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Finward Bancorp

Finward BancorpFNWDEarnings & Financial Report

Nasdaq · Financials · Savings Institution, Federally Chartered

Finward Bancorp is a U.S.-headquartered regional bank holding company. It offers a full range of retail and commercial banking products and services, including deposit accounts, personal and mortgage loans, small business financing, and wealth management solutions, primarily serving individual customers and small to mid-sized enterprises in its local operating regions.

What changed in Finward Bancorp's 10-K — 2024 vs 2025

Top changes in Finward Bancorp's 2025 10-K

379 paragraphs added · 362 removed · 262 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

120 edited+17 added−25 removed165 unchanged
Purchased credit deteriorated ("PCD") loans have experienced more than insignificant credit deterioration since origination. PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans held for investment. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis.
Purchased credit deteriorated loans have experienced more than insignificant credit deterioration since origination. PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans held for investment. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis.
State Bank Regulation. As an Indiana commercial bank, the Bank is subject to federal regulation and supervision by the FDIC and to state regulation and supervision by the DFI. The Bank's deposit accounts are insured by the DIF, which is administered by the FDIC. The Bank is not a member of the Federal Reserve System.
As an Indiana commercial bank, the Bank is subject to federal regulation and supervision by the FDIC and to state regulation and supervision by the DFI. The Bank's deposit accounts are insured by the DIF, which is administered by the FDIC. The Bank is not a member of the Federal Reserve System.
Under the Gramm-Leach-Bliley Act ("Gramm-Leach"), bank holding companies are permitted to offer their customers virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking.
Under the Gramm-Leach-Bliley Act, bank holding companies are permitted to offer their customers virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking.
For example, the CFPB and other federal bank regulatory agencies have provided guidance that creditors may be subject to adverse action notice requirements under the Equal Credit Opportunity Act even if they rely on algorithmic underwriting models. Additionally, the California Privacy Protection Agency is currently in the process of finalizing regulations regarding the use of automated decision making.
For example, the CFPB and other federal bank regulatory agencies have provided guidance that creditors may be subject to adverse action notice requirements under the Equal Credit Opportunity Act even if they rely on algorithmic underwriting models. Additionally, 29 the California Privacy Protection Agency is currently in the process of finalizing regulations regarding the use of automated decision making.
Banks with less than $10 billion in assets (such as the Bank) are assigned an individual rate based on a formula using financial data and CAMELS (capital adequacy, asset quality, management, earnings, liquidity, and sensitivity) ratings. Beginning in June 2023, the initial base assessment rates range from 5 to 35 basis points.
Banks with less than $10 26 billion in assets (such as the Bank) are assigned an individual rate based on a formula using financial data and CAMELS (capital adequacy, asset quality, management, earnings, liquidity, and sensitivity) ratings. Beginning in June 2023, the initial base assessment rates range from 5 to 35 basis points.
The privacy provisions of Gramm-Leach affect how consumer information is transmitted through diversified financial services companies and conveyed to outside vendors. 25 The Company does not disclose any nonpublic information about any current or former customers to anyone except as permitted by law and subject to contractual confidentiality provisions which restrict the release and use of such information. Cybersecurity Guidelines.
The privacy provisions of Gramm-Leach affect how consumer information is transmitted through diversified financial services companies and conveyed to outside vendors. The Company does not disclose any nonpublic information about any current or former customers to anyone except as permitted by law and subject to contractual confidentiality provisions which restrict the release and use of such information. Cybersecurity Guidelines.
The FRB expects bank holding companies to consult with it in advance of declaring dividends that could raise safety and soundness concerns (i.e., such as when the dividend is not supported by earnings or involves a material increase in the dividend rate) and in advance of repurchasing shares of common or preferred stock. 23 Federal Deposit Insurance.
The FRB expects bank holding companies to consult with it in advance of declaring dividends that could raise safety and soundness concerns (i.e., such as when the dividend is not supported by earnings or involves a material increase in the dividend rate) and in advance of repurchasing shares of common or preferred stock. Federal Deposit Insurance.
Under the Final Rule, to be eligible to use the CBLR framework, a banking organization must not be an advanced approaches organization and must have (i) a leverage ratio of greater than 9%; (ii) total consolidated assets of less than $10 billion; (iii) total off-balance sheet exposures of 25% or less of total consolidated assets; and (iv) total trading assets plus trading liabilities of 5% or less of total consolidated assets.
Under the Final Rule, to be eligible to use the CBLR framework, a banking organization must not be an advanced approaches organization and must 24 have (i) a leverage ratio of greater than 9%; (ii) total consolidated assets of less than $10 billion; (iii) total off-balance sheet exposures of 25% or less of total consolidated assets; and (iv) total trading assets plus trading liabilities of 5% or less of total consolidated assets.
For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one to four-family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.
For example, a risk weight of 0% 23 is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one to four-family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.
The maximum in-house legal lending limit as set by the Board of Directors is the lower of 10% of the Bank’s risk-based capital or $15.0 million. Requests that exceed this amount will be considered on a case-by-case basis, after taking into consideration the legal lending limit, by specific Board or Board Committee action.
The maximum in-house legal lending limit as set by the Board of Directors is the lower of 10% of the Bank’s risk-based capital or $15.0 9 million. Requests that exceed this amount will be considered on a case-by-case basis, after taking into consideration the legal lending limit, by specific Board or Board Committee action.
“Adjusted gross income,” for purposes of the FIT begins with taxable income as defined by Section 63 of the Internal Revenue Code of 1986, as amended (the “Code”) and, thus, incorporates federal tax law to the extent that it affects the computation of taxable income. Federal taxable income is then adjusted by several Indiana and Illinois modifications.
“Adjusted gross income,” for purposes of the FIT begins with taxable income as defined by Section 63 of the Internal Revenue Code of 1986, as amended and, thus, incorporates federal tax law to the extent that it affects the computation of taxable income. Federal taxable income is then adjusted by several Indiana and Illinois modifications.
As previously discussed, the Company has elected to become a financial holding company under Gramm-Leach. Gramm-Leach established a system of functional regulation, under which the federal banking agencies regulate the banking activities of financial holding companies, the U.S. Securities and Exchange Commission regulates their securities activities and state insurance regulators regulate their insurance activities.
As previously discussed, the Company has elected to become a financial holding company under Gramm-Leach. 27 Gramm-Leach established a system of functional regulation, under which the federal banking agencies regulate the banking activities of financial holding companies, the U.S. Securities and Exchange Commission regulates their securities activities and state insurance regulators regulate their insurance activities.
In evaluating the overall risk associated with the loan, the Company considers character, overall financial condition and resources, and payment record of the borrower; the prospects for support from any financially responsible guarantors; and the nature and degree of protection provided by the cash flow and value of any underlying collateral.
In evaluating the overall risk associated with the loan, the Company considers character, overall financial condition and resources, and payment record of the borrower; the prospects for support from any financially responsible guarantors; and the nature and 13 degree of protection provided by the cash flow and value of any underlying collateral.
It competes for deposits by offering depositors 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.
It competes for deposits by offering depositors a wide variety of savings accounts, checking accounts, competitive interest rates, convenient banking center locations, drive- 21 up facilities, automatic teller machines, tax deferred retirement programs, digital banking, and other miscellaneous services.
Management has the intent and ability to hold the securities for the foreseeable future, and the decline in fair value is largely due to changes in interest rates and volatility in the securities markets. The fair values are expected to recover as the securities approach maturity. 12 Sources of Funds General.
Management has the intent and ability to hold the securities for the foreseeable future, and the decline in fair value is largely due to changes in interest rates and volatility in the securities markets. The fair values are expected to recover as the securities approach maturity. Sources of Funds General.
The Bank is also subject to regulation by the FRB governing reserves required to be maintained against certain deposits and other matters. The Bank is also a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis, which is one of the eleven regional banks comprising the system of Federal Home Loan Banks.
The Bank is also subject to regulation by the FRB governing reserves required to be maintained against certain deposits and other matters. The Bank is also a member of the Federal Home Loan Bank of Indianapolis, which is one of the eleven regional banks comprising the system of Federal Home Loan Banks.
Securities can be classified as trading, held-to-maturity (HTM), or available-for-sale (AFS) at the time of purchase. No securities are classified as trading or as held-to-maturity. AFS securities are those the Company may decide to sell if needed for liquidity, asset-liability management or other reasons.
Securities can be classified as trading, held-to-maturity, or available-for-sale at the time of purchase. No securities are classified as trading or as held-to-maturity. AFS securities are those the Company may decide to sell if needed for liquidity, asset-liability management or other reasons.
In addition, the Company had $6.5 million in FHLB stock. The table below shows the carrying values of the components of available for sale securities portfolio at December 31, on the dates indicated. The amounts are stated in thousands (000’s).
In addition, the Company had $6.5 million in FHLB stock. 16 The table below shows the carrying values of the components of available for sale securities portfolio at December 31, on the dates indicated. The amounts are stated in thousands (000’s).
Under the Community Reinvestment Act (“CRA”), the Bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods.
Under the Community Reinvestment Act, the Bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods.
The FRB and FDIC have authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular risks or circumstances. As of December 31, 2024, the Bank met all applicable capital adequacy requirements as set forth in 12 C.F.R. § 324.
The FRB and FDIC have authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular risks or circumstances. As of December 31, 2025, the Bank met all applicable capital adequacy requirements as set forth in 12 C.F.R. § 324.
Artificial Intelligence. State and federal regulatory agencies have begun adopting rules and guidelines regarding the use of artificial intelligence (“AI”) technologies in connection with the provision of financial services.
Artificial Intelligence. State and federal regulatory agencies have begun adopting rules and guidelines regarding the use of artificial intelligence technologies in connection with the provision of financial services.
A financial institution also should have a robust business continuity program to recover from a cyberattack and procedures for monitoring the security of third-party service providers that may have access to nonpublic data at the institution. During 2024, the Company did not discover any material cybersecurity incidents. Consumer Financial Protection Bureau.
A financial institution also should have a robust business continuity program to recover from a cyberattack and procedures for monitoring the security of third-party service providers that may have access to nonpublic data at the institution. During 2025, the Company did not discover any material cybersecurity incidents. Consumer Financial Protection Bureau.
The following table sets forth certain information at December 31, 2024, regarding the dollar amount of loans in the Company’s portfolio based on their contractual terms to maturity. Demand loans, loans having no schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less.
The following table sets forth certain information at December 31, 2025, regarding the dollar amount of loans in the Company’s portfolio based on their contractual terms to maturity. Demand loans, loans having no schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less.
All such loans are made in accordance with well-defined underwriting standards and are generally supported by personal guarantees, which represent a secondary source of repayment. 6 Loans for the construction of commercial properties are generally located within an area permitting physical inspection and regular review of business records.
All such loans are made in accordance with well-defined underwriting standards and are generally supported by personal guarantees, which represent a secondary source of repayment. 10 Loans for the construction of commercial properties are generally located within an area permitting physical inspection and regular review of business records.
The Bank did not elect to opt in to the CBLR framework. The following table shows that, at December 31, 2024, and December 31, 2023, the Bank’s capital exceeded all applicable regulatory capital requirements as set forth in 12 C.F.R. § 324.
The Bank did not elect to opt in to the CBLR framework. The following table shows that, at December 31, 2025, and December 31, 2024, the Bank’s capital exceeded all applicable regulatory capital requirements as set forth in 12 C.F.R. § 324.
The Economic Growth Act also directed agencies to establish procedures for dealing with a qualifying bank that subsequently falls below the new ratio. The final regulation implementing Section 201 became effective on January 1, 2021 (the “Final Rule”).
The Economic Growth Act also directed agencies to establish procedures for dealing with a qualifying bank that subsequently falls below the new ratio. The final regulation implementing Section 201 became effective on January 1, 2021.
All of the Company’s banking centers and offices are located in its primary market area. Approximately ninety-four percent of the Company’s business activities are within this area. The Company faces strong competition in its primary market area for the attraction and retention of deposits and in the origination of loans.
All of the Company’s banking centers and offices are located in its primary market area. Approximately ninety-six percent of the Company’s business activities are within this area. The Company faces strong competition in its primary market area for the attraction and retention of deposits and in the origination of loans.
Additionally, under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a bank holding company is required to provide limited guarantee of the compliance by any insured depository institution subsidiary that may become "undercapitalized" (as defined in the statute) with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal banking agency.
Additionally, under the Federal Deposit Insurance Corporation Improvement Act of 1991, a bank holding company is required to provide limited guarantee of the compliance by any insured depository institution subsidiary that may become "undercapitalized" (as defined in the statute) with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal banking agency. State Bank Regulation.
The Dodd-Frank Act established the Consumer Financial Protection Bureau (“CFPB”) within the Federal Reserve, which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy provisions of Gramm-Leach and certain other statutes.
The Dodd-Frank Act established the CFPB within the Federal Reserve, which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy provisions of Gramm-Leach and certain other statutes.
Item 1. Business General Finward Bancorp, an Indiana corporation (the “Company”), was incorporated on January 31, 1994, and is the holding company for Peoples Bank, an Indiana-chartered commercial bank (the “Bank”). The Bank is a wholly owned subsidiary of the Company.
Item 1. Business General Finward Bancorp, an Indiana corporation, was incorporated on January 31, 1994, and is the holding company for Peoples Bank, an Indiana-chartered commercial bank. The Bank is a wholly owned subsidiary of the Company.
Depending on the implementation of this revised federal preemption standard, the operations of the Bank could become subject to additional compliance burdens in the states in which it operates. 26 Mortgage Reform and Anti-Predatory Lending .
Depending on the 28 implementation of this revised federal preemption standard, the operations of the Bank could become subject to additional compliance burdens in the states in which it operates. Mortgage Reform and Anti-Predatory Lending .
However, as other sources of repayment become inadequate over time, the significance of the collateral's value increases and the loan may become collateral dependent. The table below presents the amortized cost basis and allowance for credit losses (“ACL”) allocated for collateral dependent loans in accordance with ASC 326, which are individually evaluated to determine expected credit losses.
However, as other sources of repayment become inadequate over time, the significance of the collateral's value increases and the loan may become collateral dependent. The table below presents the amortized cost basis and ACL allocated for collateral dependent loans in accordance with ASC 326, which are individually evaluated to determine expected credit losses.
As the holding company for the Bank, the Company is subject to comprehensive examination, supervision and regulation by the Board of Governors of the Federal Reserve System (“FRB”), while the Bank is subject to comprehensive examination, supervision and regulation by both the FDIC and the Indiana Department of Financial Institutions (“DFI”).
As the holding company for the Bank, the Company is subject to comprehensive examination, supervision and regulation by the Board of Governors of the Federal Reserve System, while the Bank is subject to comprehensive examination, supervision and regulation by both the FDIC and the Indiana Department of Financial Institutions.
The Company is registered as a bank holding company for the Bank and has elected to be a financial holding company under the Gramm-Leach-Bliley Act of 1999. As a bank holding company and financial holding company, the Company is subject to the regulation and supervision of the FRB under the Bank Holding Company Act of 1956, as amended (the "BHCA").
The Company is registered as a bank holding company for the Bank and has elected to be a financial holding company under the Gramm-Leach-Bliley Act of 1999. As a bank holding company and financial holding company, the Company is subject to the regulation and supervision of the FRB under the BHCA.
First mortgage loans must be covered by a lender’s title insurance policy in the amount of the loan. 5 The Current Lending Programs Residential Mortgage Loans. The primary lending activity of the Company has been the granting of conventional mortgage loans to enable borrowers to purchase existing homes, refinance existing homes, or construct new homes.
First mortgage loans must be covered by a lender’s title insurance policy in the amount of the loan. The Current Lending Programs Residential Real Estate. The primary lending activity of the Company has been the granting of conventional mortgage loans to enable borrowers to purchase existing homes, refinance existing homes, or construct new homes.
State Taxation The Bank is subject to Indiana’s Financial Institutions Tax (“FIT”), which is imposed at a flat rate on “adjusted gross income,” subject to scheduled decreases as described herein. For 2024, this rate was 4.9%. Additionally, the Bank is subject to Illinois state tax which is imposed at a flat rate of 9.5%.
State Taxation The Bank is subject to Indiana’s Financial Institutions Tax, which is imposed at a flat rate on “adjusted gross income,” subject to scheduled decreases as described herein. For 2025, this rate was 4.9%. Additionally, the Bank is subject to Illinois state tax which is imposed at a flat rate of 9.5%.
Typically, management does not individually classify smaller-balance homogeneous loans, such as residential mortgages or consumer loans, as impaired, unless they are troubled loan modifications. 9 A collateral dependent financial loan relies solely on the operation or sale of the collateral for repayment.
Typically, management does not individually evaluate smaller-balance homogeneous loans, such as residential mortgages or consumer loans, as impaired, unless they are troubled loan modifications. A collateral dependent financial loan relies solely on the operation or sale of the collateral for repayment.
Home Improvement Loans and Equity Loans — Fixed Term. Home improvement and equity loans are made up to a maximum of 85% of the appraised value of the improved property, less any outstanding liens. These loans are offered on both a fixed and variable rate basis with a maximum term of 240 months.
Fixed-term home improvement and equity loans are made up to a maximum of 85% of the appraised value of the improved property, less any outstanding liens. These loans are offered on both a fixed and variable rate basis with a maximum term of 240 months. All home equity loans are made on a direct basis to borrowers.
The Bank’s deposit accounts are insured up to applicable limits by the Deposit Insurance Fund (“DIF”), which is administered by the Federal Deposit Insurance Corporation (“FDIC”), an agency of the federal government.
The Bank’s deposit accounts are insured up to applicable limits by the Deposit Insurance Fund, which is administered by the Federal Deposit Insurance Corporation, an agency of the federal government.
Pursuant to FDIC rules adopted under the Dodd-Frank Act (described below), initial assessments ranged from 5 to 35 basis points of the institution’s total assets minus its tangible equity. The Bank paid net deposit insurance assessments of $1.8 million during the year ended December 31, 2024.
Pursuant to FDIC rules adopted under the Dodd-Frank Act (described below), initial assessments ranged from 5 to 35 basis points of the institution’s total assets minus its tangible equity. The Bank paid net deposit insurance assessments of $1.7 million during the year ended December 31, 2025.
At December 31, 2024, the Company’s excess borrowing capacity based on collateral from the FHLBI was $461 million. Generally, the loan terms from the FHLBI are better than the terms the Company can receive from other sources making it cheaper to borrow money from the FHLBI. Federal Reserve System.
At December 31, 2025 and December 31, 2024, the Company’s excess borrowing capacity based on collateral from the FHLBI was $381 million and $461 million, respe. Generally, the loan terms from the FHLBI are better than the terms the Company can receive from other sources making it cheaper to borrow money from the FHLBI. Federal Reserve System.
At December 31, 2024, there were no concentrations of loans in any type of industry that exceeded 10% of total loans that were not otherwise disclosed as a loan category. 3 Loan Portfolio.
At December 31, 2025, there were no concentrations of loans in any type of industry that exceeded 10% of total loans that were not otherwise disclosed as a loan category. Loan Portfolio.
It has been the policy of the Company to invest its excess cash in U.S. government agency securities, mortgage-backed securities, collateralized mortgage obligations, municipal securities, and treasury securities. In addition, short-term funds are generally invested as interest bearing balances in financial institutions and federal funds. At December 31, 2024, the Company’s investment portfolio totaled $333.6 million.
It has been the policy of the Company to invest its excess cash in U.S. government agency securities, mortgage-backed securities, collateralized mortgage obligations, municipal securities, and treasury securities. In addition, short-term funds are generally invested as interest bearing balances in financial institutions and federal funds. At December 31, 2025, the Company’s investment portfolio totaled $316.2 million.
Also included in Tier 2 capital is the ACL limited to a maximum of 1.25% of risk- weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values.
Also included in Tier 2 capital is the ACL limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of AOCI, up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values.
For 2024, the deposit insurance assessment rate before applying one-time assessment credits was approximately 0.093% of insured deposits. No institution may pay a dividend if it is in default of the federal deposit insurance assessment.
For 2025, the deposit insurance assessment rate before applying one-time assessment credits was approximately 0.087% of insured deposits. No institution may pay a dividend if it is in default of the federal deposit insurance assessment.
The Economic Growth Act directed the FRB, the FDIC, and the Office of the Comptroller of the Currency (“OCC”) to jointly determine a community bank leverage ratio percentage, not less than 8% nor more than 10%, that must be maintained to be deemed to have satisfied all generally applicable leverage capital and risk-based capital requirements and be considered well capitalized.
The Economic Growth Act directed the FRB, the FDIC, and the OCC to jointly determine a community bank leverage ratio percentage, not less than 8% nor more than 10%, that must be maintained to be deemed to have satisfied all generally applicable leverage capital and risk-based capital requirements and be considered well capitalized.
Loan Modification Disclosures Pursuant to ASU 2022-02 The following table shows the amortized cost of loans at December 31, 2024, that were both experiencing financial difficulty and modified during the year ended December 31, 2024, segregated by portfolio segment and type of modification.
Loan Modification Disclosures Pursuant to ASU 2022-02 The following tables show the amortized cost of loans at December 31, 2025 and December 31, 2024, that were both experiencing financial difficulty and modified during the year ended December 31, 2025 and December 31, 2024, segregated by portfolio segment and type of modification.
Loans from $3.0 million to $4.5 million are approved by the loan officers’ loan committee (OLC). Loans from $4.5 million to $7.0 million are approved by the senior officers’ loan committee (SOLC). Loans from $7.0 million to $15.0 million are approved by the executive officer’s loan committee (EOLC).
Loans from $3.0 million to $4.5 million are approved by the loan officers’ loan committee. Loans from $4.5 million to $7.0 million are approved by the senior officers’ loan committee. Loans from $7.0 million to $15.0 million are approved by the executive officer’s loan committee.
Loans insured by private mortgage insurance companies can be made for up to 97% of value. During 2024, 75.2% of mortgage loans closed were conventional loans with borrowers having 20% or more equity in the property. This type of loan does not require private mortgage insurance because of the borrower’s level of equity investment.
Loans insured by private mortgage insurance companies can be made for up to 97% of value. During 2025, 69.0% of mortgage loans closed were conventional loans with borrowers having 20% or more equity in the property. This type of loan does not require private mortgage insurance because of the borrower’s level of equity investment.
We encourage and support the development of our employees and, wherever possible, strive to fill positions from within the organization. As of December 31, 2024, the Bank had 293 full-time and 20 part-time employees. The employees are not represented by a collective bargaining agreement. Management believes its employee relations are good.
We encourage and support the development of our employees and, wherever possible, strive to fill positions from within the organization. As of December 31, 2025, the Bank had 296 full-time and 22 part-time employees. The employees are not represented by a collective bargaining agreement. Management believes its employee relations are good.
These loans are typically made for terms of 15 to 25 years. Loans with an amortizing term exceeding 15 years normally have a balloon feature calling for a full repayment within seven to ten years from the date of the loan. The balloon feature affords the Company the opportunity to restructure the loan if economic conditions so warrant.
Loans with an amortizing term exceeding 15 years normally have a balloon feature calling for a full repayment within seven to ten years from the date of the loan. The balloon feature affords the Company the opportunity to restructure the loan if economic conditions so warrant.
Deposits are the major source of the Company’s funds for lending and other investment purposes. In addition to deposits, the Company derives funds from maturing investment securities and certificates of deposit, dividend receipts from the investment portfolio, loan principal repayments, repurchase agreements, advances from the Federal Home Loan Bank of Indianapolis (FHLB) and other borrowings.
Deposits are the major source of the Company’s funds for lending and other investment purposes. In addition to deposits, the Company derives funds from maturing investment securities and certificates of deposit, dividend receipts from the investment portfolio, loan principal repayments, repurchase agreements, advances from the FHLBI and other borrowings.
The Bank did not have a balance on the line of credit at December 31, 2024 or December 31, 2023. The Bank did not have other borrowings at December 31, 2024, or December 31, 2023. At December 31, 2024, the Bank had approximately $687.4 million available in credit lines with various money center banks, including the FHLB and Federal Reserve.
The Bank did not have a balance on the line of credit at December 31, 2025 or December 31, 2024. The Bank did not have other borrowings at December 31, 2025, or December 31, 2024. At December 31, 2025, the Bank had approximately $673.9 million available in credit lines with various money center banks, including the FHLB and Federal Reserve.
The maximum amount that the Bank could have loaned to one borrower and the borrower’s related entities at December 31, 2024, under the 15% of capital and surplus limitation, was approximately $29.2 million. At December 31, 2024, the Bank had no loans that exceeded the regulatory limitations.
The maximum amount that the Bank could have loaned to one borrower and the borrower’s related entities at December 31, 2025, under the 15% of capital and surplus limitation, was approximately $30.8 million. At December 31, 2025, the Bank had no loans that exceeded the regulatory limitations.
Payment in kind status results in a temporary delay in the payment of interest. As a result of a delay in the collection of the interest payments, management placed these securities in non-accrual status. At December 31, 2024, the cost basis of the two collateralized debt obligations on non-accrual status totaled $2.2 million.
Payment in kind status results in a temporary delay in the payment of interest. As a result of a delay in the collection of the interest payments, management placed these securities in nonaccrual status. At December 31, 2025, the cost basis of the two collateralized debt obligations on nonaccrual status totaled $2.1 million.
Other applicable state taxes include generally applicable sales and use taxes plus real and personal property taxes. Accounting for Income Taxes At December 31, 2024, the Company has consolidated total deferred tax assets of $36.5 million and consolidated total deferred tax liabilities of $6.9 million, resulting in a consolidated net deferred tax asset of $29.5 million.
Other applicable state taxes include generally applicable sales and use taxes plus real and personal property taxes. Accounting for Income Taxes At December 31, 2025, the Company has consolidated total deferred tax assets of 31 million and consolidated total deferred tax liabilities of 6 million, resulting in a consolidated net deferred tax asset of 25 million.
FHLB advances with maturities ranging from one year to five years are used to fund securities and loans of comparable duration, as well as to reduce the impact that movements in short-term interest rates have on the Company’s overall cost of funds. Fixed rate advances are payable at maturity, with a prepayment penalty.
FHLB advances with maturities ranging from one year to five years are used to fund securities and loans of comparable duration, as well as to reduce the impact that movements in short-term interest rates have on the Company’s overall cost of funds.
Borrowed money is used on a short-term basis to compensate for reductions in the availability of other sources of funds and is generally accomplished through repurchase agreements, as well as, through a line of credit and advances from the FHLB.
Borrowed money is used on a short-term basis to compensate for reductions in the availability of other sources of funds and is generally accomplished through federal fund purchased and repurchase agreements, as well as, through a line of credit and advances from the FHLB. Federal funds generally mature within one day.
At December 31, 2024, the market value of the Wealth Management Group’s assets under management totaled $392.9 million, a increase of $5.8 million, compared to December 31, 2023. Property, other than cash deposits, held in a fiduciary or agency capacity is not included in the consolidated balance sheets since such property is not owned by the Company.
At December 31, 2025, the market value of the Wealth Management Group’s assets under management totaled $416.9 million, an increase of $24.0 million, compared to December 31, 2024. Property, other than cash deposits, held in a fiduciary or agency capacity is not included in the consolidated balance sheets since such property is not owned by the Company.
Risks, uncertainties, and factors that could cause the Company’s actual results to vary materially from those expressed or implied by any forward-looking statement include but are not limited to: ● The Bank’s ability to demonstrate compliance with the terms of the previously disclosed consent order and memorandum of understanding entered into between the Bank and the Federal Deposit Insurance Corporation (“FDIC”) and Indiana Department of Financial Institutions (“DFI”), or to demonstrate compliance to the satisfaction of the FDIC and/or DFI within prescribed time frames; ● The Bank’s agreement under the memorandum of understanding to refrain from paying cash dividends without prior regulatory approval; ● changes in interest rates, market liquidity, and capital markets, as well as the magnitude of such changes, which may reduce net interest margins; ● the aggregate effects of inflation experienced in recent years, and the potential for a resurgence in inflation; ● current financial conditions within the banking industry, liquidity levels, concentrations in certain loan products or categories, net interest margin levels, and responses by the Federal Reserve, Department of the Treasury, and the Federal Deposit Insurance Corporation to address these issues; ● the use of proceeds of future offerings of securities; ● capital management activities, including possible future sales of new securities, or possible repurchases or redemptions by the Company of outstanding debt or equity securities; ● changes in asset quality and credit risk; ● our ability to sustain revenue and earnings growth; ● customer acceptance of the Company’s products and services; ● customer borrowing, repayment, investment, and deposit practices; ● customer disintermediation; ● the introduction, withdrawal, success, and timing of asset/liability management strategies or of mergers and acquisitions and other business initiatives and strategies; ● competitive conditions; ● our ability to realize cost savings or revenues or to implement integration plans and other consequences associated with mergers, acquisitions, and divestitures; ● changes in fiscal, monetary, and tax policies; ● factors that may cause the Company to incur impairment charges on its investment securities; ● electronic, cyber, and physical security breaches; ● claims and litigation liabilities, including related costs, expenses, settlements, and judgments, or the outcome of matters before regulatory agencies, whether pending or commencing in the future; ● changes in accounting principles and interpretations; ● economic conditions; 2 ● loss of key personnel; ● continuing risks and uncertainties relating to the COVID-19 pandemic and government responses thereto; ● the impact, extent, and timing of technological changes, capital management activities, and other actions of the Federal Reserve Board and legislative and regulatory actions and reforms; and ● other factors and risks described under the heading “Risk Factors” in Part I, Item 1A of this Form 10-K, as may be updated from time to time in our other filings with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Risks, uncertainties, and factors that could cause the Company’s actual results to vary materially from those expressed or implied by any forward-looking statement include but are not limited to: ● changes in domestic and international trade policies, including tariffs and other non-tariff barriers, and the effects of such changes on the Bank and its customers; ● risks related to the development and use of AI; ● The Bank’s ability to demonstrate compliance with the terms of the previously disclosed memorandum of understanding entered into between the Bank and the FDIC and DFI, or to demonstrate compliance to the satisfaction of the FDIC and/or DFI within prescribed time frames; ● The Bank’s agreement under the memorandum of understanding to refrain from paying cash dividends without prior regulatory approval; ● changes in interest rates, market liquidity, and capital markets, as well as the magnitude of such changes, which may reduce net interest margins; 6 ● the aggregate effects of inflation experienced in recent years, and the potential for a resurgence in inflation; ● the use of proceeds of future offerings of securities; ● capital management activities, including possible future sales of new securities, or possible repurchases or redemptions by the Company of outstanding debt or equity securities; ● changes in asset quality and credit risk; ● our ability to sustain revenue and earnings growth; ● customer acceptance of the Company’s products and services; ● customer borrowing, repayment, investment, and deposit practices; ● customer disintermediation; ● the introduction, withdrawal, success, and timing of asset/liability management strategies or of mergers and acquisitions and other business initiatives and strategies; ● competitive conditions; ● our ability to realize cost savings or revenues or to implement integration plans and other consequences associated with mergers, acquisitions, and divestitures; ● changes in fiscal, monetary, and tax policies; ● factors that may cause the Company to incur impairment charges on its investment securities; ● electronic, cyber, and physical security breaches; ● claims and litigation liabilities, including related costs, expenses, settlements, and judgments, or the outcome of matters before regulatory agencies, whether pending or commencing in the future; ● changes in accounting principles and interpretations; ● economic conditions; ● loss of key personnel; ● the impact, extent, and timing of technological changes, capital management activities, and other actions of the Federal Reserve Board and legislative and regulatory actions and reforms; and ● other factors and risks described under the heading “Risk Factors” in Part I, Item 1A of this Form 10-K, as may be updated from time to time in our other filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended the Exchange Act.
While lending efforts include both fixed and adjustable rate products, the focus has been on products with adjustable rates and/or shorter terms to maturity. It is management’s goal that all programs are marketed effectively to our primary market area. The Company is primarily a portfolio lender.
The Company’s lending strategy stresses quality growth, product diversification, and competitive and profitable pricing. While lending efforts include both fixed and adjustable rate products, the focus has been on products with adjustable rates and/or shorter terms to maturity. It is management’s goal that all programs are marketed effectively to our primary market area. The Company is primarily a portfolio lender.
Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. 20 In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, and residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, and residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset.
Other risks and uncertainties that could affect the Company’s future performance are set forth below in Item 1A, “Risk Factors.” Lending Activities General. The Company’s product offerings include residential mortgage loans, construction loans, commercial real estate loans, consumer loans, commercial business loans and loans to municipalities. The Company’s lending strategy stresses quality growth, product diversification, and competitive and profitable pricing.
Other risks and uncertainties that could affect the Company’s future performance are set forth below in Item 1A, “Risk Factors," 7 Lending Activities General. The Company’s product offerings include residential mortgage loans, construction loans, commercial real estate loans, consumer loans, commercial business loans and loans to municipalities.
The monetary policies of the FRB have had a significant impact on the operating results of financial institutions in the past and are expected to continue to have effects in the future. 27 In view of continually changing conditions in the national economy and in money markets, as well as the effect of credit policies by monetary and fiscal authorities, including the FRB, it is difficult to predict the impact of possible future changes in interest rates, deposit levels, and loan demand, or their effect on the Company’s business and earnings or on the financial condition of the Company’s various customers.
In view of continually changing conditions in the national economy and in money markets, as well as the effect of credit policies by monetary and fiscal authorities, including the FRB, it is difficult to predict the impact of possible future changes in interest rates, deposit levels, and loan demand, or their effect on the Company’s business and earnings or on the financial condition of the Company’s various customers.
Concurrent with the FDIC announcement, the DOJ withdrew from its 1995 Bank Merger Guidelines and announced that it would consider bank mergers under its 2023 Merger Guidelines, which are not industry specific, as well as under a separate, recently adopted bank merger addendum.
Concurrent with the FDIC and OCC issuances of revised policy statements in 2024, the DOJ withdrew from its 1995 Bank Merger Guidelines and announced that it would consider bank mergers under its 2023 Merger Guidelines, which are not industry specific, as well as under a separate, recently adopted bank merger addendum.
A loan is considered impaired when, based on current information and events, it is probable that a borrower will be unable to pay all amounts due according to the contractual terms of the loan agreement.
A loan is individually evaluated for expected credit losses when, based on current information and events, it is probable that a borrower will be unable to pay all amounts due according to the contractual terms of the loan agreement.
For the year ended December 31, 2024 (Dollars in thousands) Principal forgiveness Weighted average interest rate reduction Weighted average term extention Payment delay Residential Real Estate $ - - % 7 months 6 months For the year ended December 31, 2023 (Dollars in thousands) Principal forgiveness Weighted average interest rate reduction Weighted average term extention Payment delay Residential Real Estate $ - - % 89 months - Upon the Company’s determination that a modified loan has subsequently been deemed uncollectible, the loan or lease is written off.
For the year ended December 31, 2025 (Dollars in thousands) Principal Forgiveness Weighted average interest rate reduction Weighted average term extension (months) Payment delay (months) Residential real estate $ - — % 6 - Commercial real estate $ - — % 180 5 Construction and land development $ - — % - 5 Commercial business $ - — % - 5 For the year ended December 31, 2024 (Dollars in thousands) Principal Forgiveness Weighted average interest rate reduction Weighted average term extension (months) Payment delay (months) Residential real estate $ - — % 7 6 Upon the Company’s determination that a modified loan has subsequently been deemed uncollectible, the loan or lease is written off.
Consumer non-residential loans are generally charged off when the loan becomes over 120 days delinquent. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income.
Loans are generally placed on nonaccrual status when either principal or interest is 90 days or more past due. Consumer non-residential loans are generally charged off when the loan becomes over 120 days delinquent. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is charged against interest income.
Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate. The amounts are stated in thousands (000's).
Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.
At December 31, 2024, the Bank was in compliance with this requirement. 24 At December 31, 2024, the Company owned $6.5 million of stock of the Federal Home Loan Bank of Indianapolis (“FHLBI”). The FHLBI stock entitles the Company to dividends from the FHLBI. The Company recognized dividend income of approximately $408 thousand in 2024.
At December 31, 2025, the Bank was in compliance with this requirement. At both December 31, 2025 and December 31, 2024, the Company owned $6.5 million of stock of the FHLBI. The FHLBI stock entitles the Company to dividends from the FHLBI. The Company recognized dividend income of approximately $516 thousand in 2025 and $408 thousand in 2024.
Section 4012 of the Coronavirus Aid, Relief and Economic Security Act of 2021 (the “CARES Act”) required that the CBLR be temporarily lowered to 8%. The federal regulators issued a rule implementing the lower ratio effective April 23, 2021.
Section 4012 of the CARES Act required that the CBLR be temporarily lowered to 8%. The federal regulators issued a rule implementing the lower ratio effective April 23, 2021.
Bank Level Capital Minimum Required To Be (Dollars in thousands) Minimum Required For Well Capitalized Under Prompt Actual Capital Adequacy Purposes Corrective Action Regulations December 31, 2024 Amount Ratio Amount Ratio Amount Ratio Common equity tier 1 capital to risk-weighted assets $ 179,625 11.26% $ 71,771 4.50% $ 103,670 6.50% Tier 1 capital to risk-weighted assets $ 179,625 11.26% $ 95,695 6.00% $ 127,594 8.00% Total capital to risk-weighted assets $ 194,499 12.19% $ 127,594 8.00% $ 159,492 10.00% Tier 1 capital to adjusted average assets $ 179,625 8.47% $ 84,854 4.00% $ 106,068 5.00% Bank Level Capital Minimum Required To Be (Dollars in thousands) Minimum Required For Well Capitalized Under Prompt Actual Capital Adequacy Purposes Corrective Action Regulations December 31, 2023 Amount Ratio Amount Ratio Amount Ratio Common equity tier 1 capital to risk-weighted assets $ 168,263 10.43% $ 72,643 4.50% $ 104,928 6.50% Tier 1 capital to risk-weighted assets $ 168,263 10.43% $ 96,857 6.00% $ 129,142 8.00% Total capital to risk-weighted assets $ 183,315 11.36% $ 129,142 8.00% $ 161,428 10.00% Tier 1 capital to adjusted average assets $ 168,260 7.78% $ 86,561 4.00% $ 108,201 5.00% 22 In December 2017, the Basel Committee on Banking Supervision published the last version of the Basel III accord, generally referred to as “Basel IV.” The Basel Committee stated that a key objective of the revisions incorporated into the framework is to reduce excessive variability of risk-weighted assets (“RWA”), which will be accomplished by enhancing the robustness and risk sensitivity of the standardized approaches for credit risk and operational risk, which will facilitate the comparability of banks’ capital ratios; constraining the use of internally modeled approaches; and complementing the risk-weighted capital ratio with a finalized leverage ratio and a revised and robust capital floor.
(Dollars in thousands) Actual Minimum Required For Capital Adequacy Purposes Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations December 31, 2025 Amount Ratio Amount Ratio Amount Ratio Common equity tier 1 capital to risk-weighted assets $ 186,214 11.86 % $ 70,626 4.50 % $ 102,016 6.50 % Tier 1 capital to risk-weighted assets $ 186,214 11.86 % $ 94,168 6.00 % $ 125,558 8.00 % Total capital to risk-weighted assets $ 205,472 13.09 % $ 125,558 8.00 % $ 156,947 10.00 % Tier 1 leverage ratio $ 186,214 8.93 % $ 83,379 4.00 % $ 104,223 5.00 % (Dollars in thousands) Actual Minimum Required For Capital Adequacy Purposes Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations December 31, 2024 Amount Ratio Amount Ratio Amount Ratio Common equity tier 1 capital to risk-weighted assets $ 179,625 11.26 % $ 71,771 4.50 % $ 103,670 6.50 % Tier 1 capital to risk-weighted assets $ 179,625 11.26 % $ 95,695 6.00 % $ 127,594 8.00 % Total capital to risk-weighted assets $ 194,499 12.19 % $ 127,594 8.00 % $ 159,492 10.00 % Tier 1 leverage ratio $ 179,625 8.47 % $ 84,854 4.00 % $ 106,068 5.00 % In December 2017, the Basel Committee on Banking Supervision published the last version of the Basel III accord, generally referred to as “Basel IV.” The Basel Committee stated that a key objective of the revisions incorporated into the framework is to reduce excessive variability of risk-weighted assets, which will be accomplished by enhancing the robustness and risk sensitivity of the standardized approaches for credit risk and operational risk, which will facilitate the comparability of banks’ capital ratios; constraining the use of internally modeled approaches; and complementing the risk-weighted capital ratio with a finalized leverage ratio and a revised and robust capital floor.
If the delinquency continues, subsequent efforts will be made to contact the delinquent borrower pursuant to the commercial loan collection policy. In certain instances, the Company may grant a payment deferral or restructure the loan. Once it has been determined that collection efforts are unsuccessful, the Company will initiate legal proceedings.
If the delinquency continues, subsequent efforts will be made to contact the delinquent borrower pursuant to the commercial loan collection policy. In certain instances, the Company may grant a payment deferral or restructure the loan.
The percent columns represent the percentage of loans in each category to total loans. 2024 2023 $ % $ % Residential real estate 4,480 31.0 3,984 32.1 Home equity 835 3.3 698 3.1 Commercial real estate 6,445 36.7 6,928 33.4 Construction and land development 2,651 5.5 4,366 7.6 Multifamily 1,003 14.1 955 14.6 Commercial business 1,185 6.9 1,584 6.5 Consumer 5 - 7 - Manufactured homes 252 1.8 181 2.0 Government 55 0.7 65 0.7 Total 16,911 100.0 18,768 100.0 Investment Activities The primary objective of the investment portfolio is to provide for the liquidity needs of the Company and to contribute to profitability by providing a stable flow of dependable earnings.
The percent columns represent the percentage of loans in each category to total loans. 2025 2024 Residential real estate $ 2,757 30.5 % $ 4,481 31.0 % Home equity 688 3.7 % 835 3.3 % Commercial real estate 9,152 38.3 % 6,444 36.6 % Construction and land development 1,114 5.3 % 2,651 5.5 % Multifamily 2,078 12.7 % 1,003 14.1 % Commercial business 1,583 6.9 % 1,185 6.9 % Consumer 2 0.1 % 5 — % Manufactured homes 116 1.6 % 252 1.8 % Government 16 0.9 % 55 0.7 % Total $ 17,506 100.0 % $ 16,911 100.0 % Investment Activities The primary objective of the investment portfolio is to provide for the liquidity needs of the Company and to contribute to profitability by providing a stable flow of dependable earnings.
For the year ended December 31, 2024 (Dollars in thousands) Current 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Residential Real Estate $ 545 $ 570 $ - $ 528 Home Equity - - - 41 Total $ 545 $ 570 $ - $ 569 For the year ended December 31, 2023 (Dollars in thousands) Current 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Residential Real Estate $ 868 $ - $ - $ - Total $ 868 $ - $ - $ - The borrowers with term extension have had their maturity dates extended and as a result their monthly payments were reduced.
December 31, 2025 (Dollars in thousands) Current 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Residential real estate $ 582 $ 19 $ - $ - Commercial real estate 390 - - 131 Construction and land development - - - 593 Commercial business - - - 945 Total $ 972 $ 19 $ - $ 1,669 December 31, 2024 (Dollars in thousands) Current 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Residential real estate $ 545 $ 570 $ - $ 528 Home equity - - - 41 Total $ 545 $ 570 $ - $ 569 The borrowers with term extension have had their maturity dates extended and as a result their monthly payments were reduced.
The Change in Bank Control Act (“CBCA”) prohibits a person or group of persons from acquiring “control” of a bank holding company unless the FRB has been notified and has not objected to the transaction.
Unlike the FDIC and OCC, the DOJ has not reinstated the guidance that was in effect prior to 2024. The Change in Bank Control Act prohibits a person or group of persons from acquiring “control” of a bank holding company unless the FRB has been notified and has not objected to the transaction.
The leadership of the FRB, Office of the Comptroller of the Currency (“OCC”), and FDIC, who are tasked with implementing Basel IV, supported the revisions. Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Company.
The leadership of the FRB, OCC, and FDIC, who are tasked with implementing Basel IV, supported the revisions. Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Company. In 2023, the federal banking agencies issued a proposed rule to implement the Basel IV standards.
Pursuant to this requirement, a bank holding company should stand ready to use its resources to provide adequate capital funds to its subsidiary bank(s) during periods of financial stress or adversity.
Under the Dodd Frank Act, a bank holding company is expected to serve as a source of financial and managerial strength to its subsidiary bank(s). Pursuant to this requirement, a bank holding company should stand ready to use its resources to provide adequate capital funds to its subsidiary bank(s) during periods of financial stress or adversity.
Significantly and critically undercapitalized institutions are subject to additional mandatory and discretionary measures. 21 Section 201 of the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (the “Economic Growth Act”) directed federal banking agencies to draft regulations establishing a new optional Community Bank Leverage Ratio (“CBLR”).
Significantly and critically undercapitalized institutions are subject to additional mandatory and discretionary measures. Section 201 of the Economic Growth Act directed federal banking agencies to draft regulations establishing a new optional CBLR.
Institutions that have not exercised the AOCI opt- out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities).
Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities). Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Among the risks we face are the following: ● Credit Risk – the risk that loan customers or other parties will be unable to perform their contractual repayment obligations. ● Market Risk – the risk that changes in market rates and prices will adversely affect our financial condition and results of operations. ● Liquidity Risk – the risk that the Company or the Bank will have insufficient cash or access to cash to meet its operating needs. ● Operational Risk – the risk of financial and reputational loss resulting from fraud, inadequate or failed internal processes, cyber-security breaches, people and systems, or external events. ● Economic Risk – the risk that the economy in our markets could decline, resulting in increased unemployment, decreased real estate values, and increased loan charge-offs. ● Compliance Risk – the risk of additional action by our regulators or additional regulation that could hinder our ability to do business profitably. ● Regulatory Risk – the risk presented by the need to comply with all laws, rules, and regulations from multiple regulatory agencies, including but not limited to the FDIC, the Consumer Financial Protection Bureau, the IDFI, the FRB, the SEC, and the U.S.
Among the risks we face are the following: ● Credit Risk – the risk that loan customers or other parties will be unable to perform their contractual repayment obligations. ● Market Risk – the risk that changes in market rates and prices will adversely affect our financial condition and results of operations. ● Liquidity Risk – the risk that the Company or the Bank will have insufficient cash or access to cash to meet its operating needs. 30 ● Operational Risk – the risk of financial and reputational loss resulting from fraud, inadequate or failed internal processes, cyber-security breaches, people and systems, or external events. ● Economic Risk – the risk that the economy in our markets could decline, resulting in increased unemployment, decreased real estate values, and increased loan charge-offs. ● Compliance Risk – the risk of additional action by our regulators or additional regulation that could hinder our ability to do business profitably. ● Regulatory Risk – the risk presented by the need to comply with all laws, rules, and regulations from multiple regulatory agencies, including but not limited to the FDIC, the Consumer Financial Protection Bureau, the IDFI, the FRB, the SEC, and the U.S.
These factors include: ● variations in our operating results or the quality of our assets; ● operating results that vary from the expectations of management, securities analysts, and investors; ● increases in loan losses, non-performing loans, and other real estate owned; ● changes in the U.S. corporate tax rates; ● changes in expectations as to our future financial performance; ● announcements of new products, strategic developments, new technology, acquisitions, and other material events by us or our competitors; ● ability to fund the Company’s assets through core deposits and/or wholesale funding; ● the operating and securities price performance of other companies that investors believe are comparable to us; ● actual or anticipated sales of our equity or equity-related securities; ● our past and future dividend practices; ● our creditworthiness; ● interest rates; ● the credit, mortgage, and housing markets, and the markets for securities relating to mortgages or housing; ● developments with respect to financial institutions generally; and ● economic, financial, geopolitical, regulatory, congressional, or judicial events that affect us or the financial markets.
These factors include: 38 ● variations in our operating results or the quality of our assets; ● operating results that vary from the expectations of management, securities analysts, and investors; ● increases in loan losses, non-performing loans, and other real estate owned; ● changes in the U.S. corporate tax rates; ● changes in expectations as to our future financial performance; ● announcements of new products, strategic developments, new technology, acquisitions, and other material events by us or our competitors; ● ability to fund the Company’s assets through core deposits and/or wholesale funding; ● the operating and securities price performance of other companies that investors believe are comparable to us; ● actual or anticipated sales of our equity or equity-related securities; ● our past and future dividend practices; ● our creditworthiness; ● interest rates; ● the credit, mortgage, and housing markets, and the markets for securities relating to mortgages or housing; ● developments with respect to financial institutions generally; and ● economic, financial, geopolitical, regulatory, congressional, or judicial events that affect us or the financial markets.
As a result, we would be more likely to suffer losses on defaulted loans because our ability to fully recover on defaulted loans by selling the real estate collateral would be diminished. 36 ● Our ability to assess the creditworthiness of customers could be impaired if the models and approaches they use to select, manage, and underwrite credits become less predictive of future performance. ● The process we use to estimate losses inherent in our loan portfolio requires difficult, subjective, and complex judgments.
As a result, we would be more likely to suffer losses on defaulted loans because our ability to fully recover on defaulted loans by selling the real estate collateral would be diminished. ● Our ability to assess the creditworthiness of customers could be impaired if the models and approaches they use to select, manage, and underwrite credits become less predictive of future performance. ● The process we use to estimate losses inherent in our loan portfolio requires difficult, subjective, and complex judgments.
Also, technology and other changes have lowered barriers to entry and made it possible for customers to complete financial transactions using neo-banks, non-banks, and financial technology (“FinTech”) companies that historically have involved banks at one or both ends of the transaction. These entities now offer products and services traditionally provided by community banks and often at lower costs.
Also, technology and other changes have lowered barriers to entry and made it possible for customers to complete financial transactions using neo-banks, non-banks, and financial technology companies that historically have involved banks at one or both ends of the transaction. These entities now offer products and services traditionally provided by community banks and often at lower costs.
The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. Also, please read “Cautionary Note Regarding Forward-Looking Statements.” 28 Risks Related to Our Business As a financial institution, the Company is subject to a number of risks relating to its daily business.
The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. Also, please read “Cautionary Note Regarding Forward-Looking Statements.” Risks Related to Our Business As a financial institution, the Company is subject to a number of risks relating to its daily business.
Our failure to comply with the Order or MOU may result in additional regulatory action, including civil money penalties against the Bank and its officers and directors or enforcement through court proceedings, which could have a material and adverse effect on our business, results of operations, financial condition, cash flows, and stock price.
Our failure to comply with the MOU may result in additional regulatory action, including civil money penalties against the Bank and its officers and directors or enforcement through court proceedings, which could have a material and adverse effect on our business, results of operations, financial condition, cash flows, and stock price.
We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Many of these transactions expose us to credit risk in the event of default by our counterparty or client.
We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge 37 funds, and other institutional clients. Many of these transactions expose us to credit risk in the event of default by our counterparty or client.
Although we have not experienced any material losses related to a technology-related operational interruption or cyber-attack, there can be no assurance that such failures, interruptions, or security breaches will not occur in the future or, if they do occur, that the impact will not be substantial.
Although we have not experienced any material losses related to technology-related operational interruption or cyber-attack, there can be no assurance that such failures, interruptions, or security breaches will not occur in the future or, if they do occur, that the impact will not be substantial.
Such disruption or breach of security may have a material adverse effect on our financial condition and results of operations. 32 We continually encounter technological change. The banking and financial services industry continually undergoes technological changes, with frequent introductions of new technology-driven products and services.
Such disruption or breach of security may have a material adverse effect on our financial condition and results of operations. We continually encounter technological change. The banking and financial services industry continually undergoes technological changes, with frequent introductions of new technology-driven products and services.
These broad market fluctuations may adversely affect our stock price, notwithstanding our operating results. 39 The trading volume in the Company ’ s common stock is less than that of other larger financial institutions.
These broad market fluctuations may adversely affect our stock price, notwithstanding our operating results. The trading volume in the Company ’ s common stock is less than that of other larger financial institutions.
In addition, our ability to sell mortgage loans readily is dependent upon our ability to remain eligible for the programs offered by the Agencies and other institutional and non-institutional investors.
In addition, our ability to sell mortgage loans readily is dependent upon our ability to remain eligible for the programs offered by the Agencies and other institutional and non-institutional 32 investors.
An inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our business, financial condition, and results of operations and may restrict our ability to grow. 33 We may be exposed to risk of environmental liabilities with respect to real property to which we take title.
An inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our business, financial condition, and results of operations and may restrict our ability to grow. 34 We may be exposed to risk of environmental liabilities with respect to real property to which we take title.
The occurrence of operational interruption, cyber incident, or a deficiency in the cyber security of our technology systems (internal or outsourced) could negatively impact our financial condition or results of operations. We have policies and procedures expressly designed to prevent or limit the effect of a failure, interruption, or security breach of our systems and maintain cyber security insurance.
The occurrence of operational interruption, cyber incidents, or a deficiency in the cyber security of our technology systems (internal or outsourced) could negatively impact our financial condition or results of operations. We have policies and procedures expressly designed to prevent or limit the effect of a failure, interruption, or security breach of our systems and maintain cyber security insurance.
The Bank offers adjustable rate mortgage (ARM) loans and fixed-rate loans. Unlike ARM loans, fixed-rate loans carry the risk that, because they do not reprice to market interest rates, their yield may be insufficient to offset increases in the Bank’s cost of funds during a rising interest rate environment.
The Bank offers ARM loans 31 and fixed-rate loans. Unlike ARM loans, fixed-rate loans carry the risk that, because they do not reprice to market interest rates, their yield may be insufficient to offset increases in the Bank’s cost of funds during a rising interest rate environment.
As our reliance on technology systems increases, the potential risks of technology-related operation interruptions in our customer relationship management, general ledger, deposit, loan, or other systems or the occurrence of cyber incidents also increases.
As our reliance on technology systems increases, the potential risks of technology-related operation interruptions in our customer relationship management, general ledger, deposit, loan, or other systems or the occurrence of cyber incidents increases within the industry.
Our ability to remain eligible may also depend on having an acceptable peer-relative delinquency ratio for the Federal Housing Administration (“FHA”) and maintaining a delinquency rate with respect to Ginnie Mae pools that are below Ginnie Mae guidelines. Any significant impairment of our eligibility with any of the Agencies could materially and adversely affect our operations.
Our ability to remain eligible may also depend on having an acceptable peer-relative delinquency ratio for the FHA and maintaining a delinquency rate with respect to Ginnie Mae pools that are below Ginnie Mae guidelines. Any significant impairment of our eligibility with any of the Agencies could materially and adversely affect our operations.
Should any events or factors that can undermine our reputation occur, there is no assurance that the additional costs and expenses that we may need to incur to address the issues giving rise to the reputational harm would not adversely affect our earnings and results of operations. Potential acquisitions may disrupt our business and dilute stockholder value.
Should any events or factors that can undermine our reputation occur, there is no assurance that the additional costs and expenses that we may need to incur to address the issues giving rise to the reputational harm would not adversely affect our earnings and results of operations.
We may be required to increase our Allowance for credit losses, thus reducing earnings. 30 Commercial business lending may expose the Company to increased lending risks. At December 31, 2024, the Bank’s commercial business loan portfolio amounted to $104.2 million, or 6.9% of total loans.
We may be required to increase our Allowance for credit losses, thus reducing earnings. Commercial business lending may expose the Company to increased lending risks. At December 31, 2025, the Bank’s commercial business loan portfolio amounted to $99.3 million, or 6.9% of total loans.
All of the instruments held in the Company’s investment portfolio are designated as available-for-sale, and many of these instruments are particularly sensitive to interest rate fluctuations, especially long-term fixed-income securities, including U.S. Treasury notes and bonds and corporate and municipal bonds.
Treasury securities, federal agency obligations, obligations of state and local municipalities, mortgage-backed securities and corporate securities. All of the instruments held in the Company’s investment portfolio are designated as available-for-sale, and many of these instruments are particularly sensitive to interest rate fluctuations, especially long-term fixed-income securities, including U.S. Treasury notes and bonds and corporate and municipal bonds.
Our ability to borrow could also be impaired by factors that are nonspecific to us, such as severe disruption of the financial markets or negative expectations about the prospects for the financial services industry, as evidenced by the recent failures of certain depository institutions and the resulting market turmoil and volatility stemming from such failures. 29 Unrealized losses in the Company ’ s investment portfolio could affect liquidity.
Our ability to borrow could also be impaired by factors that are nonspecific to us, such as severe disruption of the financial markets or negative expectations about the prospects for the financial services industry, as evidenced by the recent failures of certain depository institutions and the resulting market turmoil and volatility stemming from such failures.
Above average interest rate risk associated with fixed-rate loans may have an adverse effect on our financial position or results of operations. Peoples Bank’s loan portfolio includes a significant amount of loans with fixed rates of interest. At December 31, 2024, $712.7 million, or 47.3% of the Bank’s total loans receivable had fixed interest rates.
Above average interest rate risk associated with fixed-rate loans may have an adverse effect on our financial position or results of operations. Peoples Bank’s loan portfolio includes a significant amount of loans with fixed rates of interest. At December 31, 2025, $636.9 million, or 44.0% of the Bank’s total loans receivable had fixed interest rates.
We are exposed to intangible asset risk in that our goodwill may become impaired. As of December 31, 2024, we had $24.3 million of goodwill and other intangible assets.
We are exposed to intangible asset risk in that our goodwill may become impaired. As of December 31, 2025, we had $23.6 million of goodwill and other intangible assets.
Commercial real estate lending may expose the Company to increased lending risks. At December 31, 2024, the Bank’s commercial real estate loan portfolio amounted to $551.7 million, or 36.6% of total loans. Commercial real estate lending is inherently riskier than residential mortgage lending.
Commercial real estate lending may expose the Company to increased lending risks. At December 31, 2025, the Bank’s commercial real estate loan portfolio amounted to $555.6 million, or 38.3% of total loans. Commercial real estate lending is inherently riskier than residential mortgage lending.
As market interest rates increased during 2022 and continued into the early months of 2023, the Company experienced increased unrealized losses within its investment portfolio. The Company’s investment portfolio consists of federal funds, interest bearing balances in other financial institutions, U.S. government securities, federal agency obligations, obligations of state and local municipalities, and corporate securities.
Unrealized losses in the Company ’ s investment portfolio could affect liquidity. As market interest rates increased during 2022 and continued into the early months of 2023, the Company experienced increased unrealized losses within its investment portfolio. The Company’s investment portfolio consists of federal funds, interest bearing balances in other financial institutions, U.S. government securities, U.S.
If our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition, and results of operations. We depend on outside third parties for processing and handling of our records and data.
If our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition, and results of operations.
The Company may issue additional securities to, among other reasons, raise additional capital or finance acquisitions, and, if it does, the ownership percentage of holders of the Company’s common stock could be diluted potentially materially. We may not be able to pay dividends in the future in accordance with past practice.
The Company may issue additional securities to, among other reasons, raise additional capital or finance acquisitions, and, if it does, the ownership percentage of holders of the Company’s common stock could be diluted potentially materially.
The Company’s common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund, or by any other public or private entity.
Risks Related to the Company ’ s Common Stock An investment in the Company ’ s common stock is not an insured deposit. The Company’s common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund, or by any other public or private entity.
Our ability to sell mortgage loans readily is dependent upon the availability of an active secondary market for single-family mortgage loans, which in turn depends in part upon the continuation of programs currently offered by Fannie Mae, Freddie Mac, and Ginnie Mae (the “Agencies”) and other institutional and non-institutional investors.
Our ability to sell mortgage loans readily is dependent upon the availability of an active secondary market for single-family mortgage loans, which in turn depends in part upon the continuation of programs currently offered by the Agencies and other institutional and non-institutional investors. These entities account for a substantial portion of the secondary market in residential mortgage loans.
A higher interest rate environment can negatively affect the volume of loan originations and refinanced loans reducing the dollar amount of loans available to be sold to the secondary market.
A higher interest rate environment can negatively affect the volume of loan originations and refinanced loans reducing the dollar amount of loans available to be sold to the secondary market. Higher interest rates can also negatively affect the premium received on loans sold to the secondary market as competitive pressures to originate loans can reduce pricing.
Reduced confidence in the financial institutions sector could result in customer disintermediation and the loss of deposit and borrowing relationships, among other effects, which could result in a material adverse effect on the Company’s financial condition and results of operations. 38 Risks Related to the Company ’ s Common Stock An investment in the Company ’ s common stock is not an insured deposit.
Reduced confidence in the financial institutions sector could result in customer disintermediation and the loss of deposit and borrowing relationships, among other effects, which could result in a material adverse effect on the Company’s financial condition and results of operations.
From December 31, 2023 to December 31, 2024, the investment portfolio experienced unrealized losses of approximately $9.0 million. The increase in unrealized losses is reflected in Accumulated Other Comprehensive Income (Loss) (AOCI) on the Company’s balance sheet and reduces the Company’s book capital and tangible common equity ratio. However, unrealized losses do not affect the Company’s regulatory capital ratios.
From December 31, 2024 to December 31, 2025, the investment portfolio experienced a reduction in unrealized losses of approximately $21.6 million. The decrease in unrealized losses is reflected in AOCI on the Company’s balance sheet and increases the Company’s book capital and tangible common equity ratio. However, unrealized losses do not affect the Company’s regulatory capital ratios.
Management continues to actively monitor the investment portfolio and may sell securities from the portfolio before maturity in order to take advantage of restructuring opportunities. That said, it is unlikely the Company will be required to sell the securities before recovery of their amortized cost bases, which may be at maturity.
That said, it is unlikely the Company will be required to sell the securities before recovery of their amortized cost bases, which may be at maturity.
While economic conditions have remained relatively stable in spite of these headwinds, significant challenges remain, including the continued aggregate effect of inflation levels experienced in recent years and uncertainty related to government spending levels and federal budget deficits, as well as the potential effect of changes in trade policy and tariffs under the new Trump administration.
While overall economic growth was favorable and unemployment rates remained low compared to past economic cycles, the aggregate effects of inflation experienced from 2021 to 2023 coupled with continued elevated interest rate levels negatively impacted many sectors of the economy. 35 While economic conditions have remained relatively stable in spite of these headwinds, significant challenges remain, including the continued aggregate effect of inflation levels experienced in recent years and uncertainty related to government spending levels and federal budget deficits, as well as the potential effect of changes in trade policy and tariffs under the Trump administration.
The effects of disintermediation can also impact the lending business because of the fast growing body of FinTech companies that use software to deliver mortgage lending and other financial services. A related risk is the migration of bank personnel away from the traditional bank environments into neo-banks, FinTech companies, and other non-banks.
The effects of disintermediation can also impact the lending business because of the fast growing body of FinTech companies that use software to deliver mortgage lending and other financial services.
Increased competition in our market may result in a decrease in the amounts of our loans and deposits, reduced spreads between loan rates and deposit rates or loan terms that are more favorable to the borrower.
A related risk is the migration of bank personnel away from the traditional bank environments into neo-banks, FinTech companies, and other non-banks. 36 Increased competition in our market may result in a decrease in the amounts of our loans and deposits, reduced spreads between loan rates and deposit rates or loan terms that are more favorable to the borrower.
The Company and Bank are subject to extensive regulation and oversight, including with respect to the Order and MOU.
The Company and Bank are subject to extensive regulation and oversight, including with respect to the MOU. On August 9, 2024, the Bank entered into the MOU with the FDIC and DFI.
These entities account for a substantial portion of the secondary market in residential mortgage loans. Some of the largest participants in the secondary market, including the Agencies, are government-sponsored enterprises whose activities are governed by federal law. Any future changes in laws that significantly affect the activity of such government-sponsored enterprises could, in turn, adversely affect our operations.
Some of the largest participants in the secondary market, including the Agencies, are government-sponsored enterprises whose activities are governed by federal law. Any future changes in laws that significantly affect the activity of such government-sponsored enterprises could, in turn, adversely affect our operations. In September 2008, Fannie Mae and Freddie Mac were placed into conservatorship by the U.S. government.
As of December 31, 2024, the Company held approximately $214.7 million of municipal securities within the investment portfolio, which comprised approximately 64.4% of the portfolio, and approximately $109.3 million of collateralized mortgage obligations and residential mortgage-backed securities within the portfolio, which comprised approximately 32.8% of the portfolio.
As of December 31, 2025, the Company held approximately $201.2 million of municipal securities within the investment portfolio, which comprised approximately 63.6% of the portfolio, and approximately $104.7 million of collateralized mortgage obligations and residential mortgage-backed securities within the portfolio, which comprised approximately 33.1% of the portfolio.
Any change in our regulation or oversight, whether in the form of regulatory policy, regulations, legislation, or supervisory action, may have a material impact on our operations.
Any change in our regulation or oversight, whether in the form of regulatory policy, regulations, legislation, or supervisory action, may have a material impact on our operations. The soundness of other financial institutions could adversely affect us. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships.
Higher interest rates can also negatively affect the premium received on loans sold to the secondary market as competitive pressures to originate loans can reduce pricing. 31 Our information systems may experience an interruption or breach in security. The Bank relies heavily on internal and outsourced digital technologies, communications, and information systems to conduct its business.
Our information systems may experience an interruption or breach in security. The Bank relies heavily on internal and outsourced digital technologies, communications, and information systems to conduct its business.
The Bank relies on software developed by third party vendors to process various transactions. In some cases, we have contracted with third parties to run their proprietary software on our behalf. These systems include, but are not limited to, general ledger, payroll, employee benefits, loan and deposit processing, and securities portfolio management.
We depend on outside third parties for processing and handling of our records and data. 33 The Bank relies on software developed by third party vendors to process various transactions. In some cases, we have contracted with third parties to run their proprietary software on our behalf.
Given these factors, we must carefully assess and adjust our policies, disclosures, and risk mitigation strategies to navigate the shifting legal and business environment effectively. Risks Related to the Banking Industry Our business may be adversely affected by conditions in the financial markets and economic conditions generally.
Risks Related to the Banking Industry Our business may be adversely affected by conditions in the financial markets and economic conditions generally.
The Company has traditionally paid a quarterly dividend to common shareholders. The payment of dividends is subject to legal and regulatory restrictions. Any payment of dividends in the future will depend, in large part, on our earnings, capital requirements, financial condition, and other factors considered relevant by the Company’s board of directors.
Any payment of dividends in the future will depend, in large part, on our earnings, capital requirements, financial condition, and other factors considered relevant by the Company’s board of directors. The board may, at its discretion, reduce or eliminate dividends or change its dividend policy in the future. Item 1B. Unresolved Staff Comments Not applicable.
Additionally, many of our competitors are larger in total assets and capitalization, have greater access to capital markets, and offer a broader range of financial services than we can offer. 37 The Company also is experiencing an increase in competition to acquire other banks, due to the overall strength of financial institutions and their high capital levels.
If increased competition causes us to relax our underwriting standards, we could be exposed to higher losses from lending activities. Additionally, many of our competitors are larger in total assets and capitalization, have greater access to capital markets, and offer a broader range of financial services than we can offer.
See “ Management ’ s Discussion and Analysis of Financial Condition and Results of Operations – Regulatory Developments Regarding the Company and the Bank ” below for certain disclosures regarding the Order and MOU. The Order has resulted and is expected to continue to result in additional non-interest BSA compliance expenses for the Bank and the Company.
The MOU is an informal administrative agreement pursuant to which the Bank has agreed to take various actions and comply with certain requirements to enhance certain areas of the Bank’s operations. See “ Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments Regarding the Bank ” below for certain disclosures regarding the MOU.
Removed
In September 2008, Fannie Mae and Freddie Mac were placed into conservatorship by the U.S. government.
Added
Management continues to actively monitor the investment portfolio and may sell securities from the portfolio before maturity in order to take advantage of restructuring opportunities, which would include reinvestment of sale proceeds at higher rates of return, improving duration or improving interest rate risk exposure.
Removed
We periodically evaluate merger and acquisition opportunities and conduct due diligence activities related to possible transactions with other financial institutions and financial services companies. We generally seek merger or acquisition partners that are culturally similar and possess either significant market presence or have potential for improved profitability through financial management, economies of scale, or expanded services.
Added
These systems include, but are not limited to, general ledger, payroll, employee benefits, loan and deposit processing, and securities portfolio management.
Removed
Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions, including, among other things: ● potential exposure to unknown or contingent liabilities of the target company; ● exposure to potential asset quality issues of the target company; ● potential disruption to our business; ● potential diversion of our management’s time and attention away from day-to-day operations; ● the possible loss of key employees, business, and customers of the target company; ● difficulty in estimating the value of the target company; and ● potential problems in integrating the target company’s data processing and ancillary systems, customers, and employees with ours. 34 As a result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving the payment of cash or the issuance of our debt or equity securities may occur at any time.
Added
Due to the development of new technologies and regulatory actions encouraging the use of these technologies, consumers may decide not to use banks to complete their financial transactions. Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks.
Removed
Acquisitions typically involve the payment of a premium over book, and, therefore, some dilution of our tangible book value and net income per common share may occur in connection with any future transaction.
Added
For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, or general-purpose reloadable prepaid cards. Consumers can complete transactions, such as paying bills and/or transferring funds directly without the assistance of banks.
Removed
To the extent we were to issue additional shares of common stock in any such transaction, our current shareholders would be diluted and such an issuance may have the effect of decreasing our stock price, perhaps significantly.
Added
Transactions utilizing digital assets, including cryptocurrencies, stablecoins, and other similar assets, have increased substantially over the course of the last several years. For example, the enactment of the Guiding and Establishing National Innovation for U.S.
Removed
Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on our financial condition and results of operations. In addition, merger and acquisition costs incurred by the Company may temporarily increase operating expenses.
Added
Stablecoins Act of 2025 (GENIUS Act) provides a legal framework for stablecoins to be issued in the United States, which may allow new and existing competitors to compete for funds that may have otherwise been deposited with banks, such as the Bank.
Removed
On November 7, 2023, the Bank entered into a Stipulation and Consent to the Issuance of a Consent Order with its bank regulatory agencies, the FDIC and DFI, consenting to the issuance of a consent order (the “Order”) relating to the Bank’s compliance with the Bank Secrecy Act and its implementing regulations (collectively, the “BSA”).
Added
Certain characteristics of digital asset transactions, such as the speed with which such transactions can be conducted, the ability to transact without the involvement of regulated intermediaries, the ability to engage in transactions across multiple jurisdictions, and the anonymous nature of the transactions, are appealing to certain consumers notwithstanding the various risks posed by such transactions as illustrated by the current and ongoing market volatility.
Removed
In consenting to the issuance of the Order, the Bank did not admit or deny any charges of unsafe or unsound banking practices or violations of law or regulation relating to its BSA compliance.
Added
Accordingly, digital asset service providers, which at present are not subject to supervision and regulation comparable to that which is faced by banking organizations and other financial institutions, have become active competitors for our customers’ banking business.
Removed
It also may have the effect of limiting or delaying the Bank’s and the Company’s ability to obtain regulatory approval for certain expansionary activities, to the extent desired by the Company.
Added
The Trump Administration, through executive actions and public announcements, has established a more relaxed regulatory framework for cryptocurrencies, digital assets, and financial technology firms, and created a more favorable environment for those asset classes and firms.
Removed
Regulatory changes to diversity, equity, and inclusion ( “ DEI ” ) and environmental, social, and governance ( “ ESG ” ) practices may adversely impact our reputation, compliance costs, and business operations.
Added
The process of eliminating banks as intermediaries, known as disintermediation, could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.
Removed
In light of the recent executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” which revokes previous mandates promoting DEI and directs federal agencies to combat “illegal DEI” practices in the private sector, many companies, including the Company, must reassess their ESG strategies to ensure compliance with the evolving regulatory environment.
Added
On October 22, 2024, the CFPB adopted a final rule regarding personal financial data rights that is designed to promote “open banking.” The final rule requires, among other things, that data providers, including any financial institution, make available to consumers and certain authorized third parties upon request certain covered transaction, account, and payment information.
Removed
The order signals a shift in federal oversight and enforcement priorities, potentially affecting internal policies, hiring practices, supplier diversity programs, and corporate governance frameworks. The executive order rescinds prior directives, such as Executive Order 11246, which required affirmative action and non-discriminatory practices by federal contractors.
Added
However, in August 2025, the CFPB issued an advanced notice of proposed rulemaking to reconsider its final rule and, in October 2025, a district court issued a preliminary injunction preventing the CFPB from enforcing the final rule until the CFPB has completed its reconsideration of the rule.
Removed
As a result, federal agencies may reevaluate existing contracts, scrutinize hiring and promotion policies, and take enforcement actions against companies perceived to be engaging in practices that do not align with the revised federal standards. Additionally, new guidance or rulemaking stemming from the executive order could impose restrictions on voluntary DEI initiatives, training programs, or supplier diversity efforts.
Added
A final rule, if implemented, could lead to greater competition for products and services among banks and nonbanks alike. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.
Removed
These developments may necessitate changes to our internal policies, reporting obligations, and public disclosures, creating operational and compliance challenges. Failure to align our DEI and ESG efforts with the current legal framework could result in reputational damage, legal challenges, and adverse impacts on our operations.
Added
The use of, or inability to use, artificial intelligence by us, our customers, and our shareholders presents risks and challenges that may adversely impact our business and operating results or the business and operating results of our customers and vendors. We may use generative AI tools in our operations.
Removed
Government investigations, enforcement actions, or private litigation challenging our DEI- and ESG-related policies could lead to financial penalties, increased legal costs, and potential restrictions on our ability to engage in government contracting. Moreover, various private third-party organizations continue to evaluate companies based on ESG and DEI practices.
Added
If our competitors and peers use AI tools to optimize operations and we fail to utilize AI tools in a comparable manner, we may be competitively disadvantaged. However, while AI tools may facilitate optimization and operational efficiencies, they also have the potential for inaccuracy, bias, infringement, or misappropriation of intellectual property, and risks related to data privacy and cybersecurity.
Removed
Unfavorable ratings from these entities could influence investor decisions, limit access to capital, and generate negative sentiment among stakeholders. 35 While the executive order aims to eliminate specific DEI programs, investors, customers, and other stakeholders may still expect transparency and commitment to broader ESG goals, including workforce diversity, community engagement, and responsible corporate governance.
Added
The use of AI tools may introduce errors or inadequacies that are not easily detectable, including deficiencies, inaccuracies, or biases in the data used for AI training, or in the content, analyses, or recommendations generated by AI applications. The results of such errors or inadequacies may adversely affect our business, financial condition, and results of operations.
Removed
Companies that scale back DEI initiatives to comply with federal mandates may face backlash from institutional investors, advocacy groups, and employees who view such actions as a retreat from social responsibility commitments. Additionally, inconsistencies between federal and state-level DEI policies may create further complexities, as certain states continue to mandate affirmative action or corporate diversity disclosures.
Added
The legal requirements relating to AI continue to evolve and remain uncertain, including how legal developments could impact our business and ability to enforce our proprietary rights or protect against infringement of those rights. Cybersecurity threat actors may utilize AI tools to automate and enhance cybersecurity attacks against us.
Removed
Moreover, the rapid pace of change in legal frameworks, regulatory guidance, and enforcement priorities resulting from the recent Presidential transition yields considerably increased uncertainty and compounds the difficulty of establishing and maintaining compliance. Adapting to the recent regulatory changes is crucial to maintaining our reputation, ensuring operational continuity, and meeting stakeholder expectations in the evolving ESG landscape.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Removed
Item 1C. Cybersecurity 41 Item 2. Properties 43 Item 3. Legal Proceedings 44 Item 4. Mine Safety Disclosures 44 Item 4.5 Information About Our Executive Officers 44 PART II. Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 46
Added
Item 1C. Cybersecurity The Company recognizes the importance of maintaining a cybersecurity risk management program designed to reduce the risks that cybersecurity threats pose to financial institutions. As such, the Company has adopted proactive and defensive safeguards intended to better protect the Company’s information assets and defend infrastructures from technology-related attacks.
Added
The Company’s Board of Directors and management oversee its information security and cybersecurity risk management programs. As further discussed below, the Company has established various programs, policies and procedures which are designed to proactively protect information assets. However, not all incidents can be prevented.
Added
As a result, the Company has also established a policy and cybersecurity incident response plan governing how to respond to security incidents, with the objective of minimizing any potential impacts.
Added
As of December 31, 2025, the Company is not aware of any cybersecurity incidents that have materially affected or are reasonably likely to materially affect Peoples Bank, including its business strategies, results of operations or financial condition.
Added
Risk Assessment and Management The Company maintains a variety of programs and policies to support the management of cybersecurity risk within the organization with a focus on prevention, detection and response processes.
Added
These programs and policies leverage frameworks and controls from the National Institute of Standards and Technology, Cyber Risk Institute Profile, as well as various other regulatory requirements and industry-specific standards.
Added
The Company also participates in the federally recognized Financial Services Information Sharing and Analysis Center and requires its employees and contractors to complete various education and training programs related to information security.
Added
The Company’s IT team, along with the vCISO has the primary responsibility for establishing appropriate policies and procedures that are responsive to cybersecurity threats and other information security risks. The Company’s vCISO, as part of the Company’s Risk Management division, provides independent risk management oversight to the IT team.
Added
In addition to the Board oversight discussed below, the Company’s Internal Audit function independently oversees, reviews and validates these activities and reports to the Board of Directors on the effectiveness of governance, risk management and internal controls. The Company has established an Enterprise Risk Management Framework which informs the Company’s risk management programs.
Added
As part of this framework, the vCISO maintains the Company’s Cybersecurity Risk Management Program, which is designed to identify, assess, manage, monitor and report cybersecurity risks as part of the Company’s independent risk management function. The vCISO is responsible for defining the risk management practices set forth in the Cybersecurity Program.
Added
In light of the complexity and evolving nature of the cybersecurity landscape, the Company periodically re-assesses the maturity of its cybersecurity programs, policies and procedures, including in some instances by engaging the assistance of external experts. The Company also conducts exercises to test its incident response plans and threat assessments, some of which also involve assistance from external consultants.
Added
The Company also maintains a Third-Party Risk Management Program to perform similar functions related to risks associated with the Company’s relationships with third parties. This assists the Company in its management of its relationships with third parties, which includes considerations for identifying, analyzing and monitoring the cybersecurity risks that third parties may present to Peoples Bank.
Added
The Company also maintains a third-party incident response program to govern its response in the event of third-party cybersecurity events. Board of Directors Oversight The Risk Management and Compliance Committee of the Company’s Board of Directors takes primary responsibility for overseeing the Company’s information security programs at the Board level.
Added
The Risk Management and Compliance Committee’s primary purpose is to assist the Board of Directors in its oversight of plans and operations related to information technology, cybersecurity, data privacy and third-party technology strategy. 40 The Company’s Risk Management and Compliance Committee of the Board of Directors oversees the Company’s Enterprise Risk Management Framework and policies, including oversight of risks related to information security.
Added
The Risk Management and Compliance Committee receives periodic reports from the Enterprise Risk Management Committee. The full Board of Directors receives reports from the Risk Management and Compliance Committee about the Company’s cybersecurity programs as a result of the above-described oversight.
Added
In the event of a material cybersecurity incident, the Company’s incident response procedures include notifications to the Risk Management and Compliance Committee and full Board of Directors, when appropriate and necessary.
Added
Management Oversight The Company’s ERM Committee is a management committee that reviews and discusses critical information security risks that impact the Company, identifies solutions to address these risks and has oversight of the Company’s information technology and information security policies.
Added
The ERM Committee provides cybersecurity reports periodically to the Risk Management Committee and is comprised of the Company’s vCISO, information technology and enterprise risk management leaders, including the vCISO, Chief Information Officer, and Chief Risk Officer.
Added
The ERM Committee’s membership enables the ERM Committee to be informed about and monitor the prevention, detection, mitigation and remediation of cybersecurity incidents, if any, in accordance with the Company’s incident response plans. The Company’s vCISO is responsible for information security policies and the coordination of information security efforts across the organization.
Added
The vCISO has over 10 years of experience in various information security roles, including working with banking, healthcare, and manufacturing organizations. Prior to his current role, the vCISO served in both network security and IT audit roles, conducting services for banks of various sizes and complexities.
Added
The vCISO maintains their Certified Information Security Manager, Certified Banking Security Manager, Certified Banking Security Technology Professional, and Certified Banking Cybersecurity Manager certifications and received his Bachelor of Science in Network Security and Administration. The Company’s vCISO reports to the Chief Risk Officer. The vCISO also reports directly to the ERM Committee.
Added
The vCISO remains informed about developments in cybersecurity, including potential threats and emerging risk management techniques, reporting such information to the Chief Information Officer and ERM Committee periodically. The vCISO advises on processes for the regular monitoring of information systems. This includes the deployment of advanced security measures and system audits to identify potential vulnerabilities.
Added
In the event of a cybersecurity incident, the IT team is equipped with a well-defined incident response plan. This plan includes immediate actions designed to mitigate the impact of any incident, and long-term strategies for remediation and prevention of future incidents.

Item 2. Properties

Properties — owned and leased real estate

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On February 22, 2024, the Bank closed its previously announced sale-leaseback transaction with MountainSeed Real Estate Services, LLC (the “Buyer”), pursuant to which the Bank sold to the Buyer five properties owned and operated as branch locations (the “Properties”) for an aggregate purchase price of $17.2 million, including customary closing adjustments.
On February 22, 2024, the Bank closed its previously announced sale-leaseback transaction with MountainSeed Real Estate Services, LLC, pursuant to which the Bank sold to the Buyer five properties owned and operated as branch locations for an aggregate purchase price of $17.2 million, including customary closing adjustments.
Under the Sale Agreement, the Bank also entered into triple net lease agreements (the “Lease Agreements”) with the Buyer under which the Bank leases each of the Properties, and pursuant to which the Bank is responsible for the insurance, real estate taxes, and maintenance and repairs for each of the properties.
Under the Sale Agreement, the Bank also entered into triple net lease agreements with the Buyer under which the Bank leases each of the Properties, and pursuant to which the Bank is responsible for the insurance, real estate taxes, and maintenance and repairs for each of the properties.
FIS provides real time services for loans, deposits, retail delivery systems, card solutions, digital banking, and wealth management. 43
FIS provides real time services for loans, deposits, retail delivery systems, card solutions, digital banking, and wealth management. 41
The Bank owns 20 of its branch properties and leases 6 of its branch properties under the terms of long-term leases with a third-party. All of the Bank’s branches are equipped with automated teller machines and have drive-through facilities.
The Bank owns 20 of its banking centers and leases 6 of its banking center properties under the terms of long-term leases with a third-party. All of the Bank’s banking centers are equipped with automated teller machines and have drive-through facilities.
The net book value of the Bank’s property, premises and equipment totaled $47.3 million at December 31, 2024, including $16.7 million right of use asset balance associated with the Company's 2024 sale-leaseback transaction.
The net book value of the Bank’s property, premises and equipment totaled $45.0 million at December 31, 2025, including $16.7 million right of use asset balance associated with the Company's 2024 sale-leaseback transaction.
As of December 31, 2024, the Bank operated 14 branches in Northwest Indiana, with 13 of the branches located in Lake County and 1 branch located in Porter County, Indiana, and 12 branches located in Cook County, Illinois.
As of December 31, 2025, the Bank operated 14 banking centers in Northwest Indiana, with 13 of the banking centers located in Lake County and 1 banking center located in Porter County, Indiana, and 12 banking centers located in Illinois, 11 in Cook County and 1 in Dupage County, Illinois.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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He is the liaison to the solutions group, risk management, executive management, and the Board of Directors on all items related to the Bank’s sales groups. Mr. Scheub holds a Bachelor of Science Degree in Business and a Master’s Degree in Business Administration from Indiana University Northwest. He also graduated from America’s Community Bankers National School of Banking. Mr.
He is the liaison to the solutions group, risk management, executive management, and the Board of Directors on all items related to the Bank’s sales groups. Mr. Scheub holds a Bachelor of Science Degree in Business and a Master’s Degree in Business Administration from Indiana University 42 Northwest. He also graduated from America’s Community Bankers National School of Banking. Mr.
Bochnowski joined the Company in 2010, became Executive Vice President and Chief Operating Officer of the Company in 2013, and was promoted to President and Chief Operating Officer in 2015. He became the Chief Executive Officer in 2016. He was appointed to the Board of the Indiana Department of Financial Institutions by the Governor of Indiana in 2019.
Mr. Bochnowski joined the Company in 2010, became Executive Vice President and Chief Operating Officer of the Company in 2013, and was promoted to President and Chief Operating Officer in 2015. He became the Chief Executive Officer in 2016. He was appointed to the Board of the Indiana Department of Financial Institutions by the Governor of Indiana in 2019.
Lowry is currently serving on the board of the Food Bank of Northwest Indiana and is a past board chairman and chair of the executive committee. In addition, Mr. Lowry volunteered for the IRS Volunteer Income Tax Assistance (VITA) program. He is a member of the American Institute of Certified Public Accountants and the Indiana CPA Society. 44 Todd M.
Lowry is currently serving on the board of the Food Bank of Northwest Indiana and is a past board chairman and chair of the executive committee. In addition, Mr. Lowry volunteered for the IRS Volunteer Income Tax Assistance program. He is a member of the American Institute of Certified Public Accountants and the Indiana CPA Society. Todd M.
He provides oversight to the sales group in wealth management, retail banking, business and retail lending as well as chairing the Senior Officer’s Loan Committee and the Executive Officer’s Loan Committee. Additionally he provides oversight to the Bank’s Marketing group.
He provides oversight to the sales group in wealth management, retail banking, business and retail lending as well as chairing the Senior Officer’s Loan Committee and the Executive Officer’s Loan Committee. Additionally he provides oversight to the Bank’s Marketing group and Credit Administration Group.
Schmitt received his Bachelor of Business Administration degree in Finance with Honors from the University of Iowa Tippie College of Business. 45 PART II
Schmitt received his Bachelor of Business Administration degree in Finance with Honors from the University of Iowa Tippie College of Business. 43 PART II
Lowry is Executive Vice President, Chief Operating Officer of the Company and the Bank. He is responsible for managing the overall day-to-day operations, which includes transformational change, facilities, commercial credit, as well as loan and deposit operations. Mr.
Lowry is Executive Vice President, Chief Operating Officer of the Company and the Bank. He is responsible for managing the overall day-to-day operations, which includes transformational change, facilities, information technology, as well as loan and deposit operations. Mr.
Schmitt 44 Executive Vice President, Chief Financial Officer, and Treasurer The following is a description of the principal occupation and employment of the executive officers of the Company during at least the past five years: Benjamin J. Bochnowski currently serves as President and Chief Executive Officer of the Company and the Chief Executive Officer of the Bank. Mr.
Schmitt 45 Executive Vice President, Chief Financial Officer, and Treasurer of Finward Bancorp and Peoples Bank The following is a description of the principal occupation and employment of the executive officers of the Company during at least the past five years: Benjamin Bochnowski currently serves as President and Chief Executive Officer of the Company and the Chief Executive Officer of the Bank.
Item 4.5 Information About Our Executive Officers Pursuant to General Instruction G(3) of Form 10-K, the following information is included as an unnumbered item in this Part I in lieu of being included in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders: The executive officers of the Company are as follows: Executive Officer Age at December 31, 2024 Position Benjamin J.
Item 4.5 Information About Our Executive Officers Pursuant to General Instruction G(3) of Form 10-K, the following information is included as an unnumbered item in this Part I in lieu of being included in the Company’s Proxy Statement for the 2026 Annual Meeting of Shareholders: The executive officers of the Company are as follows: Executive Officer Age at December 31, 2025 Position Benjamin Bochnowski 45 President, Chief Executive Officer of Finward Bancorp, Chief Executive Officer of Peoples Bank Robert T.
Bochnowski 44 President, Chief Executive Officer of Finward Bancorp, Chief Executive Officer of Peoples Bank Robert T. Lowry 63 Executive Vice President, Chief Operating Officer Todd M. Scheub 57 Executive President, Chief Revenue Officer of Finward Bancorp, President of Peoples Bank Benjamin L.
Lowry 64 Executive Vice President, Chief Operating Officer of Finward Bancorp and Peoples Bank Todd M. Scheub 58 Executive President, Chief Revenue Officer of Finward Bancorp, President of Peoples Bank Benjamin L.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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The stock repurchase program does not expire and is only limited by the number of shares that can be purchased. The stock repurchase program is reviewed annually by the Board of Directors. No shares were repurchased during the year ended December 31, 2024 under the stock repurchase program.
The stock repurchase program does not expire and is only limited by the number of shares that can be purchased. The stock repurchase program will be reviewed annually by the Board of Directors. No shares were repurchased during the quarter ended December 31, 2025 under the stock repurchase program.
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s Common Stock is listed on the Nasdaq Capital Market under the symbol “FNWD.” As of December 31, 2024, the Company had 4,313,698 shares of common stock outstanding and 519 stockholders of record.
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s Common Stock is listed on the Nasdaq Capital Market under the symbol “FNWD.” As of December 31, 2025, the Company had 4,326,747 shares of common stock outstanding and 486 stockholders of record.
Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares That May Yet Be Purchased Under the Program (2) January 1, 2024 – January 31, 2024 - N/A - 48,828 February 1, 2024 – February 28, 2024 - N/A - 48,828 March 1, 2024 – March 31, 2024 2,816 $24.11 - 48,828 April 1, 2024 – April 30, 2024 - N/A - 48,828 May 1, 2024 – May 31, 2024 76 $24.48 - 48,828 June 1, 2024 – June 30, 2024 472 $24.55 - 48,828 July 1, 2024 – July 31, 2024 - N/A - 48,828 August 1, 2024 – August 31, 2024 - N/A - 48,828 September 1, 2024 – September 30, 2024 - N/A - 48,828 October 1, 2024 –October 31, 2024 - N/A - 48,828 November 1, 2024 – November 30, 2024 121 $31.00 - 48,828 December 1, 2024 – December 31, 2024 - N/A - 48,828 (1) The number of shares above consist of shares of common stock reacquired from the Company’s executive officers and employees to satisfy the tax withholding obligations on restricted stock awards granted under the Company’s 2015 Stock Option and Incentive Plan.
Period Total Number of Shares Purchased (2) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares That May Yet Be Purchased Under the Program(1) January 1, 2025 –January 31, 2025 - N/A - 48,828 February 1, 2025 – February 28, 2025 3,930 $26.38 - 48,828 March 1, 2025 – March 31, 2025 - N/A - 48,828 April 1, 2025 – April 30, 2025 485 $30.75 - 48,828 May 1, 2025 – May 31, 2025 690 $30.26 - 48,828 June 1, 2025 – June 30, 2025 - N/A - 48,828 July 1, 2025 – July 31, 2025 - N/A - 48,828 August 1, 2025 – August 31, 2025 223 $27.52 - 48,828 September 1, 2025 – September 30, 2025 - N/A - 48,828 October 1, 2025 – October 31, 2025 - N/A - 48,828 November 1, 2025 – November 30, 2025 111 $33.38 - 48,828 December 1, 2025 – December 31, 2025 - N/A - 48,828 (1) The stock repurchase program was announced on April 24, 2014, whereby the Company is authorized to repurchase up to 50,000 shares of the Company’s common stock outstanding.
For the year ended December 31, 2024, 3,485 shares were reacquired at an average per share price of $24.42 pursuant to these tax withholding transactions. (2) The stock repurchase program was announced on April 24, 2014, whereby the Company is authorized to repurchase up to 50,000 shares of the Company’s common stock outstanding.
For the year ended December 31, 2025, 5,439 shares were reacquired at an average per share price of $27.45 pursuant to these tax withholding transactions. Item 6. [Reserved] 44
Removed
There is no express expiration date for this program. 46 Item 6. [Reserved]
Added
There is no express expiration date for this program. (2) The number of shares above includes shares of common stock reacquired from the Company’s executive officers and employees to satisfy the tax withholding obligations on restricted stock awards granted under the Company’s 2015 Stock Option and Incentive Plan.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Deposits are a fundamental and cost-effective source of funds for lending and other investment purposes. The Company offers a variety of products designed to attract and retain customers, with the primary focus on building and expanding relationships.
Deposits Deposits are a fundamental and cost-effective source of funds for lending and other investment purposes. The Company offers a variety of products designed to attract and retain customers, with the primary focus on building and expanding relationships.
Risk factors for non-performing and internally classified loans are based on an analysis of either the projected discounted cash flows or the estimated collateral liquidation value for individual loans defined as substandard or doubtful. Estimated collateral liquidation values are based on established loan underwriting standards and adjusted for current mitigating factors on a loan-by-loan basis.
Risk factors for non-performing and internally classified loans are based on an analysis of either the projected discounted cash flows or the estimated collateral liquidation value for individual loans defined as substandard or doubtful. 56 Estimated collateral liquidation values are based on established loan underwriting standards and adjusted for current mitigating factors on a loan-by-loan basis.
The MOU documents an understanding among the Bank, the FDIC, and DFI that, among other things, the Bank will: refrain from paying cash dividends without prior regulatory approval and develop and implement certain plans regarding the Bank’s operations, capital, and strategy. The Bank will submit written quarterly progress reports to the FDIC and DFI detailing compliance with the MOU.
The MOU documents an understanding among the Bank, the FDIC, and DFI that, among other things, the Bank will: refrain from paying cash dividends without prior regulatory approval and develop and implement certain plans regarding the Bank’s operations, capital, and strategy. The Bank will 45 submit written quarterly progress reports to the FDIC and DFI detailing compliance with the MOU.
This may be done as a part of a renewal, loan workout or as a part of the usual and customary real estate review process that monitors the risks associated with the Bank’s loan portfolios. The Company is primarily a portfolio lender.
This may be done as a part of a renewal, loan workout or as a part of the usual and customary real estate review process that monitors the risks associated with the Bank’s loan portfolios. 47 The Company is primarily a portfolio lender.
In addition, under the terms of the MOU, the Bank must seek regulatory approval prior to paying cash dividends. See “– Regulatory Developments Regarding the Company and the Bank – Memorandum of Understanding” above.
In addition, under the terms of the MOU, the Bank must seek regulatory approval prior to paying cash dividends. See “– Recent Developments Regarding the Company and the Bank – Memorandum of Understanding” above.
The determination of the amounts of the ACL and provisions for credit losses is based on management’s current judgments about the credit quality of the loan portfolio with consideration given to all known relevant internal and external factors that affect loan collectability as of the reporting date.
The determination of the amounts of the ACL and provisions for credit losses is based on management’s current judgments about the credit quality of the loan portfolio with consideration given to all known relevant internal and external factors that affect loan collectability and reasonable and supportable forecasts as of the reporting date.
However, the Bank must obtain the approval of the Indiana Department of Financial Institutions (DFI) if the total of all dividends declared by the Bank during the current year, including the proposed dividend, would exceed the sum of retained net income for the year to date plus its retained net income for the previous two years.
However, the Bank must obtain the approval of the DFI if the total of all dividends declared by the Bank during the current year, including the proposed dividend, would exceed the sum of retained net income for the year to date plus its retained net income for the previous two years.
No loans were internally classified as doubtful or loss at December 31, 2024 or December 31, 2023.
No loans were internally classified as doubtful or loss at December 31, 2025 or December 31, 2024.
Particular attention is given to non-accruing loans and accruing loans past due 90 days or more, and loans that have been classified as substandard, doubtful, or loss. Changes in the provision are directionally consistent with changes in observable data.
Particular attention is given to non-accruing loans and accruing loans past due 90 days or more, and loans that have been classified as substandard, doubtful, or loss. Changes in the provision for credit losses are directionally consistent with changes in observable credit risk indicators.
The Company will also retain fixed rate mortgage loans with a contractual maturity greater than 15 years on a limited basis. During the year ended December 31, 2024, the Bank originated $36.8 million in new fixed rate mortgage loans for sale, compared to $38.0 million during the year ended December 31, 2023.
The Company will also retain fixed rate mortgage loans with a contractual maturity greater than 15 years on a limited basis. During the year ended December 31, 2025, the Company originated $40.9 million in new fixed rate mortgage loans for sale, compared to $36.8 million during the year ended December 31, 2024.
Historical risk factors are calculated for residential, commercial real estate, commercial business, and consumer loans. The three year weighted average historical factors are then adjusted for current subjective risks attributable to: regional and national economic factors; loan growth and changes in loan composition; organizational structure; composition of loan staff; loan concentrations; policy changes and out of market lending activity.
The three year weighted average historical factors are then adjusted for current subjective risks attributable to: regional and national economic factors; loan growth and changes in loan composition; organizational structure; composition of loan staff; loan concentrations; policy changes and out of market lending activity.
During the year ended December 31, 2024, the Bank originated $27.4 million in new 1-4 family loans retained in its portfolio, compared to $41.6 million during the year ended December 31, 2023.
During the year ended December 31, 2025, the Bank originated $17.8 million in new 1-4 family loans retained in its portfolio, compared to $27.4 million during the year ended December 31, 2024.
The Bancorp's substandard loans are summarized below: (Dollars in thousands) Loan Segment December 31, 2024 December 31, 2023 Residential real estate $ 4,754 $ 2,098 Home equity 490 479 Commercial real estate 1,598 2,544 Construction and land development 2,285 - Multifamily 3,550 4,245 Commercial business 3,290 2,896 Consumer - 2 Manufactured homes 54 - Total $ 16,021 $ 12,264 In addition to identifying and monitoring non-performing and other classified loans, management maintains a list of special mention loans.
The Company's substandard loans are summarized below: (Dollars in thousands) Loan Segment December 31, 2025 December 31, 2024 Residential real estate $ 6,016 $ 4,754 Home equity 813 490 Commercial real estate 1,561 1,598 Construction and land development 2,234 2,285 Multifamily 696 3,550 Commercial business 1,439 3,290 Manufactured homes 71 54 Total $ 12,830 $ 16,021 48 In addition to identifying and monitoring non-performing and other classified loans, management maintains a list of special mention loans.
Bank Level Capital Minimum Required To Be (Dollars in thousands) Minimum Required For Well Capitalized Under Prompt Actual Capital Adequacy Purposes Corrective Action Regulations December 31, 2024 Amount Ratio Amount Ratio Amount Ratio Common equity tier 1 capital to risk-weighted assets $179,625 11.26% $71,771 4.50% $103,670 6.50% Tier 1 capital to risk-weighted assets $179,625 11.26% $95,695 6.00% $127,594 8.00% Total capital to risk-weighted assets $194,499 12.19% $127,594 8.00% $159,492 10.00% Tier 1 capital to adjusted average assets $179,625 8.47% $84,854 4.00% $106,068 5.00% 56 The Company’s ability to pay dividends to its shareholders is largely dependent upon the Bank’s ability to pay dividends to the Company.
(Dollars in thousands) Actual Minimum Required For Capital Adequacy Purposes Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations December 31, 2025 Amount Ratio Amount Ratio Amount Ratio Common equity tier 1 capital to risk-weighted assets $ 186,214 11.86 % $ 70,626 4.50 % $ 102,016 6.50 % Tier 1 capital to risk-weighted assets $ 186,214 11.86 % $ 94,168 6.00 % $ 125,558 8.00 % Total capital to risk-weighted assets $ 205,472 13.09 % $ 125,558 8.00 % $ 156,947 10.00 % Tier 1 leverage ratio $ 186,214 8.93 % $ 83,379 4.00 % $ 104,223 5.00 % 53 (Dollars in thousands) Actual Minimum Required For Capital Adequacy Purposes Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations December 31, 2024 Amount Ratio Amount Ratio Amount Ratio Common equity tier 1 capital to risk-weighted assets $ 179,625 11.26 % $ 71,771 4.50 % $ 103,670 6.50 % Tier 1 capital to risk-weighted assets $ 179,625 11.26 % $ 95,695 6.00 % $ 127,594 8.00 % Total capital to risk-weighted assets $ 194,499 12.19 % $ 127,594 8.00 % $ 159,492 10.00 % Tier 1 leverage ratio $ 179,625 8.47 % $ 84,854 4.00 % $ 106,068 5.00 % The Company’s ability to pay dividends to its shareholders is largely dependent upon the Bank’s ability to pay dividends to the Company.
The Bancorp's nonperforming loans are summarized below: (Dollars in thousands) Loan Segment December 31, 2024 December 31, 2023 Residential real estate $ 4,665 $ 2,824 Home equity 483 468 Commercial real estate 1,280 1,545 Construction and land development 658 - Multifamily 3,362 3,715 Commercial business 3,290 2,897 Consumer - 2 Total $ 13,738 $ 11,451 Nonperforming loans to total loans 0.91 % 0.76 % Nonperforming loans to total assets 0.67 % 0.54 % 51 Substandard loans include non-performing loans and potential problem loans, where information about possible credit issues or other conditions causes management to question the ability of such borrowers to comply with loan covenants or repayment terms.
The Company's non-performing loans are summarized below: (Dollars in thousands) Loan Segment December 31, 2025 December 31, 2024 Residential real estate $ 5,932 $ 4,665 Home equity 810 483 Commercial real estate 1,561 1,280 Construction and land development 653 658 Multifamily 696 3,362 Commercial business 1,439 3,290 Manufactured homes 71 - Total $ 11,162 $ 13,738 Non-performing loans to total loans 0.77 % 0.91 % Non-performing loans to total assets 0.55 % 0.67 % Substandard loans include potential problem loans, where information about possible credit issues or other conditions causes management to question the ability of such borrowers to comply with loan covenants or repayment terms.
Other accounting policies, including those related to the fair values of financial instruments and the status of contingencies, are summarized in Note 1 to the Company’s consolidated financial statements. 58 Allowance for credit losses – The Company maintains an Allowance for credit losses (“ACL”) to absorb probable incurred credit losses that arise from the loan portfolio.
Other accounting policies, including those related to the fair values of financial instruments and the status of contingencies, are summarized in Note 1 to the Company’s consolidated financial statements. Allowance for credit losses – The Company maintains an allowance for credit losses to reflect management's estimate of expected credit losses over the contractural life of the loan portfolio.
Memorandum of Understanding On August 9, 2024, the Bank entered into a memorandum of understanding (“MOU”) with the FDIC and DFI. The MOU is an informal administrative agreement pursuant to which the Bank has agreed to take various actions and comply with certain requirements to enhance certain areas of the Bank’s operations.
The MOU is an informal administrative agreement pursuant to which the Bank has agreed to take various actions and comply with certain requirements to enhance certain areas of the Bank’s operations.
The appropriateness of the current period provision and the overall adequacy of the ACL are determined through a disciplined and consistently applied quarterly process that reviews the Company’s current credit risk within the loan portfolio and identifies the required allowance for credit losses given the current risk estimates. 53 The ACL provisions take into consideration management’s current judgments about the credit quality of the loan portfolio, loan portfolio balances, changes in the portfolio mix and local economic conditions.
The appropriateness of the current period provision and the overall adequacy of the ACL are determined through a disciplined and consistently applied quarterly process that reviews the Company’s current credit risk within the loan portfolio and identifies the required allowance for credit losses given the current risk estimates.
Cash provided from operating activities was primarily a result of net income, sale of loans originated for sale, proceeds from a real estate sale leaseback transaction, and net change in other assets, accrued expenses, and other liabilities, offset by loans originated for sale and gain on sale of loans held-for-sale.
Cash used in operating activities was primarily a result of net income and sale of loans originated for sale offset by loans originated for sale and net change in accrued expenses and other liabilities.
Given prevailing market conditions such as continued elevated interest rate levels, reduced occupancy as a result of the increase in hybrid work arrangements, and lower commercial real estate valuations, we are carefully monitoring these loans for signs of deterioration in credit quality.
Given prevailing market conditions such as continued elevated interest rate levels and reduced occupancy as a result of the increase in hybrid work arrangements, we are carefully monitoring these loans for signs of deterioration in credit quality. 46 Commercial real estate loans remained our largest loan segment and accounted for 38.3% of the total loan portfolio at December 31, 2025 and 36.6% at December 31, 2024.
These deficiencies are then stated as a percentage of the total substandard balances to determine the appropriate risk factors. 59 Risk factors for performing and non-classified loans are based on a weighted average of net charge-offs for the most recent three years, which are then stated as a percentage of average loans for the same period.
Risk factors for performing and non-classified loans are based on a weighted average of net charge-offs for the most recent three years, which are then stated as a percentage of average loans for the same period. Historical risk factors are calculated for residential, commercial real estate, commercial business, and consumer loans.
These retained loans are primarily construction loans and adjustable-rate loans with a fixed-rate period of 7 years or less, and the Bank continues to sell longer-duration fixed rate mortgages into the secondary market. Net gains realized from the mortgage loan sales totaled $1.1 million for the year ended December 31, 2024, and 2023.
These retained loans are primarily construction loans and adjustable-rate loans with a fixed-rate period of 7 years or less, and the Bank continues to sell longer-duration fixed rate mortgages into the secondary market.
In determining the provision for credit losses for the current period, management has considered risks associated with the local economy, changes in loan balances and mix, and asset quality. A deferred cost reserve is maintained for the portfolio of manufactured home loans that have been purchased.
In determining the provision for credit losses for the current period, management has considered risks associated with the local economy, changes in loan balances and mix, and asset quality.
Actual results could differ from those estimates. Estimates associated with the Allowance for credit losses are particularly susceptible to material change in the near term. At December 31, 2024, the Company had total assets of $2.1 billion and total deposits of $1.8 billion.
Actual results could differ from those estimates. Estimates associated with the Allowance for credit losses are particularly susceptible to material change in the near term.
The Bank has engaged with one of the nation’s longest-standing third-party appraisal management companies for ordering, management, fulfillment and review of real estate appraisals and other valuation-related services for the properties securing the Bank’s commercial real estate loans. 50 Criteria that may require the Bank to obtain a new appraisal or update the existing value for an existing credit include but are not limited to a change in the discount or capitalization rates for a particular location or property type; occupancy or absorption levels; market trends; and/or expense structure.
Criteria that may require the Bank to obtain a new appraisal or update the existing value for an existing credit include but are not limited to a change in the discount or capitalization rates for a particular location or property type; occupancy or absorption levels; market trends; and/or expense structure.
December 31, December 31, (Dollars in thousands) 2024 2023 Balance % Loans Balance % Loans Residential real estate $ 467,293 31.0 % $ 484,948 32.1 % Home equity 49,758 3.3 46,599 3.1 Commercial real estate 551,674 36.6 503,202 33.4 Construction and land development 82,874 5.5 115,227 7.6 Multifamily 212,455 14.1 219,917 14.6 Commercial business 104,246 6.9 97,386 6.5 Consumer 551 - 610 - Manufactured Homes 26,708 1.8 30,845 2.0 Government 11,024 0.7 10,021 0.7 Gross loans receivable 1,506,583 100.0 % 1,508,755 100.0 % Plus: Net deferred loans origination costs 2,439 3,705 Loan clearing funds (46 ) 135 Loans receivable, net of deferred fees and costs $ 1,508,976 $ 1,512,595 Adjustable rate loans / loans receivable $ 793,920 52.7 % $ 745,635 49.4 % 49 Our total commercial real estate portfolio (which is comprised of loans secured by office space, medical office space, and mixed-use retail/office space) totaled $551.7 million as of December 31, 2024, compared to $503.2 million as of December 31, 2023.
The Company’s end-of-period loan balances were as follows: December 31, 2025 December 31, 2024 (Dollars in thousands) Balance % Loans Balance % Loans Residential real estate $ 442,443 30.5 % $ 467,293 31.0 % Home equity 53,497 3.7 % 49,758 3.3 % Commercial real estate 555,594 38.3 % 551,674 36.6 % Construction and land development 77,208 5.3 % 82,874 5.5 % Multifamily 183,902 12.7 % 212,455 14.1 % Commercial business 99,304 6.9 % 104,246 6.9 % Consumer 870 0.1 % 551 — % Manufactured homes 23,708 1.6 % 26,708 1.8 % Government 12,298 0.9 % 11,024 0.7 % Loans receivable 1,448,824 100.0 % 1,506,583 100.0 % Plus: Net deferred loans origination costs 1,606 2,439 Loan clearing funds (43) (46) Loans receivable, net of deferred fees and costs $ 1,450,387 $ 1,508,976 Adjustable rate loans / loans receivable $ 811,901 56.0 % $ 793,920 52.7 % Our total commercial real estate portfolio (which includes but is not limited to loans secured by office space, medical office space, and mixed-use retail/office space) totaled $555.6 million as of December 31, 2025, compared to $551.7 million as of December 31, 2024.
At December 31, 2024, the cost basis of the two collateralized debt obligations on non-accrual status totaled $2.2 million. 54 The carrying value of the Company’s investment portfolio and other short-term investments and stock balances at December 31, 2024 and 2023 were as follows: December 31, December 31, (Dollars in thousands) 2024 2023 Balance % Securities Balance % Securities U.S. government sponsored entities $ 8,061 2.4 % $ 7,883 2.1 % Collateralized mortgage obligations and residential mortgage-backed securities 109,325 32.8 123,464 33.2 Municipal securities 214,749 64.4 238,670 64.3 Collateralized debt obligations 1,419 0.4 1,357 0.4 Total securities available-for-sale $ 333,554 100.0 % $ 371,374 100.0 % YTD (Dollars in thousands) December 31, December 31, Change 2024 2023 $ % Interest bearing deposits in other financial institutions $ 52,047 $ 67,647 $ (15,600 ) -23.1 % Fed funds sold 654 419 235 56.1 % Federal Home Loan Bank stock 6,547 6,547 - - The net decrease in interest bearing deposits in other financial institutions is primarily the result of the timing of investments in interest earning assets relative to the inflow and outflow of deposits, repurchase agreements and borrowed funds.
At December 31, 2025, the securities portfolio represented 16.9% of interest-earning assets and 15.6% of total assets compared to 17.5% of interest-earning assets and 16.2% of total assets at December 31, 2024. 50 The Company’s end-of-period investment portfolio and other short-term investments and stock balances were as follows: December 31, 2025 December 31, 2024 (Dollars in thousands) Balance % Securities Balance % Securities U.S. government agency securities $ 8,466 2.7 % $ 8,061 2.4 % Collateralized mortgage obligations and residential mortgage-backed securities 104,665 33.1 % 109,325 32.8 % Municipal securities 201,214 63.6 % 214,749 64.4 % Collateralized debt obligations 1,882 0.6 % 1,419 0.4 % Total securities available-for-sale $ 316,227 100.0 % $ 333,554 100.0 % (Dollars in thousands) December 31, 2025 December 31, 2024 $ Change % Change Interest bearing deposits in other financial institutions $ 101,382 $ 52,047 $ 49,335 94.8 % Fed funds sold - 654 (654) (100.0 %) Federal Home Loan Bank stock 6,547 6,547 - - The increase in interest bearing deposits in other financial institutions is the result of the timing of loan fundings and payoffs, inflow and outflow of deposits, repurchase agreements and borrowed funds.
A further breakdown of the composition of the commercial real estate loan portfolio as of December 31, 2024 and December 31, 2023 is shown in the table below: Commercial Real Estate (CRE)* (Dollars in thousands) December 31, 2024 December 31, 2023 # Loans $ Amount % of Total Net Loans # Loans $ Amount % of Total Net Loans CRE Owner Occupied (CRE OO) Food Services & Drinking Places 65 $ 30,481 2.0 % 67 $ 31,171 2.1 % Gasoline Stations & Fuel Dealers 28 28,957 1.9 34 28,346 1.9 Ambulatory Health Care Services 33 28,891 1.9 23 25,673 1.7 Repair and Maintenance 34 16,050 1.1 32 11,135 0.7 Specialty Trade Contractors 31 13,265 0.9 16 13,412 0.9 Merchant Wholesalers, Durable Goods 13 12,332 0.8 28 8,527 0.6 Personal and Laundry Services 31 10,673 0.7 32 11,352 0.8 Truck Transportation 12 10,350 0.7 30 11,461 0.8 Professional, Scientific, and Technical Services 26 10,266 0.7 10 10,499 0.7 Other 195 85,344 5.7 183 68,385 4.5 Total CRE Owner Occupied (CRE OO) 468 $ 246,609 16.4 % 455 $ 219,961 14.6 % CRE Non Owner Occupied (CRE NOO) Strip Centers - Lessors 165 $ 140,360 9.3 % 157 $ 124,096 8.2 % Hotels 18 48,659 3.2 16 42,527 2.8 Industrial Properties - Lessors 60 43,581 2.9 54 41,208 2.7 Office Properties - Lessors 57 38,472 2.6 59 38,895 2.6 Special Use - Lessors 10 11,527 0.8 12 10,863 0.7 Big Box Retail - Lessors 2 8,201 0.5 2 8,538 0.6 MiniWarehouses - Lessors 17 8,011 0.5 16 7,934 0.5 Other 14 6,254 0.4 14 9,180 0.6 Total CRE Non Owner Occupied (CRE NOO) 343 $ 305,065 20.2 % 330 $ 283,241 18.8 % Total Commercial Real Estate (OO & NOO) 811 $ 551,674 36.6 % 785 $ 503,202 33.4 % Total Gross Loans $ 1,506,583 $ 1,508,755 * North American Industry Classification System (NAICS) classification coding for CRE loans began in 2023.
A further breakdown of the composition of the commercial real estate loan portfolio as of December 31, 2025 and December 31, 2024 is shown in the table below: Commercial Real Estate (CRE) December 31, 2025 December 31, 2024 (Dollars in thousands) # Loans $ Amount % of Total Gross Loans # Loans $ Amount % of Total Gross Loans CRE OO Food services & drinking places 65 $ 35,961 2.5 % 65 $ 30,481 2.0 % Ambulatory health care services 32 31,262 2.2 % 33 28,891 1.9 % Gasoline stations and fuel dealers 31 29,848 2.1 % 28 28,957 1.9 % Repair and maintenance 37 18,333 1.3 % 34 16,050 1.1 % Specialty trade contractors 32 15,571 1.1 % 31 13,265 0.9 % Truck transportation 14 10,939 0.8 % 12 10,350 0.7 % Merchant wholesalers, durable goods 12 10,888 0.8 % 13 12,332 0.8 % Personal and laundry services 33 10,248 0.7 % 31 10,673 0.7 % Professional, scientific, and technical services 22 8,680 0.6 % 26 10,266 0.7 % Other 191 81,724 5.3 % 195 85,344 5.7 % CRE OO 469 $ 253,454 17.4 % 468 $ 246,609 16.4 % CRE NOO Retail centers - lessors 165 $ 138,425 9.6 % 165 $ 140,360 9.3 % Industrial properties - lessors 65 49,502 3.4 % 60 43,581 2.9 % Office properties - lessors 62 42,139 2.9 % 57 38,472 2.6 % Hotels 16 40,047 2.8 % 18 48,659 3.2 % Special use - lessors 10 10,501 0.7 % 10 11,527 0.8 % Mini Warehouses - lessors 19 8,310 0.6 % 17 8,011 0.5 % Big box retail - lessors 2 7,845 0.5 % 2 8,201 0.5 % Other 9 5,371 0.4 % 14 6,254 0.4 % Total CRE Non Owner Occupied (CRE NOO) 348 $ 302,140 20.9 % 343 $ 305,065 20.2 % Total Commercial Real Estate (OO & NOO) 817 $ 555,594 38.3 % 811 $ 551,674 36.6 % Total Gross Loans $ 1,448,824 $ 1,506,583 The Bank’s Appraisal Policy and Procedures is Board approved annually and reflects current regulatory guidelines and recommendations.
The following table shows that, at December 31, 2024, the Bank’s capital exceeded all applicable regulatory capital requirements set forth in 12 C.F.R. § 324.
The repurchase of these surrendered shares is considered outside of the scope of the formal board approved stock repurchase program. In addition, the following table shows that, at December 31, 2025 and December 31, 2024, the Bank’s capital exceeded all applicable regulatory capital requirements as set forth in 12 C.F.R. § 324.
Management does not expect the actions called for by these regulatory actions to have a substantial impact on the Company’s or the Bank’s ongoing day-to-day operations, although they may have the effect of limiting or delaying the Company’s or the Bank’s ability or plans to expand and engage in business combinations. 48 Financial Condition During the year ended December 31, 2024, total assets decreased by $47.6 million (2.3%), to $2.1 billion, with interest-earning assets decreasing by $55.8 million (2.9%).
Management does not expect the actions called for by these regulatory actions to have a substantial impact on the Company’s or the Bank’s ongoing day-to-day operations, although they may have the effect of limiting or delaying the Bancorp’s or the Bank’s ability or plans to expand and engage in business acquisitions.
The ACL is increased by the provision for credit losses, and decreased by charge-offs net of recoveries. The determination of the amounts of the ACL and provisions for loan losses is based upon management’s current judgments about the credit quality of the loan portfolio with consideration given to all known relevant internal and external factors that affect loan collectability.
The ACL is increased by the provision for credit losses, and decreased by charge-offs net of recoveries. The determination of the ACL and provision for credit losses is based upon management’s evaluation of the credit quality of the loan portfolio, considering relevant internal and external information including past events, current conditions, and reasonable and supportable forecasts that affect collectibility.
Appraisals must be prepared in accordance with high professional standards, by appraisers who have the necessary training, experience and knowledge for them to provide an accurate estimate of value. With few exceptions, appraisals are assigned to fee appraisers named in the Board approved appraiser list, which includes the tracking of all required certifications, licenses and insurance.
With few exceptions, appraisals are assigned to fee appraisers named in the Board approved appraiser list, which includes the tracking of all required certifications, licenses and insurance.
Factors that are taken into consideration in the analysis include an assessment of national and local economic trends, a review of current year loan portfolio growth and changes in portfolio mix, and an assessment of trends for loan delinquencies and loan charge-off activity.
The methodology used to determine the ACL includes a disciplined and consistently applied quarterly process that combines a review of the current portfolio with a risk assessment analysis. Factors considered in the evaluation include national and local economic trends, current year loan portfolio growth and changes in portfolio mix, and trends in loan delinquencies and loan charge-off activity.
The primary uses of cash and cash equivalents were the payment of dividends, change in deposits, repayment of borrowed funds, and loan originations. During 2024, net cash from operating activities totaled $10.0 million, compared to $24.2 million for 2023.
The primary uses of cash and cash equivalents were loan originations of loans held for sale and the net change in deposits. Cash provided by operating activities totaled $9.9 million for the year ended December 31, 2025, compared to cash provided of $10.0 million for the year ended December 31, 2024.
Based on the above discussion, management believes that the ACL is currently adequate, but not excessive, given the risk inherent in the loan portfolio.
Based on the above discussion, management believes that the ACL is currently adequate, but not excessive, given the risk inherent in the loan portfolio. Non-GAAP Financial Measures This filing includes certain financial measures that are identified as non-GAAP, including adjusted net interest income and tax adjusted net interest margin.
Aggregate substandard loan collateral deficiencies are determined for residential, commercial real estate, commercial business, and consumer loan portfolios.
Aggregate substandard loan collateral deficiencies are determined for residential, commercial real estate, commercial business, and consumer loan portfolios. These deficiencies are then stated as a percentage of the total substandard balances to determine the appropriate risk factors.
Funds are generally invested in federal funds, interest bearing balances in other financial institutions, U.S. government securities, U.S. treasury securities, federal agency obligations, obligations of state and local municipalities and corporate securities. The securities portfolio totaled $333.6 million at December 31, 2024, compared to $371.4 million at December 31, 2023, an decrease of $37.8 thousand or 10.2%.
Funds are generally invested in federal funds, interest bearing balances in other financial institutions, U.S. government securities, U.S. treasury securities, federal agency obligations, obligations of state and local municipalities, mortgage-backed securities, and corporate securities.
Cash flows from operating activities are generally the cash effects of transactions and other events that enter into the determination of net income. The primary investing activities include loan originations, loan repayments, investments in interest bearing balances in financial institutions, and the purchase, sale, and maturity of investment securities. Financing activities focus almost entirely on the generation of customer deposits.
The primary investing activities include loan originations, loan repayments, investments in interest bearing balances in other financial institutions, and the purchase, sale, and maturity of investment securities. Financing activities focus almost entirely on the generation of customer deposits. In addition, the Company utilizes borrowings (i.e., repurchase agreements, FHLB advances and federal funds purchased) as a source of funds.
Management does not presently anticipate that any of the non-performing loans or classified loans would materially affect future operations, liquidity or capital resources.
Management does not presently anticipate that any of the non-performing loans or classified loans would materially affect future operations, liquidity or capital resources. The ACL is a valuation allowance for expected losses over the estimated life of loan portfolio, increased by the provision for credit losses, and decreased by charge-offs net of recoveries.
The aggregate amount of dividends that the Bank was eligible to declare in 2024, without the need for qualifying for an exemption or prior DFI approval, was its 2024 net income. On December 20, 2024, the Board of Directors of the Company declared a fourth quarter dividend of $0.12 per share.
Assuming receipt of regulatory approval for all cash dividends declared by the Bank under the terms of the MOU, the aggregate amount of dividends that the Bank was eligible to declare in 2025, without the need for qualifying for a further exemption or prior DFI approval under the terms of Indiana law described above, was its 2025 net income.
The Company’s end-of-period deposit portfolio balances were as follows: YTD (Dollars in thousands) December 31, December 31, Change 2024 2023 $ % Checking $ 591,487 $ 653,529 $ (62,042 ) -9.5 % Savings 275,121 302,782 (27,661 ) -9.1 Money market 333,705 324,993 8,712 2.7 Certificates of deposit 560,253 532,117 28,136 5.3 Total deposits $ 1,760,566 $ 1,813,421 $ (52,855 ) -2.9 % On December 31, 2024, balances for certificates of deposit totaled $560.3 million, compared to $532.1 million on December 31, 2023, an increase of $28.1 million or 5.3%.
The Company’s end-of-period deposit portfolio balances were as follows: (Dollars in thousands) December 31, 2025 December 31, 2024 $ Change % Change Checking $ 592,214 $ 591,487 $ 727 0.1 % Savings 254,055 275,121 (21,066) (7.7 %) Money market 381,111 333,705 47,406 14.2 % Certificates of deposit 499,591 560,253 (60,662) (10.8 %) Total deposits $ 1,726,971 $ 1,760,566 $ (33,595) (1.9 %) As of December 31, 2025, deposits totaled $1.7 billion, a decrease of $33.6 million or 1.9% compared to December 31, 2024.
Management strongly believes that safety and soundness is enhanced by maintaining a high level of capital. Stockholders' equity totaled $151.4 million at December 31, 2024, compared to $147.3 million at December 31, 2023, an increase of $4.1 million (2.8%).
Management strongly believes that maintaining a high level of capital enhances safety and soundness. During the year ended December 31, 2025, stockholders' equity increased by $23.2 million or 15.4%.
Borrowed funds decreased due to cyclical inflows and outflows of interest-earning assets and interest-bearing liabilities. 55 Liquidity and Capital Resources For the Company, liquidity management refers to the ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, and pay dividends and operating expenses.
Liquidity and Capital Resources For the Company, liquidity management refers to the ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, and pay dividends and operating expenses. Because profit and liquidity are often conflicting objectives, management attempts to maximize the Bank’s net interest margin by making adequate, but not excessive, liquidity provisions.
At December 31, 2024, management is of the opinion that there are no loans, except certain of those discussed above, where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which will imminently result in such loans being classified as past due, non-accrual or a troubled loan modification.
The Company's special mention loans are summarized below: (Dollars in thousands) Loan Segment December 31, 2025 December 31, 2024 Residential real estate $ 4,797 $ 4,291 Home equity 305 459 Commercial real estate 13,200 8,008 Construction and land development 557 3,675 Multifamily 2,857 5,329 Commercial business 2,768 3,528 Manufactured homes 28 - Total $ 24,512 $ 25,290 At December 31, 2025, management is of the opinion that there are no loans where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which will imminently result in such loans being classified as past due or nonaccrual.
Net cash outflows from financing activities totaled $68.0 million in 2024, compared to net cash inflows of $15.5 million in 2023. The net cash flows from financing activities were primarily a result of net change in deposits, repayment of borrowed funds, proceeds from FHLB advances and the net change in repurchase agreements.
Cash used in financing activities totaled $55.7 million during the current period compared to net cash used in financing activities of $68.0 million for the year ended December 31, 2024. The net cash used in financing activities was primarily the result of net change in deposits and proceeds and repayments of borrowed funds.
The Bancorp's allowance to total loans and non-performing loans are summarized below: (Dollars in thousands) December 31, 2024 December 31, 2023 Allowance for credit losses $ 16,911 $ 18,768 Total loans $ 1,508,976 $ 1,512,595 Non-performing loans $ 13,738 $ 11,451 ACL-to-total loans 1.12 % 1.24 % ACL-to-non-performing loans (coverage ratio) 123.1 % 163.9 % The December 31, 2024, balance in the ACL account is considered adequate by management after evaluation of the loan portfolio, past experience and current economic and market conditions.
The Company's allowance to total loans and non-performing loans are summarized below: (Dollars in thousands) December 31, 2025 December 31, 2024 Allowance for credit losses $ 17,506 $ 16,911 Total loans $ 1,450,387 $ 1,508,976 Non-performing loans $ 11,162 $ 13,738 ACL-to-total loans 1.21 % 1.12 % ACL-to-non-performing loans (coverage ratio) 156.8 % 123.1 % Investment Portfolio The primary objective of the Company’s investment portfolio is to provide for the liquidity needs of the Company and to contribute to profitability by providing a stable flow of dependable earnings.
YTD (Dollars in thousands, except per share data) Year Ended December 31, 12/31/2024 vs. 12/31/2023 2024 2023 $ Change % Change Noninterest income: Fees and service charges 5,312 6,024 (712 ) -11.8 % Wealth management operations 2,855 2,484 371 14.9 Gain on tax credit investment 1,236 - 1,236 0.0 Gain on sale of loans held-for-sale, net 1,138 1,081 57 5.3 Loss on sale of securities, net (531 ) (48 ) (483 ) 1006.3 Increase in cash value of bank owned life insurance 812 766 46 6.0 Gain on real estate 11,661 276 11,385 4125.0 Gain (Loss) on sale of foreclosed real estate 1 (13 ) 14 -107.7 Other 163 176 (13 ) -7.4 Total noninterest income 22,647 10,746 11,901 110.7 % The decrease in fees and service charges is primarily the result of decreased FHA mortgage fees, debit card income, and swap fees earned resulting from the current economic and rate environment.
(Dollars in thousands) Year Ended December 31, 12/31/2025 vs. 12/31/2024 2025 2024 $ Change % Change Non-interest income: Fees and service charges $ 5,387 $ 5,312 $ 75 1.4 % Wealth management operations 2,733 2,855 (122) (4.3) % Gain (loss) on tax credit investment 90 1,236 (1,146) (92.7) % Gain (loss) on sale of loans held-for-sale, net 1,219 1,138 81 7.1 % Gain (loss) on sale of securities, net (1,577) (531) (1,046) 197.0 % Bank owned life insurance 1,379 812 567 69.8 % Gain (loss) on sale of property and equipment (55) 11,661 (11,716) (100.5) % Other 122 164 (42) (25.6) % Total non-interest income $ 9,298 $ 22,647 $ (13,349) (58.9 %) The decrease in non-interest income was primarily due to 2025 and 2024 strategic initiatives.
The Company's deposit accounts are insured up to applicable limits by the Deposit Insurance Fund (DIF) that is administered by the Federal Deposit Insurance Corporation (FDIC), an agency of the federal government. At December 31, 2024, stockholders' equity totaled $151.4 million, with book value per share at $35.10.
At December 31, 2025, the Company had total assets of $2.0 billion, loans receivable, net of deferred fees and costs, of $1.4 billion and total deposits of $1.7 billion. The Company's deposit accounts are insured up to applicable limits by the DIF that is administered by the FDIC, an agency of the federal government.
The decrease is attributable to increased unrealized losses within the portfolio and a sale of $15.1 million in securities during the quarter ended March 31, 2024. At December 31, 2024, the securities portfolio represented 17.5% of interest-earning assets and 16.2% of total assets compared to 19.0% of interest-earning assets and 17.6% of total assets at December 31, 2023.
The securities portfolio, all of which is designated as available-for-sale, totaled $316.2 million at December 31, 2025, compared to $333.6 million at December 31, 2024, a decrease of $17.3 million or 5.2%. During the fourth quarter of 2025, the Bank incurred $1.6 million in securities losses, attributable to the execution of securities repositioning transactions.
Regulatory Developments Regarding the Company and the Bank Consent Order On November 7, 2023, the Bank entered into a Stipulation and Consent to the Issuance of a Consent Order (the “Stipulation”) with the FDIC and the Indiana Department of Financial Institutions (“DFI”), consenting to the issuance of a consent order (the “Order”) relating to the Bank’s compliance with the Bank Secrecy Act and its implementing regulations (collectively, the “BSA”).
Termination of Consent Order On August 6, 2025, the FDIC and the DFI terminated the Consent Order issued to the Bank that was effective on November 7, 2023 relating to the Bank's compliance with the Bank Secrecy Act and its implementing regulations.
Interest income and yields on tax-exempt securities and loans are presented using the current federal income tax rate of 21%.
Interest income and yields on tax-exempt securities and loans are presented using the current federal income tax rate of 21%. Management believes that it is standard practice in the banking industry to present net interest income and net interest margin on a fully tax-equivalent basis and that it may enhance comparability for peer comparison purposes.
YTD (Dollars in thousands, except per share data) Year Ended December 31, 12/31/2024 vs. 12/31/2023 2024 2023 $ Change % Change Noninterest expense: Compensation and benefits 27,737 27,655 82 0.3 % Occupancy and equipment 8,250 6,382 1,868 29.3 Data processing 4,672 4,734 (62 ) -1.3 Marketing 799 840 (41 ) -4.9 Federal deposit insurance premiums 1,790 2,003 (213 ) -10.6 Professional and outside services 5,405 4,279 1,126 26.3 Technology 2,243 1,654 589 35.6 Other 7,246 7,684 (438 ) -5.7 Total noninterest expense 58,142 55,231 2,911 5.3 % The increase in noninterest expense is primarily the result of increased occupancy and equipment driven by the Bank’s sale leaseback transaction and professional and outside service expenses associated with BSA resolution and other ongoing improvements made to ongoing bank operations.
(Dollars in thousands) Year Ended December 31, 12/31/2025 vs. 12/31/2024 2025 2024 $ Change % Change Non-interest expense: Compensation and benefits $ 29,588 $ 27,737 $ 1,851 6.7 % Occupancy and equipment 8,161 8,250 (89) (1.1) % Data processing 4,961 4,672 289 6.2 % Marketing 787 799 (12) (1.5) % Federal deposit insurance premiums 1,720 1,790 (70) (3.9) % Professional and outside services 4,226 5,405 (1,179) (21.8) % Technology 2,069 2,243 (174) (7.8) % Other 6,624 7,246 (622) (8.6) % Total non-interest expense $ 58,136 $ 58,142 $ (6) — % Decreases in non-interest expenses during the year ended December 31, 2025, were primarily attributable to non-recurring professional and outside service expenses occurring during 2024 which were associated with the implementation of the corrective actions set forth in the now terminated Consent Order and sale leaseback transaction, as well as lower other costs in 2025 due to the decrease in core deposit intangible expense.
At December 31, 2024, the Company had $1.3 million in loans that were classified as held for sale, compared to $340 thousand at December 31, 2023. Non-performing loans include those loans that are 90 days or more past due and accruing and those loans that have been placed on non-accrual status.
Asset Quality Non-performing loans include those loans that are 90 days or more past due and those loans that have been placed on nonaccrual status.
The Bank’s Appraisal Policy and Procedures is Board approved annually and reflects current regulatory guidelines and recommendations. As one of the primary factors in commercial loan underwriting is the quality of the asset being pledged as collateral, it is imperative that the appraisal process receive appropriate attention.
As one of the primary factors in commercial loan underwriting is the quality of the asset being pledged as collateral, it is imperative that the appraisal process receive appropriate attention. Appraisals must be prepared in accordance with high professional standards, by appraisers who have the necessary training, experience and knowledge for them to provide an accurate estimate of value.
Net cash inflows from investing activities totaled $42.8 million during 2024, compared to outflows of $15.0 million during 2023. Cash inflows from investing activities were primarily related to the net change in loans receivable and purchase of securities, offset against the proceeds from the sales and maturities of securities and certificates of deposit in other financial institutions.
Cash provided by investing activities totaled $94.9 million for the current period, compared to cash provided in investing activities of $43.0 million for the year ended December 31, 2024. Cash provided by investing activities for the current year period was primarily related to net change in loans receivable and proceeds from the sale of securities available-for-sale.
The Company’s fourth quarter dividend was paid on February 3, 2025 to shareholders of record as of January 21, 2025. Results of Operations – Comparison of 2024 to 2023 Net income for 2024 was $12.1 million, compared to $8.4 million for 2023, an increase of $3.8 million (44.8%).
Results of Operations - Comparison of 2025 to 2024 For the year ended December 31, 2025, the Company reported net income of $8.1 million, a decrease of $4.0 million (33.3%) compared to $12.1 million for the year ended December 31, 2024.
At December 31, 2024, interest-earning assets totaled $2.0 billion and represented 92.3% of total assets. Loans totaled $1.5 billion and represented 79.3% of interest-earning assets, 73.2% of total assets and 85.7% of total deposits. The loan portfolio, which is the Company’s largest asset, is a significant source of both interest and fee income.
Loan Portfolio Loans receivable, net of deferred fees and costs totaled $1.45 billion at December 31, 2025 and $1.51 billion at December 31, 2024. The loan portfolio, which is the Company’s largest asset, is the primary source of both interest and fee income. The Company’s lending strategy emphasizes quality loan growth, product diversification, and competitive and profitable pricing.
The decrease in core deposits and increase in certificate of deposit balances is generally related to customer preferences for higher yielding deposits. The Company’s borrowed funds are primarily used to fund asset growth not supported by deposit generation.
Time accounts as a percentage of total deposits were 28.9% at December 31, 2025 and 31.8% at December 31, 2024. Borrowed Funds The Company’s borrowed funds are primarily used to fund asset growth not supported by deposit generation.
Income tax expense for the year ended December 31, 2024, totaled $1.3 million, compared to income tax benefit of $335 thousand for the year ended December 31, 2023, an increase of $1.7 million (495.5%).
Net interest income for the year ended December 31, 2025, was $56.7 million, an increase of $8.3 million (17.1%), compared to $48.4 million for the year ended December 31, 2024. The weighted-average yield on interest-earning assets was 4.85% for the year ended December 31, 2025 compared to 4.67% for the year ended December 31, 2024.
The Company’s end-of-period borrowing balances were as follows: December 31, December 31, YTD (Dollars in thousands) 2024 2023 Change Balance Balance $ % Repurchase agreements $ 40,116 $ 38,124 $ 1,992 5.2 % Borrowed funds 65,000 80,000 (15,000 ) -18.8 Total borrowed funds $ 105,116 $ 118,124 $ (13,008 ) -11.0 % Repurchase agreements increased as part of normal account fluctuations within that product line.
The Company’s end-of-period borrowing balances were as follows: (Dollars in thousands) December 31, 2025 December 31, 2024 $ Change % Change Federal funds purchased and repurchase agreements $ 39,703 $ 40,116 $ (413) (1.0 %) FHLB advances 45,000 65,000 (20,000) (30.8 %) Total borrowed funds $ 84,703 $ 105,116 $ (20,413) (19.4 %) Total borrowed funds were $84.7 million at December 31, 2025 compared to $105.1 million at December 31, 2024, a decrease of $20.4 million or 19.4%.
Net income for 2024 was $12.1 million, or $2.84 diluted earnings per common share. The return on average assets was 0.58%, while the return on average stockholders’ equity was 8.06%.
Stockholders' equity totaled $174.7 million or 8.6% of total assets, with a book value per share of $40.37. Net income for the year ended December 31, 2025, was $8.1 million, or $1.88 earnings per diluted common share. For the year ended December 31, 2025, the ROA was 0.39%, while the ROE was 5.10%.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations General The Company's earnings are dependent upon the earnings of the Bank. The Bank's earnings are primarily dependent upon net interest margin.
The Company has no other business activity other than being a holding company for the Bank. The Company's earnings are dependent upon the earnings of the Bank. The Bank's earnings are primarily dependent upon net interest margin.
The increase in total noninterest income in 2024 was primarily due to the gain on the sale-leaseback transaction and the gain on tax credit investment. The following table shows the change in noninterest expense for the year ending December 31, 2024, and December 31, 2023.
The following table shows the change in non-interest income for the year ended December 31, 2025, and December 31, 2024.
During 2024, total interest income increased by $3.4 million (4.0%) while total interest expense increased by $9.5 million (30.4%). The net interest margin was 2.54% for 2024, compared to 2.83% for 2023. The Company’s tax equivalent net interest margin for 2024, was 2.68% compared to 2.98% for 2023.
The Company’s net interest margin on a tax-equivalent basis was 3.14% for the year ended December 31, 2025, compared to 2.68% for the year ended December 31, 2024.
The weighted-average cost of funds was 2.56% for 2024, compared to 1.96% for 2023. The impact of the 4.67% return on interest earning assets and the 2.56% cost of funds resulted in a net interest spread of 2.21% for 2024, compared to a net interest spread of 2.49% for 2023.
The impact of the 4.85% return on interest-earning assets and the 2.23% cost of interest-bearing liabilities resulted in an interest rate spread of 2.62% for the year ended December 31, 2025, an increase from the 2.11% spread for the year ended December 31, 2024.
The combined effective federal and state tax rates for the Company was 9.85% for the year ended December 31, 2024, compared to (4.16%) for the year ended December 31, 2023. The Company's higher current effective tax rate is a result of higher earnings relative to tax preferred income.
The effective tax rate was 0.3% for the year ended December 31, 2025, as compared to 9.8% for the year ended December 31, 2024. The Company's year-to-date effective tax rate for the year ended December 31, 2025 decreased primarily due to a decrease in pre-tax income.
The increase was primarily due to higher noninterest income, which was driven by a one-time gain on the sale-leaseback transaction and a one-time gain on tax credit investment and also a decrease in the provision expense for credit losses. This earnings increase was offset by lower net interest income and higher non-interest expense.
The decrease in net income and rates of return as compared to 2024 was primarily due to a strategic initiative involving a sale-leaseback transaction completed in 2024 which resulted in a pre-tax non-interest income gain of approximately $11.8 million.
Removed
In consenting to the issuance of the Order, the Bank did not admit or deny any charges of unsafe or unsound banking practices or violations of law or regulation relating to its BSA compliance. The Order is based on findings of the FDIC and DFI during their joint examination commencing in February 2023 (the “Examination”).
Added
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations General Finward Bancorp is a financial holding company registered with the Board of Governors of the Federal Reserve System. Peoples Bank, an Indiana commercial bank, is a wholly-owned subsidiary of the Company.
Removed
Since the completion of the Examination, the board of directors and management of the Company and the Bank have aggressively taken an active role in working to address the findings contained in the Examination and have proactively taken steps to comply with the requirements of the Order prior to its effectiveness, as further discussed below.
Added
The following management’s discussion and analysis presents information concerning our financial condition as of December 31, 2025 and December 31, 2024, and the results of operations for the years ended December 31, 2025 and December 31, 2024.
Removed
Under the terms of the Order, the Bank or its board of directors is required to take certain affirmative actions to comply with the Bank’s obligations under the BSA.
Added
Recent Developments Regarding the Company and the Bank On July 4, 2025, President Trump signed into law the legislation commonly referred to as the One Big Beautiful Bill Act, which is a sweeping federal reconciliation package that permanently extends and expands key provisions of the 2017 Tax Cuts and Jobs Act, introduces new tax benefits (including elevated standard deductions, higher state-and-local tax (SALT) caps, and no taxation on tips and overtime income for certain workers), and enacts broad reductions in government spending.
Removed
These affirmative actions include, but are not limited to, the following: strengthening the board of directors’ oversight of the Bank’s BSA activities; developing, adopting, and implementing a revised BSA compliance program; developing a revised system of internal controls designed to ensure full compliance with the BSA; retaining management qualified to oversee the Bank’s BSA compliance program, including retaining a qualified BSA officer; assessing BSA staffing needs and identifying staff positions and personnel for BSA compliance; developing, adopting, and implementing a revised BSA training program; developing, adopting, and implementing a revised suspicious activity reporting program; implementing a board-approved customer due diligence program, and reviewing and enforcing enhanced customer due diligence and risk assessment procedures; eliminating or correcting certain violations of BSA law and regulations, and correcting BSA program weaknesses; ensuring that all reports required by the BSA are accurately and properly filed; and developing and implementing a written plan to review past account and transaction activity to determine whether suspicious activity was properly identified and reported. 47 Prior to implementation, certain of the actions required by the Order are subject to review by, and approval or non-objection from, the FDIC and the DFI.
Added
The OBBBA is a complex revision to the U.S. federal income tax laws with potentially far-reaching consequences. The OBBBA will require subsequent rulemaking in a number of areas. The long-term impact of the OBBBA on the Company, the Bank, our shareholders, and the banking industry in general cannot be reliably predicted at this early stage of the new law’s implementation.
Removed
The Order will remain in effect and enforceable until it is modified, terminated, suspended, or set aside by the FDIC and DFI. Numerous actions have been taken to date by the Bank to strengthen its BSA and anti-money laundering compliance practices, policies, procedures, and controls.
Added
Shareholders are urged to consult with their own tax advisors regarding the impact of the OBBBA to them and their acquisition, ownership, and disposition of the Company's common stock. The Company's management continues to evaluate the impact of the OBBBA on the Company, the Bank, and its business, financial condition, and results of operations.
Removed
In this regard, the Bank began developing corrective actions prior to the entry of the Order and expects that it will be able to undertake and implement all required actions within the time periods specified in the Order.
Added
The termination of the Consent Order follows the Bank's successful resolution of the deficiencies in the Bank's BSA compliance and anti-money laundering compliance program which was the subject of the Consent Order. Memorandum of Understanding On August 9, 2024, the Bank entered into a memorandum of understanding with the FDIC and DFI.
Removed
These actions include, without limitation, the formation of a Risk Management and Compliance Committee of the board of directors, consisting solely of independent directors, to assist the board in overseeing compliance efforts; enhancing the Bank’s risk management and compliance programs through restructuring reporting lines; improving technology and increasing BSA compliance staff, including hiring senior personnel; making additional investments into processes and system upgrades to strengthen anti-money laundering controls; enhancing education and training of the Bank’s employees responsible for BSA and anti-money laundering compliance; conducting a look-back review of accounts and transaction activity to identify and properly report suspicious activity; and appointing a new Senior Vice President, General Counsel, Corporate Secretary, and Chief Risk Officer of the Company and the Bank with oversight responsibility over the Bank’s enhanced risk management infrastructure, including BSA compliance.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities (repricing risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay home mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S.
Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities (repricing risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay home mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option 57 risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S.
In addition to changes in interest rates, the level of future net interest income is also dependent on a number of other variables, including: the growth, composition and absolute levels of loans, deposits, and other earning assets and interest-bearing liabilities; economic and competitive conditions; potential changes in lending, investing and deposit gathering strategies; and client preferences. 62
In addition to changes in interest rates, the level of future net interest income is also dependent on a number of other variables, including: the growth, composition and absolute levels of loans, deposits, and other earning assets and interest-bearing liabilities; economic and competitive conditions; potential changes in lending, investing and deposit gathering strategies; and client preferences. 59
These tools are utilized to quantify the potential earnings impact of changing interest rates over a 12-month simulation horizon (income simulations) as well as identify expected earnings trends given longer term rate cycles (long term simulations, core funding utilizations, and EVE simulation).
These tools are utilized to quantify the potential earnings impact of changing interest rates over a 12-month simulation horizon (income simulations) as well as identify expected earnings trends given longer term rate cycles (long term simulations, core funding utilizations, and EVE at Risk simulation).
We utilize a simulation model as our primary tool to assess the direction and magnitude of variations in net interest income and EVE resulting from potential changes in market interest rates.
We utilize a simulation model as our primary tool to assess the direction and magnitude of variations in net interest income and EVE at Risk resulting from potential changes in market interest rates.
As of December 31, 2024, the Company has identified interest rate risk as our primary source of market risk. Interest Rate Risk Interest rate risk is the risk to earnings and value arising from changes in market interest rates.
As of December 31, 2025, the Company has identified interest rate risk as our primary source of market risk. Interest Rate Risk Interest rate risk is the risk to earnings and value arising from changes in market interest rates.
Treasuries and SOFR (basis risk). The Company’s Board of Directors establishes broad policy limits with respect to interest rate risk. As part of this policy, the asset liability committee of the Company, or ALCO, establishes specific operating guidelines within the parameters of the Board of Director’s policies.
Treasuries and SOFR (basis risk). The Company’s Board of Directors establishes broad policy limits with respect to interest rate risk. As part of this policy, the Asset Liability Committee establishes specific operating guidelines within the parameters of the Board of Director’s policies.
Evaluation of Interest Rate Risk We use income simulations, an analysis of core funding utilization, and economic value of equity (EVE) simulations as our primary tools in measuring and managing interest rate risk.
Evaluation of Interest Rate Risk We use income simulations, an analysis of core funding utilization, and EVE at Risk simulations as our primary tools in measuring and managing interest rate risk.
Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on our interest-bearing liabilities would reprice upward more quickly than rates earned on our interest-earning assets, thus compressing our net interest margin. 60 Interest rate risk measurement is calculated and reported to the ALCO at least quarterly.
Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on our interest-bearing liabilities would reprice upward more quickly than rates earned on our interest-earning assets, thus compressing our net interest margin.
The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.
Interest rate risk measurement is calculated and reported to the ALCO at least quarterly. The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.
The simulation also measures the change in EVE, or the net present value of our assets and liabilities, under an immediate shift, or shock, in interest rates under various scenarios, as calculated by discounting the estimated future cash flows using market-based discount rates. 61 The following table shows the impact of changes in interest rates on net interest income over the next twelve months and EVE based on our balance sheet as of December 31, 2024 (dollars in millions): EVE %Change NII %Change -400 $ 388 -8.8 % $ 62.4 1.4 % -300 $ 413 -3.0 % $ 62.2 0.9 % -200 $ 434 1.9 % $ 61.6 0.0 % -100 $ 438 2.9 % $ 61.4 -0.3 % Base $ 425 0.0 % $ 61.6 0.0 % +100 $ 402 -5.5 % $ 61.4 -0.3 % +200 $ 362 -14.8 % $ 60.8 -1.3 % +300 $ 308 -27.5 % $ 59.3 -3.7 % +400 $ 252 -40.7 % $ 57.6 -6.6 % If interest rates across the yield curve were to uniformly decrease, this analysis suggests that the Bank may be positioned for relatively neutral to positive improvements in net interest income over the next twelve months.
The simulation also measures the change in EVE at Risk, or the net present value of our assets and liabilities, under an immediate shift, or shock, in interest rates under various scenarios, as calculated by discounting the estimated future cash flows using market-based discount rates. 58 The following table shows the impact of changes in interest rates on net interest income over the next twelve months and EVE at Risk based on our balance sheet as of December 31, 2025 (dollars in millions): Interest Rate Scenario EVE at Risk Percent Change Net interest income Percent Change +400 Bps $ 244 -30.8 % $ 64.8 0.1 % +300 Bps $ 286 -18.7 % $ 65.7 1.5 % +200 Bps $ 324 -7.9 % $ 66.0 1.9 % +100 Bps $ 345 -2.0 % $ 65.5 1.2 % No change $ 352 0.0 % $ 64.8 0.0 % -100 Bps $ 342 -2.7 % $ 64.3 -0.7 % -200 Bps $ 321 -8.8 % $ 64.1 -1.1 % -300 Bps $ 287 -18.6 % $ 63.7 -1.7 % -400 Bps $ 236 -33.1 % $ 62.3 -3.8 % If interest rates across the yield curve were to uniformly decrease, this analysis suggests the Bank may be positioned for relatively neutral to modestly negative changes in net interest income over the next twelve months.
If interest rates across the yield curve were to uniformly increase, this analysis suggests we would experience a reduction in net interest income over the next twelve months. We also forecast the impact of immediate and parallel interest rate shocks on net interest income under various scenarios to measure the sensitivity of our earnings under extreme conditions.
We also forecast the impact of immediate and parallel interest rate shocks on net interest income under various scenarios to measure the sensitivity of our earnings under extreme conditions.
Added
If interest rates across the yield curve were to uniformly increase by approximately 100 to 300 basis points, this analysis suggests we would experience positive impact to net interest income over the next twelve months.
Added
If interest rates across the yield curve were to uniformly increase by a more material amount (400 basis points and above), the analysis suggests we would shift into more neutral impacts to net interest income over the next twelve months.

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