non-GAAP%20Financial%20Measures) Non-GAAP measures are used to evaluate performance and assist investors, but have limitations and should not replace GAAP results - The Company uses non-GAAP financial measures like adjusted net interest income and tax-adjusted net interest margin to evaluate performance and assist investors[223](index=223&type=chunk) - Tax-adjusted measures recognize income tax savings on tax-exempt assets using a **21%** federal income tax rate, which is standard in the banking industry for peer comparisons[224](index=224&type=chunk)[225](index=225&type=chunk) - Non-GAAP measures have limitations and should not be considered in isolation or as a substitute for GAAP results[226](index=226&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section states that there are no applicable quantitative and qualitative disclosures about market risk for the Company in this report - This item is not applicable for the current report[227](index=227&type=chunk) [Item 4. Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting - The Company's CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025, ensuring timely and accurate reporting[228](index=228&type=chunk) - No material changes in internal control over financial reporting were identified during the quarter ended June 30, 2025[229](index=229&type=chunk) [PART II. Other Information](index=63&type=section&id=PART%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=63&type=section&id=Item%201.%20Legal%20Proceedings) Finward Bancorp is involved in routine legal proceedings, with no expected material adverse effect on its financial position - The Company is involved in legal proceedings in the ordinary course of business, but management believes ultimate liabilities will not materially affect financial position[231](index=231&type=chunk) [Item 1A. Risk Factors](index=63&type=section&id=Item%201A.%20Risk%20Factors) This section states that there are no applicable risk factors to report in this filing - This item is not applicable for the current report[232](index=232&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=63&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company has a stock repurchase program with 48,828 shares remaining, and reacquired 5,105 shares for tax obligations - The Company has a stock repurchase program authorized for up to **50,000 shares**, with **48,828 shares** remaining available. No shares were repurchased under this program during the quarter ended June 30, 2025[233](index=233&type=chunk)[234](index=234&type=chunk) - During the six months ended June 30, 2025, **5,105 shares** were reacquired from executive officers and employees at an average price of **$27.32** per share to satisfy tax withholding obligations on restricted stock awards, which is separate from the formal repurchase program[235](index=235&type=chunk) [Item 3. Defaults Upon Senior Securities](index=64&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there are no matters reportable under this item - There are no matters reportable under this item[235](index=235&type=chunk) [Item 4. Mine Safety Disclosures](index=64&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the Company - This item is not applicable[236](index=236&type=chunk) [Item 5. Other Information](index=64&type=section&id=Item%205.%20Other%20Information) During the fiscal quarter ended June 30, 2025, no directors or officers informed the Company of the adoption or termination of a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' - No directors or officers reported adopting or terminating a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the quarter ended June 30, 2025[236](index=236&type=chunk) [Item 6. Exhibits](index=65&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including various equity incentive plan agreements, certifications from the CEO and CFO (Rule 13a-14(a)/15d-14(a) and Section 1350), and XBRL Interactive Data Files for the financial statements and notes - Exhibits include the Finward Bancorp 2025 Omnibus Equity Incentive Plan and related award agreements[237](index=237&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer (Rule 13a-14(a)/15d-14(a) and Section 1350) are included[237](index=237&type=chunk) - XBRL Interactive Data Files for the condensed consolidated financial statements and notes are provided[237](index=237&type=chunk) [SIGNATURES](index=66&type=section&id=SIGNATURES) - The report is signed by Benjamin J. Bochnowski, President and Chief Executive Officer, and Benjamin L. Schmitt, Executive Vice President, Chief Financial Officer and Treasurer, on August 13, 2025[242](index=242&type=chunk)

[Second Quarter 2025 Financial Results Overview](index=1&type=section&id=Second%20Quarter%202025%20Financial%20Results%20Overview) The Bancorp reported a significant increase in net income and diluted EPS for Q2 2025, reflecting improved core operating results and key performance ratios [Executive Summary](index=1&type=section&id=1.1.%20Executive%20Summary) Finward Bancorp announced a significant increase in net income available to common stockholders for the quarter ended June 30, 2025, reaching $2.2 million, or $0.50 per diluted share, compared to $455 thousand, or $0.11 per diluted share, in the prior quarter Net Income Available to Common Stockholders | Period | Amount | Diluted EPS | | :--- | :--- | :--- | | Quarter ended June 30, 2025 | $2.2 million | $0.50 | | Quarter ended March 31, 2025 | $455 thousand | $0.11 | [CEO Commentary](index=1&type=section&id=1.2.%20CEO%20Commentary) CEO Benjamin Bochnowski highlighted the positive outcomes of efforts to improve core operating results, noting expanded net interest margin above 3% (tax-equivalent), strengthened Tier 1 capital, stable asset quality, and strong net recoveries - Focused on improving core operating results, with Q2 2025 showing **positive outcomes**[2](index=2&type=chunk) - Net interest margin expanded for another consecutive quarter, now **above 3%** on a tax-equivalent basis[2](index=2&type=chunk) - Tier 1 capital moved **above key internal targets**, and asset quality remained **relatively stable**, supported by **strong net recoveries**[2](index=2&type=chunk) [Key Performance Ratios](index=1&type=section&id=1.3.%20Key%20Performance%20Ratios) The Bancorp demonstrated improved profitability and efficiency in Q2 2025, with Return on Equity rising to 5.66% and Return on Assets to 0.42%, while the net interest margin (tax-equivalent) expanded to 3.11% and the efficiency ratio improved to 88.92% Selected Performance Ratios (Quarter Ended) | Metric | 6/30/2025 | 3/31/2025 | 12/31/2024 | 9/30/2024 | 6/30/2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | Return on equity | 5.66% | 1.17% | 5.39% | 1.60% | 0.39% | | Return on assets | 0.42% | 0.09% | 0.41% | 0.12% | 0.03% | | Net interest margin, tax-equivalent (non-GAAP) | 3.11% | 2.95% | 2.79% | 2.66% | 2.67% | | Non-interest income/average assets | 0.53% | 0.43% | 0.72% | 0.55% | 0.50% | | Non-interest expense/average assets | 2.90% | 2.81% | 2.75% | 2.80% | 2.79% | | Efficiency ratio | 88.92% | 93.11% | 87.20% | 97.32% | 98.56% | [Operational Highlights](index=1&type=section&id=Operational%20Highlights) The Bancorp demonstrated robust liquidity, improved net interest margin, stable loan portfolio, and strengthened capital adequacy while managing asset quality and operating expenses [Liquidity and Deposits](index=1&type=section&id=2.1.%20Liquidity%20and%20Deposits) Finward Bancorp maintained a robust liquidity position as of June 30, 2025, with a significant portion of its deposits being FDIC insured and further backed by the Indiana Public Deposit Insurance Fund, reporting $728 million in available liquidity - **71.7%** of deposits are **fully FDIC insured**, with an additional **8.0%** backed by the Indiana Public Deposit Insurance Fund[4](index=4&type=chunk) - Available liquidity totaled **$728 million** as of June 30, 2025, including borrowing capacity from FHLB and Federal Reserve facilities[4](index=4&type=chunk) [Securities Portfolio](index=1&type=section&id=2.2.%20Securities%20Portfolio) The securities available for sale balance slightly decreased to $327.8 million as of June 30, 2025, primarily due to payoffs of mortgage-related securities, while the yield on the securities portfolio improved to 2.42% for the quarter - Securities available for sale decreased by **$2.3 million** to **$327.8 million** as of June 30, 2025, primarily due to payoffs of collateralized mortgage obligations and residential mortgage-backed securities[5](index=5&type=chunk) - Yield on the securities portfolio increased to **2.42%** for Q2 2025 from **2.38%** for Q1 2025[6](index=6&type=chunk) - No securities sale transactions were executed during the quarter[6](index=6&type=chunk) [Net Interest Margin](index=1&type=section&id=2.3.%20Net%20Interest%20Margin) The net interest margin (NIM) increased to 2.97% in Q2 2025, reaching 3.11% on a tax-equivalent basis, primarily driven by higher loan yields from repricing and improved funding costs and mix Net Interest Margin | Period | GAAP NIM | Tax-Equivalent NIM (non-GAAP) | | :--- | :--- | :--- | | Quarter ended June 30, 2025 | 2.97% | 3.11% | | Quarter ended March 31, 2025 | 2.81% | 2.95% | - The increase in net interest margin was primarily due to **increased loan yields from repricing** and **improved funding costs and mix**[5](index=5&type=chunk) [Funding](index=1&type=section&id=2.4.%20Funding) Total deposits experienced a modest increase of 0.3% to $1.8 billion, with core deposits remaining stable at $1.2 billion, while non-interest-bearing deposits decreased and borrowings and repurchase agreements saw an 11.4% increase Funding Overview (as of June 30, 2025) | Metric | Amount (June 30, 2025) | Change from March 31, 2025 | Percentage Change | | :--- | :--- | :--- | :--- | | Total deposits | $1.8 billion | +$4.5 million | +0.3% | | Non-interest-bearing deposits | $271.2 million | -$10.3 million | N/A | | Core deposits | $1.2 billion | Stable | N/A | | Core deposits as % of total deposits | 69.1% | N/A | N/A | | Certificates of deposit | $542.7 million | -$2.1 million | -0.4% | | Borrowings and repurchase agreements | $113.3 million | +$11.6 million | +11.4% | [Allowance for Credit Losses](index=2&type=section&id=2.5.%20Allowance%20for%20Credit%20Losses) The Allowance for Credit Losses (ACL) on loans increased by 1.3% to $18.2 million, representing 1.22% of total loans receivable, with the Bank recording a net benefit from credit loss of $274 thousand, largely due to $414 thousand in net loan recoveries Allowance for Credit Losses (ACL) on Loans | Metric | June 30, 2025 | March 31, 2025 | Change | Percentage Change | | :--- | :--- | :--- | :--- | :--- | | Total ACL on loans | $18.2 million | $17.9 million | +$229 thousand | +1.3% | | ACL as % of total loans receivable | 1.22% | 1.20% | +0.02% | N/A | - The Bank recorded a net benefit from credit loss totaling **$274 thousand** in Q2 2025, consisting of a **$185 thousand reversal** for credit losses on loans and an **$89 thousand reversal** of credit losses on unused commitments[8](index=8&type=chunk) - Net loan recoveries totaled **$414 thousand** in Q2 2025, compared to net charge-offs of **$33 thousand** in Q1 2025[8](index=8&type=chunk) [Lending](index=2&type=section&id=2.6.%20Lending) The aggregate loan portfolio remained stable at $1.5 billion, with new commercial loan originations increasing to $46.1 million in Q2 2025, and commercial real estate (CRE) owner-occupied and non-owner occupied properties constituting significant portions of total loan balances - The Bank's aggregate loan portfolio remained **stable at $1.5 billion** as of June 30, 2025[10](index=10&type=chunk) - New commercial loan originations increased to **$46.1 million** in Q2 2025, up from **$36.7 million** in Q1 2025[10](index=10&type=chunk) - Commercial real estate owner-occupied properties totaled **$251.0 million** (**16.9%** of total loans), and non-owner occupied properties totaled **$299.9 million** (**20.1%** of total loans), with office buildings representing **$42.1 million** (**2.8%**)[10](index=10&type=chunk) [Asset Quality](index=2&type=section&id=2.7.%20Asset%20Quality) Asset quality metrics showed a slight deterioration, with non-performing loans increasing by 8.4% to $13.5 million, leading to a rise in non-performing loans to total loans to 0.91% and non-performing assets to total assets to 0.74% Asset Quality Metrics (Quarter Ended) | Metric | June 30, 2025 | March 31, 2025 | Change | Percentage Change | | :--- | :--- | :--- | :--- | :--- | | Non-performing loans | $13.5 million | $12.5 million | +$1.0 million | +8.4% | | Non-performing loans to total loans | 0.91% | 0.84% | +0.07% | N/A | | Non-performing assets to total assets | 0.74% | 0.69% | +0.05% | N/A | - Management maintains **vigilant oversight** of nonperforming loans through proactive relationship management[10](index=10&type=chunk) [Operating Expenses](index=2&type=section&id=2.8.%20Operating%20Expenses) Non-interest expense as a percentage of average assets increased to 2.90% in Q2 2025, primarily driven by higher data processing and marketing expenses, as the Bank continues its focus on identifying and implementing operating efficiencies Non-Interest Expense as a Percentage of Average Assets | Period | Ratio | | :--- | :--- | | Quarter ended June 30, 2025 | 2.90% | | Quarter ended March 31, 2025 | 2.81% | - The increase in non-interest expenses was primarily due to **higher data processing and marketing expenses**[11](index=11&type=chunk) - The Bank remains focused on identifying **additional operating efficiencies** and **third-party expense reductions**[11](index=11&type=chunk) [Capital Adequacy](index=2&type=section&id=2.9.%20Capital%20Adequacy) The Bank's capital position strengthened, with the Tier 1 leverage ratio improving to 8.69% and exceeding all regulatory requirements, while tangible book value per share and tangible common equity to total assets also saw increases Capital Adequacy Metrics (as of Quarter End) | Metric | June 30, 2025 | March 31, 2025 | Change | | :--- | :--- | :--- | :--- | | Tier 1 leverage ratio | 8.69% | 8.48% | +0.21% | | Tangible book value per share (non-GAAP) | $30.16 | $29.55 | +$0.61 | | Tangible common equity to total assets (non-GAAP) | 6.32% | 6.26% | +0.06% | - The Bank's capital continues to **exceed all applicable regulatory capital requirements**[11](index=11&type=chunk) [Consolidated Financial Statements](index=5&type=section&id=Consolidated%20Financial%20Statements) The consolidated statements reflect improved net income for Q2 2025, driven by higher net interest income, despite a year-over-year decline in six-month net income [Consolidated Balance Sheets](index=6&type=section&id=3.1.%20Consolidated%20Balance%20Sheets) The consolidated balance sheet as of June 30, 2025, shows a slight increase in total assets to $2,062,983 thousand from the prior quarter, with total liabilities also increasing and stockholders' equity experiencing a modest rise Consolidated Balance Sheets (Dollars in thousands) | Metric | 6/30/2025 | 3/31/2025 | 12/31/2024 | 9/30/2024 | 6/30/2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total assets | $2,062,983 | $2,039,714 | $2,060,699 | $2,074,662 | $2,077,067 | | Total liabilities | $1,908,730 | $1,887,907 | $1,909,285 | $1,915,107 | $1,928,436 | | Total stockholders' equity | $154,253 | $151,807 | $151,414 | $159,555 | $148,631 | [Consolidated Statements of Income](index=7&type=section&id=3.2.%20Consolidated%20Statements%20of%20Income) Net income for Q2 2025 significantly improved to $2,151 thousand, driven by higher net interest income and a benefit from credit losses, though net income for the six months ended June 30, 2025, was lower year-over-year due to a large gain on real estate sale in the prior year Consolidated Statements of Income (Dollars in thousands, Quarter Ended) | Metric | 6/30/2025 | 3/31/2025 | 12/31/2024 | 9/30/2024 | 6/30/2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total interest income | $22,670 | $22,341 | $22,595 | $22,472 | $22,127 | | Total interest expense | $8,725 | $9,028 | $9,988 | $10,466 | $10,073 | | Net interest income | $13,945 | $13,313 | $12,607 | $12,006 | $12,054 | | Provision for (benefit from) credit losses | $(274) | $454 | $(579) | $- | $76 | | Total non-interest income | $2,683 | $2,229 | $3,732 | $2,867 | $2,573 | | Total non-interest expense | $14,786 | $14,472 | $14,247 | $14,474 | $14,417 | | Net income | $2,151 | $455 | $2,102 | $606 | $143 | | Diluted earnings per share | $0.50 | $0.11 | $0.49 | $0.14 | $0.03 | Consolidated Statements of Income (Dollars in thousands, Six Months Ended) | Metric | 6/30/2025 | 6/30/2024 | | :--- | :--- | :--- | | Net interest income | $27,258 | $23,834 | | Provision for credit losses | $180 | $76 | | Total non-interest income | $4,912 | $16,049 | | Total non-interest expense | $29,258 | $29,421 | | Net income | $2,606 | $9,423 | | Diluted earnings per share | $0.61 | $2.21 | [Average Balances, Interest, and Rates](index=5&type=section&id=3.3.%20Average%20Balances,%20Interest,%20and%20Rates) Average interest-earning assets slightly decreased in Q2 2025, but the total yield on earning assets increased to 4.82%, while the total cost of interest-bearing liabilities decreased to 2.22%, contributing to the improved net interest margin Average Balances, Interest, and Rates (Quarter Ended June 30, 2025) | Metric | Average Balance (thousands) | Interest (thousands) | Yield/Rate | | :--- | :--- | :--- | :--- | | Total interest earning assets | $1,879,892 | $22,670 | 4.82% | | Total interest bearing liabilities | $1,573,621 | $8,725 | 2.22% | | Net interest income | $13,945 | N/A | N/A | | Net interest margin | N/A | N/A | 2.97% | | Net interest margin, tax-equivalent (non-GAAP) | N/A | N/A | 3.11% | [Detailed Financial Data](index=9&type=section&id=Detailed%20Financial%20Data) Detailed breakdowns reveal stable loan portfolios, marginal deposit growth, and an increase in non-performing assets, alongside a rise in the allowance for credit losses [Loans Portfolio](index=9&type=section&id=4.1.%20Loans%20Portfolio) The total loans receivable experienced a slight decrease both quarter-over-quarter and year-over-year, with some loan categories like residential real estate and construction seeing declines, while others such as home equity, commercial business, and government loans recorded increases Loans Receivable Breakdown (Dollars in thousands, as of June 30, 2025) | Loan Type | Amount | % of Total Loans | QoQ Change (%) | YoY Change (%) | | :--- | :--- | :--- | :--- | :--- | | Residential real estate | $456,256 | 30.7% | (0.5)% | (4.0)% | | Home equity | $51,112 | 3.4% | 2.7% | 5.5% | | Commercial real estate | $551,091 | 37.0% | (0.7)% | 4.1% | | Construction and land development | $74,895 | 5.0% | (13.6)% | (15.6)% | | Multifamily | $206,540 | 13.9% | 0.8% | (6.1)% | | Commercial business | $105,636 | 7.1% | 6.1% | 7.4% | | Consumer | $2,347 | 0.2% | 365.7% | 284.1% | | Manufactured homes | $25,146 | 1.7% | (2.4)% | (12.4)% | | Government | $14,628 | 1.0% | 57.6% | 4.4% | | **Total Loans Receivable** | **$1,487,651** | **100%** | **(0.1)%** | **(1.1)%** | [Deposits](index=9&type=section&id=4.2.%20Deposits) Total deposits increased marginally quarter-over-quarter but saw a slight decrease year-over-year, with money market deposits showing notable growth while savings deposits experienced a decline Deposits Breakdown (Dollars in thousands, as of June 30, 2025) | Deposit Type | Amount | QoQ Change (%) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Checking | $593,471 | 0.7% | (1.7)% | | Savings | $266,070 | (2.9)% | (7.9)% | | Money market | $352,616 | 3.1% | 9.2% | | Certificates of deposit | $542,693 | (0.4)% | 0.3% | | **Total deposits** | **$1,754,850** | **0.3%** | **(0.1)%** | [Asset Quality](index=10&type=section&id=4.3.%20Asset%20Quality) Non-performing assets increased in Q2 2025, primarily driven by a rise in non-accruing loans, while the total Allowance for Credit Losses (ACL) also saw an increase during the quarter Asset Quality (Dollars in thousands, as of Quarter Ended) | Metric | 6/30/2025 | 3/31/2025 | 12/31/2024 | 9/30/2024 | 6/30/2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | Non-accruing loans | $13,526 | $12,483 | $13,738 | $13,806 | $11,079 | | Accruing loans delinquent > 90 days | $145 | $- | $- | $- | $294 | | Securities in non-accrual | $1,616 | $1,630 | $1,419 | $1,440 | $1,371 | | **Total nonperforming assets** | **$15,287** | **$14,113** | **$15,157** | **$15,246** | **$12,744** | | ACL specific allowances for collateral dependent loans | $570 | $259 | $284 | $1,821 | $1,327 | | ACL general allowances for loan portfolio | $17,614 | $17,696 | $16,627 | $16,695 | $17,003 | | **Total ACL** | **$18,184** | **$17,955** | **$16,911** | **$18,516** | **$18,330** | [Allowance for Credit Losses Movement](index=10&type=section&id=4.4.%20Allowance%20for%20Credit%20Losses%20Movement) The allowance for credit losses increased during Q2 2025, primarily due to net recoveries and a benefit from loan losses, indicating a positive trend in managing credit risk Allowance for Credit Losses Movement (Dollars in thousands, Quarter Ended) | Metric | 6/30/2025 | 3/31/2025 | 12/31/2024 | 9/30/2024 | 6/30/2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | Beginning allowance for credit losses | $17,955 | $16,911 | $18,516 | $18,330 | $18,805 | | Provision for (benefit from) loan losses | $(185) | $1,077 | $597 | $372 | $(439) | | Net (charge-offs) recoveries | $414 | $(33) | $(2,202) | $(186) | $(36) | | **Ending allowance for credit losses** | **$18,184** | **$17,955** | **$16,911** | **$18,516** | **$18,330** | [Regulatory Capital Requirements](index=11&type=section&id=Regulatory%20Capital%20Requirements) The Bank consistently exceeded all minimum regulatory capital requirements, demonstrating a strong and well-capitalized financial position [Bank-Level Regulatory Capital](index=11&type=section&id=5.1.%20Bank-Level%20Regulatory%20Capital) As of June 30, 2025, the Bank's estimated capital ratios significantly surpassed all minimum regulatory requirements for both capital adequacy and well-capitalized status, demonstrating a strong and compliant capital position Bank-Level Regulatory Capital Requirements (Dollars in thousands, June 30, 2025) | Capital Ratio | Actual Amount | Actual Ratio | Minimum Required for Adequacy | Minimum Required to be Well Capitalized | | :--- | :--- | :--- | :--- | :--- | | Common equity tier 1 capital to risk weighted assets | $181,430 | 11.26% | 4.50% | 6.50% | | Tier 1 capital to risk-weighted assets | $181,430 | 11.26% | 6.00% | 8.00% | | Total capital to risk-weighted assets | $201,640 | 12.52% | 8.00% | 10.00% | | Tier 1 leverage ratio | $181,430 | 8.69% | 4.00% | 5.00% | [Non-GAAP Financial Measures](index=2&type=section&id=Non-GAAP%20Financial%20Measures) The report provides non-GAAP financial measures and their reconciliations to GAAP, offering enhanced insights into the Bancorp's operating performance and financial health [Disclosures](index=2&type=section&id=6.1.%20Disclosures) Finward Bancorp utilizes certain non-GAAP financial measures, such as tangible common equity and tax-equivalent net interest margin, which management believes provide a clearer comparison of operating performance and align with industry practices, though they are not intended to replace GAAP results - Non-GAAP measures (e.g., tangible common equity, tax-equivalent net interest margin, efficiency ratio) are provided to offer a **better comparison of period-to-period operating performance**[9](index=9&type=chunk) - Management believes presenting net interest income and net interest margin on a fully tax-equivalent basis is **standard practice in the banking industry** and **enhances peer comparability**[9](index=9&type=chunk)[12](index=12&type=chunk) - These non-GAAP disclosures should not be viewed as a **substitute for financial results in accordance with GAAP**[12](index=12&type=chunk) [Reconciliation of Non-GAAP Measures](index=11&type=section&id=6.2.%20Reconciliation%20of%20Non-GAAP%20Measures) The report includes a comprehensive reconciliation of various non-GAAP financial measures, including tangible common equity ratios, tax-equivalent net interest margin, and the efficiency ratio, to their most directly comparable GAAP counterparts Reconciliation of Non-GAAP Performance Measures (Dollars in thousands, except per share amounts, Quarter Ended June 30, 2025) | Metric | GAAP Value | Adjustment | Non-GAAP Value | | :--- | :--- | :--- | :--- | | Stockholder's equity | $154,253 | Less: Goodwill ($22,395), Other intangibles ($1,414) | Tangible common equity: $130,444 | | Tangible common equity | $130,444 | Add: Accumulated other comprehensive loss ($57,560) | Tangible common equity adjusted for AOCI: $188,004 | | Common book value per share | $35.67 | N/A | Tangible common book value per share: $30.16 | | Tangible common book value per share | $30.16 | Add: AOCI adjustment | Tangible common book value per share adjusted for AOCI: $43.47 | | Total equity to total assets | 7.48% | N/A | Tangible common equity to total assets: 6.32% | | Tangible common equity to total assets | 6.32% | Add: AOCI adjustment | Tangible common equity adjusted for AOCI to total assets: 9.11% | | Net interest income | $13,945 | Tax-equivalent adjustment on securities and loans ($674) | Net interest income (tax-equivalent basis): $14,619 | | Net interest margin | 2.97% | N/A | Net interest margin (tax-equivalent basis): 3.11% | | Total non-interest expense | $14,786 | N/A | Efficiency ratio: 88.92% (Total revenue: $16,628) | [Additional Company Information](index=3&type=section&id=Additional%20Company%20Information) This section provides an overview of Finward Bancorp, outlines forward-looking statement disclaimers, and includes contact information for shareholder inquiries [About Finward Bancorp](index=3&type=section&id=7.1.%20About%20Finward%20Bancorp) Finward Bancorp is an independent financial holding company based in Munster, Indiana, operating Peoples Bank, which provides a broad range of financial services across 26 locations in Northwest Indiana and Chicagoland, with its common stock listed on NASDAQ under the symbol FNWD - Finward Bancorp is a **locally managed and independent financial holding company** headquartered in Munster, Indiana[13](index=13&type=chunk) - It is the holding company for Peoples Bank, which offers personal, business, electronic, and wealth management financial services[13](index=13&type=chunk) - Peoples Bank operates from **26 locations** in Lake and Porter Counties in Northwest Indiana and Chicagoland, and Finward Bancorp's common stock trades on NASDAQ under **FNWD**[13](index=13&type=chunk) [Forward-Looking Statements](index=3&type=section&id=7.2.%20Forward-Looking%20Statements) This section cautions that the press release contains forward-looking statements subject to various risks and uncertainties, including economic conditions, regulatory changes, and market factors, which could cause actual results to differ materially from projections, also noting that future dividends or share repurchases are not assured - The press release contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially from expectations[14](index=14&type=chunk)[15](index=15&type=chunk) - Key risks include changes in trade policies, AI development, compliance with regulatory orders, asset quality, interest rates, inflation, market value of securities, customer behavior, competition, economic conditions, and technological changes[15](index=15&type=chunk) - There is **no assurance** regarding the actual amounts and timing of any future common stock dividends or share repurchases[17](index=17&type=chunk) [Contact Information](index=3&type=section&id=7.3.%20Contact%20Information) Contact details for shareholder services are provided for further inquiries - For further information, contact Shareholder Services at **(219) 853-7575**[18](index=18&type=chunk)

Company Overview and Strategy - Finward Bancorp has grown from $776 million to $2.1 billion in assets over the last 10 years, representing a 10.3% CAGR[7] - The company aims to build capital and increase returns while positioning for different economic and interest rate outcomes[7] - The company is evaluating opportunities to optimize the balance sheet and improve earnings quality[7] Financial Performance - Total assets were $2.075 billion as of September YTD 2024[11] - Total loans were $1.508 billion as of September YTD 2024[11] - Total deposits were $1.748 billion as of September YTD 2024[11] - Total equity was $160 million as of September YTD 2024[11] - The tax-adjusted net interest margin was 2.67% for the three months ended September 30, 2024[22] Asset Quality and Loan Portfolio - Non-performing loans totaled $13.8 million, representing 0.92% of total loans as of September 30, 2024[48] - The bank originated $70.4 million in new commercial loans during the quarter ended September 30, 2024[39] - Total 1-4 family originations for the quarter ended September 30, 2024, totaled $20.1 million[39]

[PART I. Financial Information](index=3&type=section&id=PART%20I.%20Financial%20Information) This section details Finward Bancorp's unaudited financial statements and management's analysis for Q1 2025 [Item 1. Unaudited Financial Statements and Notes](index=3&type=section&id=Item%201.%20Unaudited%20Financial%20Statements%20and%20Notes) This section presents Finward Bancorp's unaudited condensed consolidated financial statements, including balance sheets, income statements, comprehensive income, changes in stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, accounting policies, and specific financial line items for the periods ended March 31, 2025, and December 31, 2024 (for balance sheet) or March 31, 2024 (for income statements) [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This table presents Finward Bancorp's condensed consolidated balance sheets as of March 31, 2025, and December 31, 2024 (Dollars in thousands) | (Dollars in thousands) | March 31, 2025 | December 31, 2024 | | :----------------------------------------- | :------------- | :---------------- | | **ASSETS** | | | | Total cash and cash equivalents | $72,367 | $70,584 | | Securities available-for-sale | $330,127 | $333,554 | | Net loans receivable | $1,473,741 | $1,492,065 | | Total assets | $2,039,713 | $2,060,699 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total Deposits | $1,750,384 | $1,760,566 | | Total liabilities | $1,887,906 | $1,909,285 | | Total stockholders' equity | $151,807 | $151,414 | | Total liabilities and stockholders' equity | $2,039,713 | $2,060,699 | [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This table presents Finward Bancorp's condensed consolidated statements of income for the quarters ended March 31, 2025, and 2024 (Dollars in thousands, except per share data) | (Dollars in thousands, except per share data) | Quarter Ended March 31, 2025 | Quarter Ended March 31, 2024 | | :-------------------------------------------- | :--------------------------- | :--------------------------- | | Total interest income | $22,341 | $21,984 | | Total interest expense | $9,028 | $10,204 | | Net interest income | $13,313 | $11,780 | | Provision for credit losses | $454 | $- | | Total noninterest income | $2,229 | $13,475 | | Total noninterest expense | $14,472 | $15,004 | | Income before income tax expenses | $616 | $10,251 | | Income tax expenses | $161 | $972 | | Net income | $455 | $9,279 | | Basic Earnings per common share | $0.11 | $2.18 | | Diluted Earnings per common share | $0.11 | $2.17 | | Dividends declared per common share | $- | $0.12 | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This table presents Finward Bancorp's condensed consolidated statements of comprehensive income for the quarters ended March 31, 2025, and 2024 (Dollars in thousands) | (Dollars in thousands) | Quarter Ended March 31, 2025 | Quarter Ended March 31, 2024 | | :--------------------- | :--------------------------- | :--------------------------- | | Net income | $455 | $9,279 | | Other comprehensive loss, net of tax | $(160) | $(4,700) | | Comprehensive income | $295 | $4,579 | [Condensed Consolidated Statements of Changes in Stockholder's Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholder's%20Equity) This table presents Finward Bancorp's condensed consolidated statements of changes in stockholder's equity for the quarters ended March 31, 2025, and 2024 (Dollars in thousands) | (Dollars in thousands) | Balance at January 1, 2025 | Net income | Other comprehensive loss, net of tax | Stock-based compensation expense | Balance at March 31, 2025 | | :--------------------- | :------------------------- | :--------- | :----------------------------------- | :------------------------------- | :------------------------ | | Total Equity | $151,414 | $455 | $(160) | $98 | $151,807 | | (Dollars in thousands) | Balance at January 1, 2024 | Net income | Other comprehensive loss, net of tax | Stock-based compensation expense | Cash dividends, $0.12 per share | Balance at March 31, 2024 | | :--------------------- | :------------------------- | :--------- | :----------------------------------- | :------------------------------- | :------------------------------ | :------------------------ | | Total Equity | $147,345 | $9,279 | $(4,700) | $172 | $(515) | $151,581 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This table presents Finward Bancorp's condensed consolidated statements of cash flows for the quarters ended March 31, 2025, and 2024 (Dollars in thousands) | (Dollars in thousands) | Three months ended March 31, 2025 | Three months ended March 31, 2024 | | :--------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(3,809) | $(25) | | Net cash provided by investing activities | $19,698 | $39,242 | | Net cash used in financing activities | $(14,106) | $(53,445) | | Net change in cash and cash equivalents | $1,783 | $(14,228) | | Cash and cash equivalents at end of period | $72,367 | $71,780 | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes to the condensed consolidated financial statements, covering the basis of presentation, use of estimates, recent accounting pronouncements, and specific financial instrument details such as securities, loans, intangibles, deposits, earnings per share, stock-based compensation, derivatives, fair value measurements, borrowings, and leases [Note 1 - Basis of Presentation](index=7&type=section&id=Note%201%20-%20Basis%20of%20Presentation) This note describes the basis of presentation for Finward Bancorp's condensed consolidated financial statements - Finward Bancorp operates as a financial holding company for Peoples Bank and its wholly-owned subsidiaries. The Company's earnings are primarily dependent on the Bank's performance, and all financial results are aggregated into one reportable operating segment[18](index=18&type=chunk)[19](index=19&type=chunk)[20](index=20&type=chunk) [Note 2 - Use of Estimates](index=7&type=section&id=Note%202%20-%20Use%20of%20Estimates) This note explains management's use of estimates and assumptions in preparing the financial statements - The preparation of financial statements requires management to make estimates and assumptions, particularly susceptible to material change in the near term for the **allowance for credit losses**[22](index=22&type=chunk) [Note 3 – Accounting Pronouncements Recently Adopted or Issued](index=8&type=section&id=Note%203%20%E2%80%93%20Accounting%20Pronouncements%20Recently%20Adopted%20or%20Issued) This note details recently adopted or issued accounting pronouncements and their expected impact - The Company is evaluating recently issued ASUs (2023-06, 2023-09, 2024-03, 2024-04) related to disclosure improvements, income tax disclosures, expense disaggregation, and convertible debt. None are expected to have a material impact on the condensed consolidated financial statements[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk) [Note 4 - Securities](index=9&type=section&id=Note%204%20-%20Securities) This note provides details on the Company's securities portfolio, including available-for-sale securities and their fair values Securities Available-for-Sale (Dollars in thousands) | Category | March 31, 2025 Fair Value | December 31, 2024 Fair Value | | :---------------------------------------------------- | :-------------------------- | :--------------------------- | | U.S. government sponsored entities | $8,215 | $8,061 | | Collateralized mortgage obligations and residential mortgage-backed securities | $109,583 | $109,325 | | Municipal securities | $210,699 | $214,749 | | Collateralized debt obligations | $1,630 | $1,419 | | **Total securities available-for-sale** | **$330,127** | **$333,554** | - **Total securities available-for-sale** decreased by **$3.4 million** from December 31, 2024, to March 31, 2025. All securities with unrealized losses are considered high credit quality or have undisrupted cash flows, with management intending and having the ability to hold them to maturity, expecting fair values to recover[29](index=29&type=chunk)[33](index=33&type=chunk) Accumulated Other Comprehensive Loss (Dollars in thousands) | Period | Ending Balance | | :----- | :------------- | | Dec 31, 2024 | $(58,084) | | Mar 31, 2025 | $(58,244) | | Dec 31, 2023 | $(51,613) | | Mar 31, 2024 | $(56,313) | [Note 5 - Loans Receivable](index=12&type=section&id=Note%205%20-%20Loans%20Receivable) This note details the composition of the Company's loan portfolio and activity in the allowance for credit losses - The Company offers a diverse range of lending programs including residential mortgage, home equity, commercial real estate, construction and land development, commercial business, consumer, manufactured homes, and government loans[36](index=36&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk)[43](index=43&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk) Loans Receivable by Type (Dollars in thousands) | Loan Type | March 31, 2025 | December 31, 2024 | | :------------------------------ | :------------- | :---------------- | | Residential real estate | $458,424 | $467,293 | | Home equity | $49,752 | $49,758 | | Commercial real estate | $554,866 | $551,674 | | Construction and land development | $86,728 | $82,874 | | Multifamily | $204,964 | $212,455 | | Commercial business | $99,519 | $104,246 | | Consumer | $504 | $551 | | Manufactured homes | $25,762 | $26,708 | | Government | $9,279 | $11,024 | | **Loans receivable, net of deferred fees and costs** | **$1,491,696** | **$1,508,976** | Allowance for Credit Losses (ACL) Activity (Dollars in thousands) | Loan Segment | Beginning Balance (Jan 1, 2025) | Charge-offs | Recoveries | Provisions | Ending Balance (Mar 31, 2025) | | :---------------------------- | :------------------------------ | :---------- | :--------- | :--------- | :---------------------------- | | Residential real estate | $4,481 | $- | $16 | $(2,055) | $2,442 | | Commercial real estate | $6,444 | $- | $4 | $3,209 | $9,657 | | Multifamily | $1,003 | $(46) | $10 | $1,225 | $2,192 | | Commercial business | $1,185 | $(61) | $55 | $55 | $1,234 | | **Total** | **$16,911** | **$(119)** | **$86** | **$1,077** | **$17,955** | - The Company's **allowance for credit losses** increased from **$16.9 million** at December 31, 2024, to **$17.9 million** at March 31, 2025, with a total provision for credit losses of **$1.077 million** for the quarter[78](index=78&type=chunk) [Note 6 – Intangibles and Acquisition-Related Accounting](index=26&type=section&id=Note%206%20%E2%80%93%20Intangibles%20and%20Acquisition-Related%20Accounting) This note discusses goodwill and core deposit intangibles, including amortization and impairment considerations - **Goodwill** remained stable at **$22.395 million** as of March 31, 2025, with no impairment identified. **Core deposit intangibles** decreased from **$1.9 million** at December 31, 2024, to **$1.6 million** at March 31, 2025, due to amortization[86](index=86&type=chunk)[87](index=87&type=chunk) Intangibles Amortization (Dollars in thousands) | Period | Amortization | | :----- | :----------- | | Q1 2025 | $225 | | Q1 2024 | $360 | [Note 7 – Deposits](index=27&type=section&id=Note%207%20%E2%80%93%20Deposits) This note provides a breakdown of the Company's deposit portfolio by type and changes over the period Deposit Portfolio Balances (Dollars in thousands) | Deposit Type | March 31, 2025 | December 31, 2024 | | :------------------ | :------------- | :---------------- | | Checking | $589,403 | $591,487 | | Savings | $274,028 | $275,121 | | Money market | $342,106 | $333,705 | | Certificates of deposit | $544,847 | $560,253 | | **Total deposits** | **$1,750,384** | **$1,760,566** | - **Total deposits** decreased by **$10.2 million** (**0.6%**) from December 31, 2024, to March 31, 2025, primarily due to a decrease in certificates of deposit, partially offset by an increase in money market accounts[88](index=88&type=chunk) [Note 8 - Concentrations of Credit Risk](index=27&type=section&id=Note%208%20-%20Concentrations%20of%20Credit%20Risk) This note identifies the geographic and loan type concentrations of the Company's credit risk - The Company's credit risk is concentrated in residential, commercial real estate, commercial business, and installment loans primarily in Lake County (NW Indiana) and Cook County (NE Illinois), with additional activity in surrounding Indiana and Illinois counties. Loans are substantially secured by collateral[90](index=90&type=chunk) [Note 9 - Earnings per Share](index=27&type=section&id=Note%209%20-%20Earnings%20per%20Share) This note details the calculation of basic and diluted earnings per common share for the reporting periods Earnings Per Common Share | Metric | Quarter Ended March 31, 2025 | Quarter Ended March 31, 2024 | | :----- | :--------------------------- | :--------------------------- | | Basic EPS | $0.11 | $2.18 | | Diluted EPS | $0.11 | $2.17 | | Weighted average common shares outstanding | 4,266,976 | 4,256,667 | | Dilutive effect of unvested restricted stock awards | 17,520 | 14,028 | [Note 10 - Stock Based Compensation](index=28&type=section&id=Note%2010%20-%20Stock%20Based%20Compensation) This note outlines the Company's stock-based compensation expense and restricted stock activity - **Stock-based compensation expense** decreased to **$98 thousand** for Q1 2025 from **$172 thousand** for Q1 2024. Approximately **$0.8 million** in additional compensation expense is anticipated from current outstanding unvested awards, with a weighted average life of **1.9 years**[92](index=92&type=chunk) Restricted Stock Activity (Quarter Ended March 31, 2025) | Activity | Shares | Weighted Average Grant Date Fair Value | | :------------------------ | :------- | :------------------------------------- | | Non-vested at January 1, 2025 | 44,570 | $36.74 | | Granted | 14,826 | $26.53 | | Vested | (12,609) | $26.38 | | Forfeited | (109) | $29.13 | | Non-vested at March 31, 2025 | 46,678 | $36.31 | [Note 11 – Derivative Financial Instruments](index=29&type=section&id=Note%2011%20%E2%80%93%20Derivative%20Financial%20Instruments) This note describes the Company's use of derivative financial instruments to manage interest rate risk - The Company uses derivative financial instruments, primarily **interest rate swaps** and **interest rate lock commitments**, to manage interest rate risk. These are not designated as hedging instruments and are recorded at fair value[94](index=94&type=chunk)[95](index=95&type=chunk) Non-Hedging Derivative Financial Instruments Fair Value (Dollars in thousands) | Instrument | March 31, 2025 Asset Fair Value | March 31, 2025 Liability Fair Value | December 31, 2024 Asset Fair Value | December 31, 2024 Liability Fair Value | | :-------------------------- | :------------------------------ | :---------------------------------- | :--------------------------------- | :----------------------------------- | | Interest rate swap contracts | $4,382 | $4,382 | $5,486 | $5,486 | | Interest rate lock commitments | $47 | $- | $24 | $- | | **Total** | **$4,429** | **$4,382** | **$5,510** | **$5,486** | Impact of Non-Hedging Derivatives on Income (Dollars in thousands) | Instrument | Quarter Ended March 31, 2025 | Quarter Ended March 31, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | | Interest rate swap contracts | $(30) | $(30) | | Interest rate lock commitments | $(35) | $8 | | **Total** | **$(65)** | **$(22)** | [Note 12 - Fair Value](index=31&type=section&id=Note%2012%20-%20Fair%20Value) This note explains the fair value hierarchy and measurements for assets and liabilities on a recurring basis - The Company categorizes fair value measurements into a three-level hierarchy based on input observability. **Securities available-for-sale** are primarily Level 2 (observable inputs), except for collateralized debt obligations which are Level 3 (unobservable inputs)[97](index=97&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk)[104](index=104&type=chunk) Assets Measured at Fair Value on a Recurring Basis (March 31, 2025, Dollars in thousands) | Asset Category | Estimated Fair Value | Level 1 | Level 2 | Level 3 | | :------------------------------------------------------------ | :------------------- | :------ | :----------- | :------ | | Interest rate swap contracts | $4,382 | $- | $4,382 | $- | | Interest rate lock commitments | $47 | $- | $47 | $- | | U.S. government sponsored entities | $8,215 | $- | $8,215 | $- | | Collateralized mortgage obligations and residential mortgage-backed securities | $109,583 | $- | $109,583 | $- | | Municipal securities | $210,699 | $- | $210,699 | $- | | Collateralized debt obligations | $1,630 | $- | $- | $1,630 | | **Total securities available-for-sale** | **$330,127** | **$-** | **$328,497** | **$1,630** | - Collateralized debt obligations with a cost basis of **$2.2 million** are in 'payment in kind' status, meaning scheduled interest payments are not being received. Management anticipates receiving these payments due to self-correcting cash flow waterfall provisions[102](index=102&type=chunk) [Note 13 - Borrowings](index=37&type=section&id=Note%2013%20-%20Borrowings) This note details the Company's borrowed funds, including FHLB advances and other lines of credit Borrowed Funds (Dollars in thousands) | Borrowing Type | March 31, 2025 | December 31, 2024 | | :------------------------------------------------------------ | :------------- | :---------------- | | FHLB Line of Credit variable rate | $1,657 | $- | | FHLB Fixed rate advance (4.85%, maturing May 16, 2025) | $10,000 | $10,000 | | FHLB Fixed rate advance (4.77%, maturing May 19, 2025) | $10,000 | $10,000 | | FHLB Fixed rate advance (3.63%, maturing March 7, 2028) | $10,000 | $- | | FHLB Fixed rate advance (3.38%, maturing August 7, 2028) | $- | $10,000 | | FHLB Fixed rate advance (3.22%, maturing August 7, 2029) | $- | $10,000 | | FHLB Fixed rate advance (3.84%, maturing August 28, 2029) | $15,000 | $15,000 | | FHLB Fixed rate advance (3.74%, maturing August 28, 2029) | $10,000 | $10,000 | | **Total** | **$56,657** | **$65,000** | - **Total borrowed funds** decreased from **$65.0 million** at December 31, 2024, to **$56.7 million** at March 31, 2025, primarily due to FHLB calling **$20.0 million** of putable advances. The Company maintains strong liquidity with **$899.8 million** in **available liquidity**, including FHLB and Federal Reserve facilities[114](index=114&type=chunk) [Note 14 - Leases](index=38&type=section&id=Note%2014%20-%20Leases) This note provides information on the Company's lease arrangements, including a sale-leaseback transaction - In February 2024, the Bank completed a sale-leaseback transaction for five branch properties, selling them for **$17.2 million** and entering into 15-year triple net lease agreements. **Operating lease costs** for Q1 2025 were **$551 thousand**, up from **$327 thousand** in Q1 2024[116](index=116&type=chunk)[118](index=118&type=chunk) Operating Lease Liabilities Maturity (March 31, 2025, Dollars in thousands) | Maturity Analysis | Amount | | :---------------- | :----- | | Remainder 2025 | $1,196 | | 2026 | $1,622 | | 2027 | $1,657 | | 2028 | $1,692 | | 2029 | $1,679 | | Thereafter | $16,798 | | Total | $24,644 | | Less: Present value discount | $(9,748) | | Lease liability | $14,896 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Finward Bancorp's financial condition as of March 31, 2025, compared to December 31, 2024, and results of operations for the quarter ended March 31, 2025, versus March 31, 2024. It covers key financial metrics, regulatory developments, asset quality, investment portfolio, deposits, borrowings, market risk, liquidity, capital resources, and a detailed comparison of operational results [Summary](index=39&type=section&id=Summary) This section provides key financial highlights and performance metrics for the quarter ended March 31, 2025 Key Financial Highlights (March 31, 2025, Dollars in thousands) | Metric | Amount | | :------------------------- | :------------ | | Total assets | $2,039,713 | | Loans receivable, net | $1,491,696 | | Total deposits | $1,750,384 | | Stockholders' equity | $151,807 | | Book value per share | $35.10 | | Net income (Q1 2025) | $455 | | Diluted EPS (Q1 2025) | $0.11 | | Return on average assets (Q1 2025) | 0.09% | | Return on average stockholders' equity (Q1 2025) | 1.17% | [Regulatory Developments Regarding the Company and the Bank](index=39&type=section&id=Regulatory%20Developments%20Regarding%20the%20Company%20and%20the%20Bank) This section discusses regulatory actions and compliance requirements impacting the Company and its Bank - The Bank is subject to a Consent Order from November 2023 by the FDIC and Indiana DFI regarding BSA compliance, requiring strengthened oversight, revised compliance programs, internal controls, staffing, training, and suspicious activity reporting. The Bank has proactively taken steps to address these findings[122](index=122&type=chunk)[123](index=123&type=chunk)[125](index=125&type=chunk) - An MOU from August 2024 with the FDIC and DFI requires the Bank to refrain from paying cash dividends without prior regulatory approval and to develop plans for operations, capital, and strategy. These regulatory actions are not expected to materially impact day-to-day operations but may limit expansion and acquisitions[127](index=127&type=chunk)[128](index=128&type=chunk) [Financial Condition](index=40&type=section&id=Financial%20Condition) The Company's financial condition saw a slight decrease in total assets and net loans receivable, while interest-earning assets remained stable. Commercial real estate loans continue to be the largest segment, with ongoing monitoring for credit quality. Asset quality metrics show a decrease in non-performing and substandard loans, and an increase in the ACL coverage ratio. The investment portfolio experienced a minor decrease, and deposits saw a slight decline, mainly in certificates of deposit, offset by growth in money market accounts. Borrowed funds decreased due to FHLB call options [General](index=40&type=section&id=General) This section provides an overview of changes in the Company's total assets and interest-earning assets - **Total assets** decreased by **$21.0 million** (**1.0%**) to **$2.039 billion**, and **interest-earning assets** decreased by **$18.0 million** (**0.9%**) to **$1.89 billion** during Q1 2025. **Interest-earning assets** represented **92.4%** of **total assets** at March 31, 2025[129](index=129&type=chunk) [Loan Portfolio](index=40&type=section&id=Loan%20Portfolio) This section details the composition and changes within the Company's loan portfolio, including originations - **Net loans receivable** decreased to **$1.49 billion** at March 31, 2025, from **$1.51 billion** at December 31, 2024. Commercial real estate loans remained the largest segment, accounting for **37.2%** of the total loan portfolio, and are being carefully monitored due to market conditions[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) Loan Portfolio Composition (Dollars in thousands) | Loan Type | March 31, 2025 Balance | % of Total Loans | December 31, 2024 Balance | % of Total Loans | | :------------------------------ | :--------------------- | :--------------- | :------------------------ | :--------------- | | Residential real estate | $458,424 | 30.8% | $467,293 | 31.0% | | Commercial real estate | $554,866 | 37.2% | $551,674 | 36.6% | | Multifamily | $204,964 | 13.8% | $212,455 | 14.1% | | Commercial business | $99,519 | 6.7% | $104,246 | 6.9% | | **Gross loans receivable** | **$1,489,798** | **100.0%** | **$1,506,583** | **100.0%** | - **Mortgage loan originations for sale** increased to **$9.6 million** in Q1 2025 from **$3.8 million** in Q1 2024, resulting in net gains of **$230 thousand**, up from **$152 thousand** in the prior year, primarily due to additional gain on sale from loans sold to FHLB Indianapolis in previous years[135](index=135&type=chunk) [Asset Quality](index=42&type=section&id=Asset%20Quality) This section analyzes the Company's asset quality, including nonperforming loans, substandard loans, and ACL ratios Nonperforming Loans (Dollars in thousands) | Loan Segment | March 31, 2025 | December 31, 2024 | | :---------------------------- | :------------- | :---------------- | | Residential real estate | $5,026 | $4,665 | | Commercial real estate | $1,014 | $1,280 | | Multifamily | $1,954 | $3,362 | | Commercial business | $3,027 | $3,290 | | **Total Nonperforming loans** | **$12,483** | **$13,738** | | Nonperforming loans to total loans | 0.84% | 0.91% | | Nonperforming loans to total assets | 0.61% | 0.67% | Substandard Loans (Dollars in thousands) | Loan Segment | March 31, 2025 | December 31, 2024 | | :---------------------------- | :------------- | :---------------- | | Residential real estate | $5,114 | $4,754 | | Commercial real estate | $554 | $1,598 | | Multifamily | $1,954 | $3,550 | | Commercial business | $3,027 | $3,290 | | **Total Substandard loans** | **$13,728** | **$16,021** | Allowance for Credit Losses (ACL) Ratios (Dollars in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :---------------------------- | :------------- | :---------------- | | Allowance for credit losses | $17,955 | $16,911 | | Total loans | $1,491,696 | $1,508,976 | | Non-performing loans | $12,483 | $13,738 | | ACL-to-total loans | 1.20% | 1.12% | | ACL-to-non-performing loans (coverage ratio) | 143.8% | 123.1% | [Investment Portfolio](index=45&type=section&id=Investment%20Portfolio) This section describes the composition and performance of the Company's available-for-sale securities portfolio - The **securities portfolio**, all available-for-sale, decreased by **$3.5 million** (**1.0%**) to **$330.1 million** at March 31, 2025, primarily due to continued portfolio runoff. The **yield on the securities portfolio** increased to **2.38%** for Q1 2025 from **2.34%** for Q4 2024[143](index=143&type=chunk) Investment Portfolio Composition (Dollars in thousands) | Category | March 31, 2025 Balance | % Securities | December 31, 2024 Balance | % Securities | | :------------------------------------------------------ | :--------------------- | :----------- | :------------------------ | :----------- | | U.S. government sponsored entities | $8,215 | 2.5% | $8,061 | 2.4% | | Collateralized mortgage obligations and residential mortgage-backed securities | $109,583 | 33.2% | $109,325 | 32.8% | | Municipal securities | $210,699 | 63.8% | $214,749 | 64.4% | | Collateralized debt obligations | $1,630 | 0.5% | $1,419 | 0.4% | | **Total securities available-for-sale** | **$330,127** | **100.0%** | **$333,554** | **100.0%** | [Deposits](index=46&type=section&id=Deposits) This section details the Company's deposit portfolio, including changes by type and the cost of deposits - **Total deposits** decreased by **$10.2 million** (**0.6%**) to **$1.75 billion** at March 31, 2025, compared to December 31, 2024. This was primarily driven by a **$15.4 million** decrease in certificates of deposit, partially offset by an **$8.4 million** increase in money market accounts[148](index=148&type=chunk)[149](index=149&type=chunk) Deposit Portfolio Balances (Dollars in thousands) | Deposit Type | March 31, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------ | :------------- | :---------------- | :--------- | :--------- | | Checking | $589,403 | $591,487 | $(2,084) | -0.4% | | Savings | $274,028 | $275,121 | $(1,093) | -0.4% | | Money market | $342,106 | $333,705 | $8,401 | 2.5% | | Certificates of deposit | $544,847 | $560,253 | $(15,406) | -2.7% | | **Total deposits** | **$1,750,384** | **$1,760,566** | **$(10,182)** | **-0.6%** | - **Core deposits** (checking, savings, money market) slightly increased by **$5.2 million** (**0.4%**) and represented **68.9%** of **total deposits** at March 31, 2025. The **weighted-average cost of total deposits** decreased to **1.83%** for Q1 2025 from **2.01%** for Q4 2024[148](index=148&type=chunk)[152](index=152&type=chunk) [Borrowed Funds](index=47&type=section&id=Borrowed%20Funds) This section outlines the Company's borrowed funds and its overall liquidity position - **Total borrowed funds** decreased by **$3.4 million** (**3.2%**) to **$101.7 million** at March 31, 2025, primarily due to the FHLB calling **$20.0 million** of putable advances. The Company's liquidity position remains strong with **$696 million** in **available liquidity** from FHLB and Federal Reserve facilities[153](index=153&type=chunk) [Other Assets and Liabilities](index=47&type=section&id=Other%20Assets%20and%20Liabilities) This section discusses changes in other assets and liabilities, primarily related to derivative fair values - **Other assets** decreased to **$41.8 million** at March 31, 2025, from **$43.9 million** at December 31, 2024, mainly due to a decreased fair value of **interest rate swap contracts**. **Accrued expenses and other liabilities** also decreased to **$35.8 million** from **$43.6 million** for similar reasons[154](index=154&type=chunk) [Market Risk and Interest Rate Sensitivity](index=48&type=section&id=Market%20Risk%20and%20Interest%20Rate%20Sensitivity) The Company identifies interest rate risk as its primary market risk, managed by the ALCO within board-established policy limits. Using income and EVE simulations, the analysis suggests a relatively neutral to positive impact on net interest income if interest rates decrease, but a reduction if rates uniformly increase. The Company focuses on maintaining an appropriate balance between theoretical and practical scenarios to understand its sensitivity to interest rate changes - Interest rate risk is the primary market risk, managed by the ALCO to ensure a stable and increasing **Net interest income**. The Company uses income simulations and **Economic Value of Equity (EVE)** simulations to quantify the potential impact of changing interest rates[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk)[160](index=160&type=chunk) Impact of Interest Rate Changes on Net Interest Income and EVE (March 31, 2025, Dollars in millions) | Interest Rate Scenario | EVE ($) | EVE % Change | Net Interest Income ($) | Net Interest Income % Change | | :--------------------- | :------ | :----------- | :---------------------- | :--------------------------- | | +400 Bps | $263 | -38.3% | $59.4 | -5.1% | | +100 Bps | $406 | -4.9% | $62.6 | 0.0% | | No change | $426 | 0.0% | $62.6 | 0.0% | | -100 Bps | $437 | 2.4% | $62.5 | 0.0% | | -400 Bps | $387 | -9.2% | $64.2 | 2.5% | - The analysis suggests that a uniform decrease in interest rates may lead to neutral to positive improvements in **Net interest income**, while a uniform increase would result in a reduction over the next twelve months[165](index=165&type=chunk) [Liquidity and Capital Resources](index=50&type=section&id=Liquidity%20and%20Capital%20Resources) The Company manages liquidity to fund loan demand, meet deposit withdrawals, and cover expenses, aiming for diversified sources including deposits, loan/security payments, and borrowing capacity from FHLB and Federal Reserve facilities. Available liquidity totaled $695.8 million at March 31, 2025 - The Company manages liquidity to fund loan demand, meet deposit withdrawals, and cover expenses, aiming for diversified sources including deposits, loan/security payments, and borrowing capacity from FHLB and Federal Reserve facilities. **Available liquidity** totaled **$695.8 million** at March 31, 2025[169](index=169&type=chunk)[170](index=170&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk) Sources of Liquidity (Dollars in thousands) | Source | March 31, 2025 Outstanding | March 31, 2025 Capacity | December 31, 2024 Outstanding | December 31, 2024 Capacity | | :------------------------------------ | :------------------------- | :---------------------- | :---------------------------- | :------------------------- | | FHLB Advances | $55,000 | $473,902 | $65,000 | $459,648 | | Bank Term Funding and Fed Discount Window | $- | $182,573 | $- | $186,788 | | Fed Funds Lines | $- | $16,000 | $- | $16,000 | | Other Line of Credit | $1,657 | $23,343 | $- | $25,000 | | **Total** | **$56,657** | **$695,818** | **$65,000** | **$687,436** | - **Stockholders' equity** increased by **$393 thousand** (**0.3%**) in Q1 2025, driven by **net income** of **$455 thousand**, partially offset by other comprehensive losses of **$160 thousand**. The Bank's capital ratios exceeded all applicable regulatory requirements at March 31, 2025[175](index=175&type=chunk)[181](index=181&type=chunk) Bank Capital Ratios (March 31, 2025, Dollars in thousands) | Capital Ratio | Actual Amount | Actual Ratio | Minimum Required for Capital Adequacy | Minimum Required To Be Well Capitalized | | :------------------------------------------ | :------------ | :----------- | :------------------------------------ | :-------------------------------------- | | Common equity tier 1 capital to risk-weighted assets | $178,036 | 11.02% | $72,679 (4.50%) | $104,981 (6.50%) | | Tier 1 capital to risk-weighted assets | $178,036 | 11.02% | $96,906 (6.00%) | $129,207 (8.00%) | | Total capital to risk-weighted assets | $198,107 | 12.27% | $129,207 (8.00%) | $161,509 (10.00%) | | Tier 1 capital to adjusted average assets | $178,036 | 8.48% | $84,019 (4.00%) | $105,023 (5.00%) | [Results of Operations - Comparison of the Quarter Ended March 31, 2025 to the Quarter Ended March 31, 2024](index=53&type=section&id=Results%20of%20Operations%20-%20Comparison%20of%20the%20Quarter%20Ended%20March%2031,%202025%20to%20the%20Quarter%20Ended%20March%2031,%202024) Net income significantly decreased in Q1 2025 compared to Q1 2024, primarily due to a non-recurring gain from a sale-leaseback transaction in the prior year. Net interest income increased due to reduced deposit and borrowing costs and higher loan yields, leading to an improved net interest margin. Noninterest income saw a substantial decrease, while noninterest expenses also decreased, mainly from lower professional services and data processing costs - **Net income** for Q1 2025 was **$455 thousand**, a **95.1%** decrease from **$9.3 million** in Q1 2024, primarily due to an **$11.8 million** pre-tax gain from a sale-leaseback transaction in Q1 2024. **ROA** decreased to **0.09%** from **1.77%**, and **ROE** decreased to **1.17%** from **24.97%**[184](index=184&type=chunk) Net Interest Income and Margin (Dollars in thousands) | Metric | Quarter Ended March 31, 2025 | Quarter Ended March 31, 2024 | | :---------------------------------------- | :--------------------------- | :--------------------------- | | Net Interest Income | $13,313 | $11,780 | | Weighted-average yield on interest-earning assets | 4.71% | 4.52% | | Weighted-average cost of interest-bearing liabilities | 2.28% | 2.53% | | Interest rate spread | 2.43% | 1.99% | | Net interest margin (average earning assets) | 2.81% | 2.42% | | Tax adjusted net interest margin | 2.95% | 2.57% | - **Net interest income** increased by **$1.5 million** (**13.0%**) to **$13.3 million** in Q1 2025, driven by reduced deposit and borrowing costs due to Federal Reserve rate reductions and increased loan yields. The **tax-adjusted net interest margin** improved to **2.95%** from **2.57%**[187](index=187&type=chunk)[188](index=188&type=chunk) Noninterest Income (Dollars in thousands) | Noninterest Income Category | Q1 2025 | Q1 2024 | $ Change | % Change | | :-------------------------------------- | :------ | :------ | :------- | :------- | | Fees and service charges | $1,109 | $1,153 | $(44) | -3.8% | | Wealth management operations | $619 | $633 | $(14) | -2.2% | | Gain on tax credit investment | $67 | $- | $67 | 0.0% | | Gain on sale of loans held-for-sale, net | $230 | $152 | $78 | 51.3% | | Loss on sale of securities, net | $- | $(531) | $531 | -100.0% | | Increase in cash value of bank owned life insurance | $198 | $193 | $5 | 2.6% | | Gain (loss) on sale of real estate | $- | $11,858 | $(11,858) | -100.0% | | Other | $6 | $17 | $(11) | -64.7% | | **Total noninterest income** | **$2,229** | **$13,475** | **$(11,246)** | **-83.5%** | - **Total noninterest income** decreased significantly by **$11.2 million** (**83.5%**) in Q1 2025, primarily due to the absence of an **$11.8 million** pre-tax gain from a sale-leaseback transaction and a **$531 thousand** loss on sale of securities, both occurring in Q1 2024[190](index=190&type=chunk) Noninterest Expense (Dollars in thousands) | Noninterest Expense Category | Q1 2025 | Q1 2024 | $ Change | % Change | | :-------------------------------------- | :------ | :------ | :------- | :------- | | Compensation and benefits | $7,372 | $7,109 | $263 | 3.7% | | Occupancy and equipment | $2,111 | $1,915 | $196 | 10.2% | | Data processing | $1,039 | $1,170 | $(131) | -11.2% | | Marketing | $86 | $158 | $(72) | -45.6% | | Federal deposit insurance premiums | $433 | $501 | $(68) | -13.6% | | Professional services | $1,260 | $1,557 | $(297) | -19.1% | | Net (gain) recognized on sale of premises and equipment | $454 | $625 | $(171) | -27.4% | | Other | $1,717 | $1,969 | $(252) | -12.8% | - **Total noninterest expense** decreased in Q1 2025, mainly due to lower professional and outside service expenses related to the consent order and sale-leaseback transaction in 2024, as well as reduced data processing and technology costs. This was partially offset by increases in **compensation and benefits** and **occupancy and equipment** expenses[193](index=193&type=chunk) - The **effective tax rate** for Q1 2025 was **26.1%**, significantly higher than **9.5%** in Q1 2024, primarily due to lower tax-preferred income relative to taxable income, as Q1 2024 included a large pre-tax gain from the sale-leaseback transaction[194](index=194&type=chunk) [Critical Accounting Policies](index=56&type=section&id=Critical%20Accounting%20Policies) This section highlights the Company's significant accounting policies involving management judgments and estimates - The Company's significant accounting policies, detailed in its 2024 Annual Report on Form 10-K, involve management judgments and estimates, particularly for inherently uncertain matters[195](index=195&type=chunk) [Forward-Looking Statements](index=56&type=section&id=Forward-Looking%20Statements) This section cautions that the report contains forward-looking statements subject to risks and uncertainties - This report contains forward-looking statements regarding future business prospects, M&A, income, liquidity, and capital needs, which are subject to risks and uncertainties that could cause actual results to differ materially[196](index=196&type=chunk) [Non-GAAP Financial Measures](index=56&type=section&id=Non-GAAP%20Financial%20Measures) This section explains the Company's use of non-GAAP financial measures for performance evaluation and comparability - The Company uses non-GAAP financial measures like adjusted **Net interest income** and **tax-adjusted net interest margin** to evaluate performance and enhance comparability for peer analysis, acknowledging their limitations as analytical tools[197](index=197&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=56&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This item is marked as 'Not applicable' in the report - This section is marked as 'Not applicable'[200](index=200&type=chunk) [Item 4. Controls and Procedures](index=56&type=section&id=Item%204.%20Controls%20and%20Procedures) The Company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2025. There were no material changes in internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=56&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the Company's disclosure controls and procedures as of March 31, 2025 - The Company's CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2025, ensuring timely and accurate reporting of information required under the Exchange Act[201](index=201&type=chunk) [Changes in Internal Control Over Financial Reporting](index=56&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section states that no material changes occurred in internal control over financial reporting during the quarter - No material changes in the Company's internal control over financial reporting were identified during the quarter ended March 31, 2025[202](index=202&type=chunk) [PART II. Other Information](index=57&type=section&id=PART%20II.%20Other%20Information) This section provides other information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) The Company and its subsidiaries are involved in routine legal proceedings, but management believes that any ultimate liabilities will not materially adversely affect the financial position - The Company and its subsidiaries are involved in legal proceedings in the ordinary course of business, but management believes that ultimate liabilities will not have a material adverse effect on the financial position[204](index=204&type=chunk) [Item 1A. Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) This item is marked as 'Not Applicable' in the report - This section is marked as 'Not Applicable'[205](index=205&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=57&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company has an authorized stock repurchase program for up to 50,000 shares, with no expiration date. No shares were repurchased under this program in Q1 2025, but 3,930 shares were reacquired to cover tax withholding obligations on restricted stock awards - The Company has a stock repurchase program authorized for up to **50,000 shares**, with no expiration date. No shares were repurchased under this program in Q1 2025[206](index=206&type=chunk) - In Q1 2025, **3,930 shares** were reacquired at an average price of **$26.38** to satisfy tax withholding obligations on restricted stock awards, which is considered outside the formal repurchase program[209](index=209&type=chunk) [Item 3. Defaults Upon Senior Securities](index=57&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There are no matters to report under this item - There are no matters reportable under this item[208](index=208&type=chunk) [Item 4. Mine Safety Disclosures](index=57&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is marked as 'Not Applicable' in the report - This section is marked as 'Not Applicable'[208](index=208&type=chunk) [Item 5. Other Information](index=57&type=section&id=Item%205.%20Other%20Information) There is no other information to report under this item - There is no other information to report under this item[208](index=208&type=chunk) [Item 6. Exhibits](index=58&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and the XBRL Interactive Data File - The exhibits include certifications from the Chief Executive Officer (31.1) and Chief Financial Officer (31.2), Section 1350 Certifications (32.1), and the XBRL Interactive Data File (101) containing the financial statements and notes[210](index=210&type=chunk)[211](index=211&type=chunk) [SIGNATURES](index=59&type=section&id=SIGNATURES) This section contains the official signatures of the Company's President, CEO, CFO, and Treasurer - The report is signed by Benjamin J. Bochnowski, President and Chief Executive Officer, and Benjamin L. Schmitt, Executive Vice President, Chief Financial Officer and Treasurer, on May 15, 2025[214](index=214&type=chunk)

Financial Performance - For the quarter ended March 31, 2025, net income available to common stockholders was $456 thousand, or $0.11 per diluted share, a decrease of 78.3% from $2.1 million, or $0.49 per diluted share for the quarter ended December 31, 2024, and a decrease of 95.1% from $9.3 million, or $2.17 per diluted share for the quarter ended March 31, 2024 [3]. - Return on equity for the quarter ended March 31, 2025, was 1.17%, a decrease from 5.39% in the previous quarter [16]. - Return on assets for the same quarter was 0.09%, down from 0.41% in the prior quarter [16]. - Basic earnings per share decreased to $0.11 from $0.49 in the previous quarter [16]. - Net income for the quarter was $456 thousand, a substantial drop from $2,102 thousand in the previous quarter, reflecting a decrease of about 78.2% [22]. - Total revenue for the period was $15,542 million, a decrease from $16,339 million, reflecting a decline of about 4.9% [26]. Asset and Deposit Management - As of March 31, 2025, total deposits were $1.8 billion, a decrease of $10.2 million, or 0.6% compared to December 31, 2024, with non-interest-bearing deposits increasing by $18.1 million, or 6.9% [5]. - Total assets as of March 31, 2025, were $2,059,968,000, a slight decrease from $2,069,310,000 at the end of the previous quarter [18]. - Total assets decreased to $2,039,714 thousand as of March 31, 2025, down from $2,060,699 thousand in December 2024, representing a decline of approximately 1.0% [20]. - Net loans receivable stood at $1,473,741 thousand, a slight decrease from $1,492,065 thousand in the previous quarter, reflecting a reduction of about 1.2% [20]. - Total liabilities decreased to $1,887,907 thousand from $1,909,285 thousand in the previous quarter, a decline of approximately 1.1% [20]. Credit Quality - The allowance for credit losses on loans totaled $17.9 million at March 31, 2025, representing 1.20% of total loans receivable, an increase of $1 million, or 6.2% from December 31, 2024 [6]. - Non-performing loans decreased to $12.5 million at March 31, 2025, down $1.3 million, or 9.1% from $13.7 million at December 31, 2024, with the ratio of non-performing loans to total loans at 0.84% [8]. - The Bank recorded a net provision for credit loss expense of $454 thousand for the quarter ended March 31, 2025, with net charge-offs totaling $32.7 thousand, a decrease of 97.2% from $2.2 million for the quarter ended December 31, 2024 [7]. - The allowance for credit losses increased to $17,955 thousand from $16,911 thousand in the previous quarter, marking an increase of approximately 6.2% [24]. - Nonaccruing loans decreased to $12,483 thousand from $13,738 thousand in the previous quarter, a reduction of about 9.1% [24]. Capital and Equity - The Bank's tier 1 capital to adjusted average assets ratio was 8.48% as of March 31, 2025, an improvement from 8.47% at December 31, 2024, exceeding all applicable regulatory capital requirements [9]. - The common equity tier 1 capital ratio was 11.02%, exceeding the minimum required ratio of 4.50% [24]. - Total stockholder's equity as of March 31, 2025, is $151,807,000, compared to $151,581,000 on March 31, 2024, reflecting a year-over-year increase of 0.15% [25]. - Tangible common equity for the same period is $127,777,000, up from $126,275,000 a year earlier, indicating a growth of 1.19% [25]. - Tangible book value per diluted share is $29.55 as of March 31, 2025, compared to $29.30 a year prior, representing an increase of 0.85% [25]. Operational Efficiency - The efficiency ratio for the quarter ended March 31, 2025, was 93.11%, compared to 87.20% for the quarter ended December 31, 2024, indicating increased operating expenses [9]. - The efficiency ratio increased to 93.11% from 87.20% in the previous quarter, indicating higher operational costs relative to income [16]. - Total non-interest expense was $14,471 million, slightly up from $14,247 million, marking an increase of about 1.6% [26]. Interest Income and Margin - The net interest margin for the quarter ended March 31, 2025, was 2.81%, an increase from 2.65% for the quarter ended December 31, 2024, while the tax-adjusted net interest margin was 2.95%, up from 2.79% [5]. - Total interest income for the quarter was $22,341 thousand, compared to $22,595 thousand in the prior quarter, indicating a decrease of approximately 1.1% [22]. - Net interest income after provision for credit losses was $12,859 thousand, down from $13,186 thousand in the previous quarter, a decline of about 2.5% [22]. - Net interest income increased to $13,313 million, up from $12,607 million, representing a growth of about 5.6% [26]. - Adjusted net interest income rose to $13,983 million compared to $13,281 million, indicating an increase of approximately 5.3% [26].

Core Points - Finward Bancorp reported a net income of $456 thousand, or $0.11 per diluted share, for Q1 2025, a significant decrease from $2.1 million, or $0.49 per diluted share, in Q4 2024 and $9.3 million, or $2.17 per diluted share, in Q1 2024 [1][16] - The tax-adjusted net interest margin increased to 2.95% in Q1 2025 from 2.79% in Q4 2024, primarily due to reduced deposit and borrowing costs following the Federal Reserve's rate cuts [2][17] - Non-performing loans decreased to $12.5 million, or 0.84% of total loans, down from $13.7 million, or 0.91%, in the previous quarter, indicating improved asset quality [6][7] Financial Performance - The return on equity for Q1 2025 was 1.17%, down from 5.39% in Q4 2024, while the return on assets was 0.09%, compared to 0.41% in the previous quarter [1][15] - Non-interest expense as a percentage of average assets increased to 2.81% in Q1 2025 from 2.75% in Q4 2024, driven by higher compensation and benefit expenses [7][15] - The efficiency ratio worsened to 93.11% in Q1 2025 from 87.20% in Q4 2024, reflecting increased operational costs [1][15] Funding and Liquidity - Total deposits as of March 31, 2025, were $1.8 billion, a slight decrease of $10.2 million, or 0.6%, from the previous quarter [2][19] - The Bancorp's liquidity position remained strong with available liquidity of $697 million, including borrowing capacity from the FHLB and Federal Reserve [3][19] Credit Quality - The allowance for credit losses on loans increased to $17.9 million, or 1.20% of total loans, from $16.9 million, or 1.12%, in the previous quarter [4][5] - The net provision for credit loss expense was $454 thousand for Q1 2025, with net charge-offs significantly reduced to $32.7 thousand from $2.2 million in Q4 2024 [5][6] Securities and Lending - The securities available for sale decreased to $330.1 million as of March 31, 2025, down from $333.6 million in the previous quarter [6][19] - The aggregate loan portfolio remained stable at $1.5 billion, with new commercial loan originations increasing to $36.7 million in Q1 2025 from $25.0 million in Q4 2024 [6][19]

Core Points - Finward Bancorp declared a dividend of $0.12 per share on its common stock, payable on May 12, 2025, to shareholders of record as of April 28, 2025 [1] Company Overview - Finward Bancorp is an independent financial holding company based in Munster, Indiana, primarily holding the stock of Peoples Bank, which offers a variety of financial services from 26 locations in Northwest Indiana and the Chicagoland area [2]

Loan Portfolio - As of December 31, 2024, total loans receivable amounted to $1,506,583,000, a slight decrease from $1,508,755,000 in 2023[30] - The company's loan portfolio includes $467,293,000 in residential real estate loans, down from $484,948,000 in 2023, representing a decrease of approximately 1.5%[30] - The company reported a total of $551,674,000 in commercial real estate loans as of December 31, 2024, an increase from $503,202,000 in 2023, reflecting a growth of approximately 9.3%[30] - Adjustable Rate Mortgage (ARM) originations totaled $7.3 million in 2024, accounting for 14.8% of total mortgage loan originations[40] - The primary lending area includes Lake County in northwest Indiana and Cook County in northeast Illinois, where the majority of loan activity is concentrated[33] - The company’s construction loans are primarily made for residential properties, with a maximum loan-to-value ratio of 89%[41] - During 2024, 75.2% of closed mortgage loans were conventional loans with borrowers having 20% or more equity, eliminating the need for private mortgage insurance[38] - The company had no concentrations of loans in any industry exceeding 10% of total loans as of December 31, 2024[27] Credit Quality - Non-performing loans increased to $13,738 thousand in 2024 from $9,608 thousand in 2023, representing a 43.5% increase[57] - The ratio of non-performing loans to total assets rose to 0.74% in 2024, up from 0.61% in 2023[57] - Total substandard loans increased to $16,021 thousand in 2024, compared to $12,264 thousand in 2023, marking a 30.3% increase[59] - Special mention loans grew to $25,290 thousand in 2024, up from $19,198 thousand in 2023, reflecting a 31.8% increase[60] - The company recorded $656 thousand in gross interest income on non-accrual loans that would have been recognized if the loans had been current throughout 2024[57] - The allowance for credit losses allocated for collateral dependent loans was $284 thousand as of December 31, 2024[65] - The total allowance for credit losses at the end of 2024 was $16,911,000, down from $18,768,000 at the end of 2023[72] - The allowance for credit losses (ACL) to loans outstanding ratio was 1.12% for 2024, compared to 1.24% in 2023[72] Interest Income and Expenses - Net interest income for the year ended December 31, 2024, was $48,447 million, down from $54,555 million in 2023[98] - Interest income from loans receivable decreased by $734 million, resulting in a total of $2,753 million for 2024[101] - Total interest-earning assets saw a net decrease of $262 million, totaling $3,395 million in 2024[101] - Net interest income experienced a decline of $1,043 million, leading to a total of $6,108 million for the year[101] - The average interest rate on total interest-earning assets increased to 4.67% in 2024 from 4.45% in 2023[98] Capital and Regulatory Compliance - The Company is subject to minimum capital standards, including a common equity Tier 1 capital ratio of 4.50%[122] - As of December 31, 2024, the Bank met all applicable capital adequacy requirements[126] - The Bank's common equity tier 1 capital to risk-weighted assets ratio was 11.26%, exceeding the minimum required ratio of 4.50%[135] - The total capital to risk-weighted assets ratio for the Bank was 12.19% as of December 31, 2024, compared to the minimum required ratio of 8.00%[135] - The Bank's tier 1 capital to adjusted average assets ratio was 8.47% as of December 31, 2024, above the minimum required ratio of 4.00%[135] - The Company is exempt from consolidated regulatory capital requirements under the "Small Bank Holding Company" exemption due to its asset size being less than $3 billion[127] Deposits and Funding - As of December 31, 2024, total deposits amounted to $1,755,547 million, reflecting a 2.40% increase from $1,784,086 million in 2023[86] - The Company had $21.7 million in brokered deposit balances at December 31, 2024, obtained through prior acquisitions[84] - The Company had $65.0 million in Federal Home Loan Bank (FHLB) fixed rate advances and $40.1 million in repurchase agreements as of December 31, 2024[83] - The weighted average rate on repurchase agreements was 3.85% in 2024, compared to 3.64% in 2023[93] Economic and Market Conditions - The monetary policies of the Federal Reserve significantly impact the Company's earnings and growth, as well as the broader banking industry[169] - Interest rate risk is identified as the primary source of market risk for the Company, arising from timing differences in repricings and maturities of interest-earning assets and interest-bearing liabilities[333] - The Company forecasts net interest income under various interest rate scenarios, indicating sensitivity to changes in market interest rates[342] - A table shows the impact of changes in interest rates on net interest income and economic value of equity (EVE), with a base EVE of $425 million and a net interest income of $61.6 million[344] Compliance and Risk Management - The Company is subject to periodic reporting and compliance requirements under the SEC and Nasdaq rules due to its public listing[165] - The Company has not discovered any material cybersecurity incidents during 2024, indicating effective risk management practices[159] - The Bank was rated "satisfactory" in its Community Reinvestment Act compliance, which is considered in expansion proposals and merger applications[150] - The final rule to strengthen CRA regulations was issued on October 24, 2023, but its implementation is currently delayed due to a preliminary injunction[152]

Market Overview - Last week's market performance was negatively impacted by uncertainty over tariffs, leading to the S&P 500 Index posting its worst weekly performance since September 2024, with a decline of 3.1% [1][2] - The Nasdaq Composite fell 3.8%, entering correction territory, while the Dow Jones declined by 2.5%. Small-cap stocks, represented by the Russell 2000, experienced the steepest decline at 4.3% [2] Financial Services Sector - The Financial Services sector among U.S. small-cap stocks was one of the top five worst performers last week, yet some stocks managed to perform positively [3] - Economists and policymakers view tariffs as a potential factor that could increase prices for U.S. businesses and consumers, which may slow economic growth over time [5] - Small-cap stocks are more sensitive to domestic economic conditions compared to large-cap companies, making them vulnerable to economic performance fluctuations [6] Investment Opportunities - Three small-cap financial services stocks that showed resilience and ended the week positively are Medallion Financial Corp. (MFIN), OFS Capital Corporation (OFS), and Finward Bancorp (FNWD) [3][8] - Medallion Financial reported total revenues of $213.9 million in 2024, a 7% increase year-over-year, and is expected to see a 5.3% sales increase this year [12] - OFS Capital's fair value of its debt investment portfolio was $224.2 million, and the stock gained 7.6% last week, indicating strong demand for specialized financing [15][17] - Finward Bancorp's revenues grew 9% year-over-year to $71.1 million in 2024, driven by a one-time gain on real estate, and the stock gained 3.7% last week [19][21]

Core Points - Finward Bancorp reported a net income of $12.1 million, or $2.84 per diluted share, for the twelve months ended December 31, 2024, an increase from $8.4 million, or $1.96 per diluted share, in the prior year [1] - For the fourth quarter of 2024, net income was $2.1 million, or $0.49 per diluted share, compared to $606 thousand, or $0.14 per diluted share, in the previous quarter and $1.5 million, or $0.35 per diluted share, in the same quarter of 2023 [1] - The Bank's return on equity improved to 5.39% for the quarter ended December 31, 2024, up from 1.60% in the previous quarter [1][14] - The net interest margin for the three months ended December 31, 2024, was 2.65%, an increase from 2.51% in the prior quarter [2] - Total deposits as of December 31, 2024, were $1.8 billion, reflecting an increase of $11.8 million or 0.7% from the previous quarter [2] - The allowance for credit losses on loans decreased to $16.9 million, or 1.12% of total loans receivable, from $18.5 million, or 1.23%, in the prior quarter [5] - Non-performing loans totaled $13.7 million, a slight decrease from $13.8 million in the previous quarter, resulting in a non-performing loans ratio of 0.91% [6] Performance Metrics - The tax-adjusted net interest margin for the twelve months ended December 31, 2024, was 2.68%, down from 2.98% in the prior year [2] - Non-interest expense as a percentage of average assets was 2.75% for the quarter ended December 31, 2024, compared to 2.80% in the previous quarter [10] - The Bank's tier 1 capital to adjusted average assets ratio improved to 8.46% as of December 31, 2024, from 8.38% in the prior quarter [10] - The efficiency ratio improved to 87.20% for the quarter ended December 31, 2024, down from 97.32% in the previous quarter [14] Funding and Liquidity - As of December 31, 2024, the Bank had available liquidity of $687 million, including borrowing capacity from the FHLB and Federal Reserve facilities [4] - Non-interest-bearing deposits decreased by $21.8 million or 7.7% to $263.3 million compared to the previous quarter [2][3] - Borrowings and repurchase agreements totaled $105.0 million, a decrease of $22.9 million or 17.9% from the previous quarter [3] Loan Portfolio and Asset Quality - The Bank's aggregate loan portfolio remained stable at $1.5 billion as of December 31, 2024 [6] - The Bank originated $59.2 million in new commercial loans during the fourth quarter of 2024, compared to $70.4 million in the previous quarter [6] - The ratio of the allowance for credit losses to non-performing loans was 123.1% at December 31, 2024, down from 134.1% in the previous quarter [7]