Finward Bancorp(FNWD) - 2025 Q2 - Quarterly Report

PART I. Financial Information Item 1. Unaudited Financial Statements and Notes Finward Bancorp's unaudited condensed consolidated financial statements and notes are presented for the specified reporting periods Condensed Consolidated Balance Sheets 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 $2.839 million[8] Consolidated Statements of Income Details Finward Bancorp's revenues, expenses, and net income for the three and six months ended June 30, 2025 and 2024 Consolidated Statements of Income (Three Months Ended June 30, 2025 vs. 2024) | (Dollars in thousands, except per share data) | 2025 | 2024 | Change ($) | 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) 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 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 $0.520 million[15] Consolidated Statements of Cash Flows Summarizes Finward Bancorp's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 Consolidated Statements of Cash Flows (Six Months Ended June 30, 2025 vs. 2024) | (Dollars in thousands) | 2025 | 2024 | Change ($) | | :--------------------- | :-------- | :-------- | :--------- | | 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] Notes to Condensed Consolidated Financial Statements Provides detailed explanations and disclosures supporting Finward Bancorp's condensed consolidated financial statements Note 1 - Basis of Presentation 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] - 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] - 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] Note 2 - Use of Estimates 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] - Estimates related to the allowance for credit losses are particularly susceptible to material change in the near term[23] Note 3 – Accounting Pronouncements Recently Adopted or Issued 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][25] - ASU 2023-09 (Income Tax Disclosures), effective for fiscal year 2025, is not expected to have a material impact[26] - ASU 2024-03 (Expense Disaggregation Disclosures), effective after December 15, 2026, is not expected to have a material impact[27] - ASU 2024-04 (Debt-Debt With Conversion and Other Options), effective after December 15, 2025, is not expected to have a material impact[28] Note 4 - Securities 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] Note 5 - Loans Receivable 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][72] Note 6 – Intangibles and Acquisition-Related Accounting 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] 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 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 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] - Substantially all loans are secured by specific collateral, including residences, commercial real estate, land development, business assets, and consumer assets[97] Note 9 - Earnings per Share 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 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] 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] Note 11 – Derivative Financial Instruments 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][104] 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 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][109] 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] Note 13 - Borrowings 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] Note 14 - Leases 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][130] 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 Management discusses Finward Bancorp's financial condition and operating results, including key metrics, asset quality, liquidity, and capital resources 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 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] - 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] - 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][139] Financial Condition Finward Bancorp's total assets slightly decreased, with stable loan portfolio, decreased investments, and minor deposit reduction General 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] - Interest-earning assets decreased by $2.7 million (0.14%) and represented 92.3% of total assets at June 30, 2025[140] Loan Portfolio 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] 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][143] Asset Quality 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 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] 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] 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] 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] Borrowed Funds 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] 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 $728.5 million in available liquidity, including borrowing capacity from FHLB and Federal Reserve facilities[167] Market Risk and Interest Rate Sensitivity Finward Bancorp identifies interest rate risk as its primary market risk, managed by ALCO through income and EVE simulations General Market risk is the potential for loss from changes in asset and liability market values, with interest rate risk being the primary concern - Market risk is the risk of loss due to changes in market values of assets and liabilities, with interest rate risk identified as the primary source for the Company[169] Interest Rate Risk Interest rate risk stems from repricing, options, yield curve, and basis differences, managed by ALCO to stabilize net interest income - Interest rate risk arises from repricing differences, embedded options, yield curve changes, and basis risk. The ALCO manages this risk to ensure stable net interest income[170][171] - An asset-sensitive position benefits from rising short-term rates, while a liability-sensitive position is negatively impacted[172] Evaluation of Interest Rate Risk The Company uses income and EVE simulations to assess interest rate risk, showing EVE sensitivity and varied NII impacts - The Company uses income simulations, core funding utilization analysis, and Economic Value of Equity (EVE) simulations to measure and manage interest rate risk[174] Impact of Interest Rate Changes on Net Interest Income and EVE (June 30, 2025) | Interest Rate Scenario | EVE* ($ 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] Liquidity and Capital Resources 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] 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 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] - 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] Results of Operations - Comparison of the Six Months Ended June 30, 2025 to June 30, 2024 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] - Net interest income increased due to reduced deposit and borrowing costs (Federal Reserve rate reductions) and increased loan yields[215] Critical Accounting Policies 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] Forward-Looking Statements 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] - Factors identified in the Company's 2024 Form 10-K could cause actual results to differ materially from forward-looking statements[222] Non-GAAP Financial Measures 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] - 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][225] - Non-GAAP measures have limitations and should not be considered in isolation or as a substitute for GAAP results[226] Item 3. Quantitative and Qualitative Disclosures about Market Risk 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] Item 4. Controls and Procedures 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] - No material changes in internal control over financial reporting were identified during the quarter ended June 30, 2025[229] PART II. Other Information Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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][234] - 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] Item 3. Defaults Upon Senior Securities This section states that there are no matters reportable under this item - There are no matters reportable under this item[235] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Company - This item is not applicable[236] Item 5. Other Information 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] Item 6. Exhibits 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] - Certifications from the Chief Executive Officer and Chief Financial Officer (Rule 13a-14(a)/15d-14(a) and Section 1350) are included[237] - XBRL Interactive Data Files for the condensed consolidated financial statements and notes are provided[237] 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]