Finward Bancorp

Finward Bancorp operates as a financial holding company for Peoples Bank, an Indiana-chartered commercial bank, and has no other business activity other than being a holding company for the Bank. The Bank is primarily engaged in attracting deposits from the general public and originating loans, mostly secured by single family residences and commercial real estate, as well as construction loans, consumer loans, commercial business loans, and municipal loans, within its primary market areas of Lake and Porter Counties in Northwest Indiana and Cook County, Illinois. The Company's Wealth Management Group provides estate and retirement planning, guardianships, land trusts, profit sharing and 401(k) retirement plans, IRA and Keogh accounts, investment agency accounts, and serves as the personal representative of estates and acts as trustee for revocable and irrevocable trusts. The Company monitors and evaluates financial performance on a Company-wide basis, and all of the Company's operations are considered by management to be aggregated in one reportable operating segment.

The Company faces strong competition in its primary market area for the attraction and retention of deposits and in the origination of loans. The Company's most direct competition for deposits has historically come from commercial banks, savings associations, and credit unions located in its primary market area, and in times of high interest rates, from mutual funds and other firms offering financial services. The Company's competition for loans comes principally from savings associations, commercial banks, mortgage banking companies, credit unions, insurance companies, and other institutional lenders. The Company competes for loans principally through the interest rates and loan fees it charges and the efficiency and quality of the services it provides, and it competes for deposits by offering a wide variety of savings accounts, checking accounts, competitive interest rates, convenient banking center locations, drive-up facilities, automatic teller machines, tax deferred retirement programs, digital banking, and other miscellaneous services. Approximately ninety-six percent of the Company's business activities are within its primary market area of Lake and Porter Counties in Indiana and Cook and DuPage Counties in Illinois.

The Company generates revenue primarily through net interest income, which is the difference between interest income earned on loans and investments and interest expense paid on deposits and borrowings, and through non-interest income including fees and service charges, wealth management operations, gains on sale of loans, and bank owned life insurance. The Company is primarily a portfolio lender, with mortgage banking activities limited to the sale of fixed rate mortgage loans with contractual maturities generally exceeding fifteen years, which are sold on a case-by-case basis in the secondary market to Freddie Mac, US Bank, or the Federal Home Loan Bank of Indianapolis. The Company's primary customer segments include individuals, businesses, and municipalities within its primary market areas.

The Company's loan portfolio is its largest asset and the primary source of interest and fee income. At December 31, 2025, loans receivable, net of deferred fees and costs, totaled $1,450,387,000 ¹, compared to $1,508,976,000 ² at December 31, 2024. The portfolio is composed of residential real estate loans of $442,443,000 ³ (30.5% of total loans), home equity loans of $53,497,000 ⁴ (3.7%), commercial real estate loans of $555,594,000 ⁵ (38.3%), construction and land development loans of $77,208,000 ⁶ (5.3%), multifamily loans of $183,902,000 ⁷ (12.7%), commercial business loans of $99,304,000 ⁸ (6.9%), consumer loans of $870,000 ⁹ (0.1%), manufactured home loans of $23,708,000 ¹⁰ (1.6%), and government loans of $12,298,000 ¹¹ (0.9%). The Company's lending strategy emphasizes quality growth, product diversification, and competitive and profitable pricing, with a focus on adjustable rate products and shorter terms to maturity. At December 31, 2025, $636.9 million ¹², or 44.0% ¹³ of the Bank's total loans receivable, had fixed interest rates.

The Company's investment portfolio, all designated as available-for-sale, totaled $316,227,000 ¹⁴ at December 31, 2025, compared to $333,554,000 ¹⁵ at December 31, 2024. The portfolio consists of U.S. government agency securities of $8,466,000 ¹⁶, collateralized mortgage obligations and residential mortgage-backed securities of $104,665,000 ¹⁷, municipal securities of $201,214,000 ¹⁸, and collateralized debt obligations of $1,882,000 ¹⁹. The Company's Wealth Management Group had assets under management totaling $416,900,000 ²⁰ at December 31, 2025, an increase of $24,000,000 ²¹ compared to December 31, 2024. The Company also offers a broad selection of deposit instruments, and at December 31, 2025, total deposits were $1,726,971,000 ²², with core deposits (checking, savings, and money market accounts) representing 71.1% ²³ of total deposits.

On February 22, 2024, the Bank closed a sale-leaseback transaction with MountainSeed Real Estate Services, LLC, selling five properties owned and operated as branch locations for an aggregate purchase price of $17,200,000 ²⁴, and entering into triple net lease agreements with an initial term of 15 ²⁵ years. During the fourth quarter of 2025, the Bank incurred $1,600,000 ²⁶ in securities losses attributable to the execution of securities repositioning transactions, selling securities with a market value of $26,600,000 ²⁷ and an unadjusted book yield of 2.59% ²⁸. On August 6, 2025, the FDIC and the DFI terminated the Consent Order issued to the Bank effective November 7, 2023, relating to the Bank's compliance with the Bank Secrecy Act. On August 9, 2024, the Bank entered into a memorandum of understanding with the FDIC and DFI, which remains in effect until modified or terminated, requiring the Bank to refrain from paying cash dividends without prior regulatory approval and to develop and implement certain plans regarding operations, capital, and strategy. No shares were repurchased under the stock repurchase program during 2025 or 2024, but 5,439 ²⁹ restricted stock shares were withheld to cover tax withholding obligations at an average price of $27.45 ³⁰ per share.

For the year ended December 31, 2025, the Company reported net income of $8,087,000 ³¹, a decrease of $4,043,000 ³² (33.3%) compared to $12,130,000 ³³ for the year ended December 31, 2024. Net interest income for 2025 was $56,743,000 ³⁴, an increase of $8,296,000 ³⁵ (17.1%) compared to $48,447,000 ³⁶ for 2024. The return on average assets was 0.39% ³⁷ for 2025 compared to 0.58% ³⁸ for 2024, and the return on average equity was 5.10% ³⁹ for 2025 compared to 8.06% ⁴⁰ for 2024. The weighted-average yield on interest-earning assets was 4.85% ⁴¹ for 2025 compared to 4.67% ⁴² for 2024, and the weighted-average cost of interest-bearing liabilities was 2.23% ⁴³ for 2025 compared to 2.56% ⁴⁴ for 2024, resulting in an interest rate spread of 2.62% ⁴⁵ for 2025, an increase from 2.11% ⁴⁶ for 2024. The net interest margin on a tax-equivalent basis was 3.14% ⁴⁷ for 2025 compared to 2.68% ⁴⁸ for 2024.

The Company's growth strategy emphasizes quality loan growth, product diversification, and competitive and profitable pricing, with a focus on adjustable rate products and shorter terms to maturity. The Company intends to expand its commercial business lending activities within its primary market areas, subject to market conditions and other factors, although commercial business lending is inherently riskier than residential mortgage lending. The Company also seeks commercial loan relationships from the local business community and from its present customers, with conservative lending policies based upon sound credit analysis governing the extension of commercial credit. The Company's Wealth Management Group provides a range of services including estate and retirement planning, guardianships, profit sharing and 401(k) retirement plans, and serves as personal representative of estates and trustee for trusts, with assets under management of $416,900,000 ⁴⁹ at December 31, 2025.

The Company's lending strategy includes originating adjustable rate mortgage loans, with ARM originations totaling $6,500,000 ⁵⁰ for 2025 and $7,300,000 ⁵¹ for 2024, representing 12.5% ⁵² of total mortgage loan originations during 2025. The Company also originates fixed rate mortgage loans for sale in the secondary market, with $40,900,000 ⁵³ in new fixed rate mortgage loans originated for sale during 2025 compared to $36,800,000 ⁵⁴ during 2024, and net gains realized from mortgage loan sales totaled $1,200,000 ⁵⁵ for 2025 compared to $1,100,000 ⁵⁶ for 2024. The Company retained $17,800,000 ⁵⁷ in new 1-4 family loans in its portfolio during 2025, compared to $27,400,000 ⁵⁸ during 2024, primarily construction loans and adjustable-rate loans with a fixed-rate period of 7 years or less.

The net interest margin on a tax-equivalent basis was 3.14% ⁵⁹ for the year ended December 31, 2025, compared to 2.68% ⁶⁰ for the year ended December 31, 2024. The weighted-average cost of interest-bearing liabilities decreased to 2.23% ⁶¹ for 2025 from 2.56% ⁶² for 2024, primarily due to reduced deposit and borrowing costs as a result of the Federal Reserve's reduction of federal funds rates. The Company's provision for credit losses was $782,000 ⁶³ for 2025 compared to $199,000 ⁶⁴ for 2024, and the allowance for credit losses to total loans was 1.21% ⁶⁵ at December 31, 2025 compared to 1.12% ⁶⁶ at December 31, 2024. Non-interest expense remained relatively flat at $58,136,000 ⁶⁷ for 2025 compared to $58,142,000 ⁶⁸ for 2024, with decreases in professional and outside services and other costs offset by increases in compensation and benefits driven by annual merit-based increases.

The Company operates 26 ⁶⁹ branch locations, of which it owns 20 ⁷⁰ and leases 6 ⁷¹ under long-term lease agreements. The Bank outsources its core processing activities to Fidelity National Information Services, Inc. located in Jacksonville, Florida, which provides real time services for loans, deposits, retail delivery systems, card solutions, digital banking, and wealth management. As of December 31, 2025, the Bank had 296 ⁷² full-time and 22 ⁷³ part-time employees, who are not represented by a collective bargaining agreement. The Company has four executive officers and no other employees. The Company's information technology team, along with a virtual Chief Information Security Officer, has primary responsibility for establishing appropriate policies and procedures responsive to cybersecurity threats, and the Company maintains a Third-Party Risk Management Program to manage risks associated with third-party relationships.

The Company paid dividends on common stock of $1,557,000 ⁷⁴ for the year ended December 31, 2025, and $2,069,000 ⁷⁵ for the year ended December 31, 2024. On December 3, 2025, the Board of Directors declared a quarterly dividend of $0.12 ⁷⁶ per share. The Company has a stock repurchase program authorized on April 24, 2014, to repurchase up to 50,000 ⁷⁷ shares of outstanding common stock, with no express expiration date, and no shares were repurchased under the program during 2025 or 2024. The Company's ability to pay dividends to shareholders is largely dependent upon the Bank's ability to pay dividends to the Company, and under the terms of the MOU, the Bank must seek regulatory approval prior to paying cash dividends. The Company had $45,000,000 ⁷⁸ in FHLB fixed rate advances and $39,703,000 ⁷⁹ in federal funds purchased and repurchase agreements at December 31, 2025.

The Company faces strong competition in its primary market area from commercial banks, savings associations, credit unions, mortgage banking companies, insurance companies, and other institutional lenders, many of which have substantially greater resources. The Company also faces competition from non-bank financial services companies, neo-banks, and financial technology companies that offer products and services traditionally provided by community banks, often at lower costs. The wide acceptance of Internet-based commerce has resulted in alternative payment processing systems, deposit, and lending platforms in which banks play only minor roles, and the process of disintermediation could result in the loss of fee income, customer deposits, and related income. The Company's primary market area for deposits, loans, and financial services encompasses Lake and Porter Counties in Indiana and Cook and DuPage Counties in Illinois, and approximately ninety-six percent of the Company's business activities are within this area.

The Company is subject to extensive regulation and oversight, including the MOU entered into with the FDIC and DFI on August 9, 2024, which requires the Bank to refrain from paying cash dividends without prior regulatory approval and to develop and implement certain plans regarding operations, capital, and strategy. The MOU will remain in effect until modified or terminated by the FDIC and DFI. The Company's failure to comply with the MOU may result in additional regulatory action, including civil money penalties. The Company is also subject to risks related to changes in interest rates, which could reduce net interest margins, and the Company's loan portfolio includes a significant amount of fixed-rate loans, with $636,900,000 ⁸⁰ or 44.0% ⁸¹ of total loans receivable having fixed interest rates at December 31, 2025, exposing the Company to greater interest rate risk in a rising rate environment. The Company's commercial real estate loan portfolio of $555,594,000 ⁸² (38.3% of total loans) and commercial business loan portfolio of $99,304,000 ⁸³ (6.9% of total loans) carry inherently higher lending risks than residential mortgage lending.

The Company faces significant credit risk from its commercial real estate loan portfolio of $555,594,000 ⁸⁴ (38.3% of total loans) and commercial business loan portfolio of $99,304,000 ⁸⁵ (6.9% of total loans), both of which are inherently riskier than residential mortgage lending and could be adversely affected by economic conditions, including reduced occupancy due to hybrid work arrangements and continued elevated interest rate levels. The Company is subject to liquidity risk, with approximately $503,000,000 ⁸⁶ of its deposit portfolio estimated as uninsured at December 31, 2025, and unrealized losses in the investment portfolio of $54,801,000 ⁸⁷ at December 31, 2025 could affect liquidity if securities must be sold at a loss. The Company is subject to extensive regulation, including a memorandum of understanding entered into on August 9, 2024, with the FDIC and DFI that restricts the Bank from paying cash dividends without prior regulatory approval and requires compliance with various operational and capital plans, and failure to comply could result in additional regulatory action including civil money penalties. The Company's net interest income is sensitive to interest rate changes, with $636,900,000 ⁸⁸ or 44.0% ⁸⁹ of total loans having fixed interest rates at December 31, 2025, exposing the Company to greater risk in a rising interest rate environment as fixed-rate loans do not reprice to market rates. The Company faces strong competition from larger regional banks, local community banks, credit unions, neo-banks, and financial technology companies, many of which have greater financial, marketing, and technological resources and are not subject to the same regulatory restrictions.

Management's message emphasizes the Company's focus on quality loan growth, product diversification, and competitive and profitable pricing, with a strategic priority on adjustable rate products and shorter-term maturities to manage interest rate risk. The Company's management highlights the successful resolution of the Consent Order related to Bank Secrecy Act compliance, which was terminated on August 6, 2025, following the Bank's successful resolution of deficiencies in its BSA compliance and anti-money laundering program. Management also emphasizes the execution of a securities repositioning transaction in the fourth quarter of 2025, incurring $1,600,000 ⁹⁰ in securities losses by selling securities with a market value of $26,600,000 ⁹¹ and an unadjusted book yield of 2.59% ⁹², to improve future profitability, deleverage the balance sheet through a reduction in borrowings outstanding, and further benefit regulatory capital ratios in subsequent periods. The Company's strategic priorities for the period ahead include maintaining a high level of capital to enhance safety and soundness, managing interest rate risk through active asset-liability management, and continuing to monitor the commercial real estate portfolio for signs of deterioration in credit quality given prevailing market conditions such as continued elevated interest rate levels and reduced occupancy due to hybrid work arrangements.