Finward Bancorp(FNWD) - 2025 Q1 - Quarterly Report

PART I. Financial Information This section details Finward Bancorp's unaudited financial statements and management's analysis for Q1 2025 Item 1. Unaudited Financial Statements and Notes 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 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 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 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 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 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 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 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][19][20] Note 2 - Use of Estimates 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] Note 3 – Accounting Pronouncements Recently Adopted or Issued 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][25][26][27] Note 4 - Securities 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][33] 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 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][39][40][43][45][46][47] 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] Note 6 – Intangibles and Acquisition-Related Accounting 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][87] Intangibles Amortization (Dollars in thousands) | Period | Amortization | | :----- | :----------- | | Q1 2025 | $225 | | Q1 2024 | $360 | Note 7 – Deposits 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] Note 8 - Concentrations of Credit Risk 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] Note 9 - Earnings per Share 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 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] 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 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][95] 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 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][98][99][104] 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] Note 13 - Borrowings 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] Note 14 - Leases 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][118] 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 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 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 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][123][125] - 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][128] Financial Condition 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 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] Loan Portfolio 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][131][132] 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] Asset Quality 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 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] 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 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 $8.4 million increase in money market accounts[148][149] Deposit Portfolio Balances (Dollars in thousands) | Deposit Type | March 31, 2025 | December 31, 2024 | Change ($) | 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][152] Borrowed Funds 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] Other Assets and Liabilities 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 $43.6 million for similar reasons[154] Market Risk and Interest Rate Sensitivity The Company identifies interest rate risk as its primary market risk, managed by the ALCO within board-established policy limits. Using income and EVE simulations, the analysis suggests a relatively neutral to positive impact on net interest income if interest rates decrease, but a reduction if rates uniformly increase. The Company focuses on maintaining an appropriate balance between theoretical and practical scenarios to understand its sensitivity to interest rate changes - Interest rate risk is the primary market risk, managed by the ALCO to ensure a stable and increasing Net interest income. The Company uses income simulations and Economic Value of Equity (EVE) simulations to quantify the potential impact of changing interest rates[155][156][157][160] Impact of Interest Rate Changes on Net Interest Income and EVE (March 31, 2025, Dollars in millions) | Interest Rate Scenario | EVE ($) | 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] Liquidity and Capital Resources 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][170][172][173] 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][181] 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 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] 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][188] 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] 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] - 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] Critical Accounting Policies 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] Forward-Looking Statements 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] Non-GAAP Financial Measures 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][198][199] Item 3. Quantitative and Qualitative Disclosures about Market Risk This item is marked as 'Not applicable' in the report - This section is marked as 'Not applicable'[200] Item 4. Controls and Procedures 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 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] Changes in Internal Control Over Financial Reporting 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] PART II. Other Information This section provides other information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings 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] Item 1A. Risk Factors This item is marked as 'Not Applicable' in the report - This section is marked as 'Not Applicable'[205] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - 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] Item 3. Defaults Upon Senior Securities There are no matters to report under this item - There are no matters reportable under this item[208] Item 4. Mine Safety Disclosures This item is marked as 'Not Applicable' in the report - This section is marked as 'Not Applicable'[208] Item 5. Other Information There is no other information to report under this item - There is no other information to report under this item[208] Item 6. Exhibits 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][211] 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]