Finward Bancorp(FNWD) - 2025 Q4 - Annual Report

Loan Portfolio - As of December 31, 2025, total loans receivable amounted to $1,448.8 million, a decrease from $1,506.6 million in 2024, reflecting a decline of approximately 3.8%[28] - The loan portfolio composition includes $442.4 million in residential real estate loans, down from $467.3 million in 2024, indicating a decrease of about 5.5%[28] - Adjustable-rate mortgage (ARM) originations totaled $6.5 million for 2025, representing 12.5% of total mortgage loan originations, compared to $7.3 million in 2024[38] - The company’s commercial real estate loans stood at $555.6 million as of December 31, 2025, slightly up from $551.7 million in 2024, showing a growth of approximately 0.3%[28] - Home equity loans increased to $53.5 million in 2025 from $49.8 million in 2024, marking a growth of about 3.5%[28] Lending Strategy - The company’s lending strategy emphasizes quality growth and product diversification, focusing on adjustable-rate and shorter-term products[24] - The maximum loan amount to a single borrower under Indiana law was approximately $30.8 million as of December 31, 2025, with no loans exceeding regulatory limits[26] - The primary lending area includes Lake County in Indiana and Cook County in Illinois, where most loan activities are concentrated[30] - The company aims to effectively market all lending programs to its primary market area, ensuring competitive and profitable pricing[24] Loan Performance - The total non-performing loans decreased from $13,738,000 in 2024 to $11,162,000 in 2025, representing a reduction of approximately 18.7%[54] - The ratio of non-performing loans to total loans improved from 0.91% in 2024 to 0.77% in 2025, indicating enhanced credit quality[54] - The total substandard loans decreased from $16,021,000 in 2024 to $12,830,000 in 2025, a decline of about 20.0%[57] - Special mention loans slightly decreased from $25,290,000 in 2024 to $24,512,000 in 2025, reflecting a reduction of approximately 3.1%[58] - The allowance for credit losses allocated for collateral dependent loans was $263,000 as of December 31, 2025[63] Credit Losses and Recoveries - For the year ended December 31, 2025, the total charge-offs amounted to $755,000, a decrease from $2,468,000 in 2024, indicating a significant improvement in loan performance[70] - The allowance for credit losses (ACL) at the end of 2025 was $17,506,000, representing an increase from $16,911,000 in 2024, with an ACL to loans outstanding ratio of 1.21%[70] - The total recoveries for the year 2025 were $568,000, compared to $412,000 in 2024, showing an increase in recovery efforts[70] - The company closely monitors modified loans for borrowers experiencing financial difficulty, with a focus on understanding the effectiveness of modification efforts[66] Investment Portfolio - The investment portfolio totaled $316.2 million as of December 31, 2025, down from $333.6 million in 2024, reflecting a strategic adjustment in asset allocation[72] - The total securities available-for-sale decreased to $316,227,000 in 2025 from $333,554,000 in 2024, indicating a reduction in the investment portfolio size[74] - The weighted average yield for municipal securities was 2.97% for amounts after 10 years, contributing to the overall yield of the investment portfolio[76] Deposits and Liabilities - As of December 31, 2025, total deposits amounted to $1,754.974 million, a slight decrease of 0.03% from $1,755.547 million in 2024[81] - The Company had approximately $503.0 million in uninsured deposits as of December 31, 2025, compared to $498.0 million in 2024[81] - The total interest-bearing liabilities decreased to $1,571.673 million in 2025 from $1,589.472 million in 2024[90] - The Company maintained a $25.0 million line of credit with the Federal Home Loan Bank of Indianapolis, with no balance as of December 31, 2025[84] Capital Adequacy and Regulatory Compliance - As of December 31, 2025, the Bank met all applicable capital adequacy requirements as set forth in 12 C.F.R. § 324 [120] - Federal regulations require a common equity Tier 1 capital to risk-based assets ratio of 4.50%, a Tier 1 capital to risk-based assets ratio of 6.00%, and a total capital to risk-based assets ratio of 8.00% [115] - The Company is exempt from consolidated regulatory capital requirements under the FRB's "Small Bank Holding Company" exemption, applicable to those with less than $3 billion in consolidated assets [121] - As of December 31, 2025, the Bank's capital exceeded all applicable regulatory capital requirements [128] - The common equity tier 1 capital to risk-weighted assets ratio was 11.86%, exceeding the minimum required ratio of 4.50%[129] - The total capital to risk-weighted assets ratio was 13.09%, significantly above the minimum requirement of 8.00%[129] Interest Rate Risk Management - Interest rate risk is identified as the primary source of market risk for the Company as of December 31, 2025[322] - The Asset Liability Committee focuses on ensuring a stable and steadily increasing flow of net interest income through managing the size and mix of the balance sheet[325] - The Company utilizes income simulations and EVE at Risk simulations to measure and manage interest rate risk[328] - The Company models a set of interest rate scenarios to assess the financial effects of potential rate changes[330] - The company forecasts net interest income sensitivity to market interest rate changes over the next twelve months, indicating potential earnings impact under various scenarios[332] Executive Compensation and Shareholder Rights - The Company is required to provide shareholders an opportunity to vote on executive compensation and golden parachute payments[158] - The shares of the Company's Common Stock are listed on the Nasdaq Capital Market under the trading symbol "FNWD"[159] Regulatory Environment - The Company is evaluating the impact of proposed regulatory capital framework changes on its business and financial condition[130] - The Bank was rated "satisfactory" with respect to its Community Reinvestment Act compliance during its most recent regulatory examination[143] - The initial base assessment rates for deposit insurance premiums range from 5 to 35 basis points, with adjustments based on various factors[137] - The FDIC has set the designated reserve ratio for the deposit insurance fund at 2% of estimated insured deposits, with a long-term goal to restore the fund to a 1.35% ratio by September 30, 2028[135] Taxation - The Bank is subject to Indiana's Financial Institutions Tax at a rate of 4.9% for 2025 and Illinois state tax at a rate of 9.5%[166] - As of December 31, 2025, the Company has consolidated total deferred tax assets of $31 million and total deferred tax liabilities of $6 million, resulting in a net deferred tax asset of $25 million[167] Cybersecurity - The Company did not discover any material cybersecurity incidents during 2025[150]