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What changed in Finward Bancorp's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Finward Bancorp's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+396 added−444 removedSource: 10-K (2025-03-31) vs 10-K (2024-03-28)

Top changes in Finward Bancorp's 2024 10-K

396 paragraphs added · 444 removed · 325 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

165 edited+36 added−45 removed109 unchanged
Biggest changeYear ended December 31, 2023 Year ended December 31, 2022 Interest Interest Average Income/ Average Average Income/ Average Balance Expense Rate Balance Expense Rate Assets: Interest bearing balances in financial institutions $ 37,615 $ 1,846 4.91 % $ 23,553 $ 315 1.34 % Federal funds sold 1,341 58 4.33 3,025 11 0.36 Nontaxable Securities 226,896 6,117 2.70 260,485 6,677 2.56 Taxable Securities 142,594 3,000 2.10 170,481 2,899 1.70 Total investments 408,446 11,021 2.70 457,544 9,902 2.16 Loans:* Real estate mortgage loans 1,389,048 66,870 4.81 1,273,453 54,522 4.28 Commercial business loans 96,302 6,419 6.67 118,595 5,862 4.94 Consumer loans 33,660 1,473 4.38 38,969 1,749 4.49 Total loans 1,519,010 74,762 4.92 1,431,017 62,133 4.34 Total interest-earning assets 1,927,456 85,783 4.45 1,888,561 72,035 3.81 Allowance for credit losses (18,106 ) (13,385 ) Other assets 174,011 163,079 Total assets $ 2,083,361 $ 2,038,255 Liabilities: NOW accounts $ 344,449 $ 3,294 0.96 % $ 374,815 $ 1,363 0.36 % Money market demand accounts 284,910 7,777 2.73 286,155 1,052 0.37 Savings accounts 343,008 175 0.05 416,898 216 0.05 Certificates of deposit 488,025 14,192 2.91 368,322 973 0.26 Total interest-bearing deposits 1,460,392 25,438 1.74 1,446,190 3,604 0.25 Repurchase Agreements 35,543 1,294 3.64 20,649 195 0.94 Borrowed funds 98,848 4,496 4.55 26,806 1,087 4.06 Total interest-bearing liabilities 1,594,783 31,228 1.96 1,493,645 4,886 0.33 Demand deposit accounts 323,694 377,408 Other liabilities 31,347 23,132 Total liabilities 1,949,824 1,894,185 Stockholders' equity 133,537 144,070 Total liabilities and stockholders' equity $ 2,083,361 $ 2,038,255 Net interest income $ 54,555 $ 67,149 Net interest spread 2.49 % 3.49 % Net interest margin** 2.83 % 3.56 % Ratio of interest-earning assets to interest-bearing liabilities 1.21 x 1.26 x * Non-accruing loans have been included in the average balances. ** Net interest income divided by average interest-earning assets.
Biggest changeYear ended December 31, 2024 Year ended December 31, 2023 Interest Interest Average Income/ Average Average Income/ Average Balance Expense Rate Balance Expense Rate Assets: Interest bearing balances in financial institutions $ 51,202 $ 2,967 5.79 % $ 37,615 $ 1,846 4.91 % Federal funds sold 912 38 4.17 1,341 58 4.33 Nontaxable Securities 214,939 5,587 2.60 226,896 6,117 2.70 Taxable Securities 138,656 3,071 2.21 142,594 3,000 2.10 Total investments 405,709 11,663 2.87 408,446 11,021 2.70 Loans:* Real estate mortgage loans 1,378,572 69,342 5.03 1,389,048 66,870 4.81 Commercial business loans 96,224 7,068 7.35 96,302 6,419 6.67 Consumer loans 29,410 1,105 3.76 33,660 1,473 4.38 Total loans 1,504,206 77,515 5.15 1,519,010 74,762 4.92 Total interest-earning assets 1,909,915 89,178 4.67 1,927,456 85,783 4.45 Allowance for credit losses (18,529 ) (18,106 ) Other assets 183,981 174,011 Total assets $ 2,075,367 $ 2,083,361 Liabilities: NOW accounts $ 307,173 $ 2,738 0.89 % $ 344,449 $ 3,294 0.96 % Money market demand accounts 323,450 10,813 3.34 284,910 7,777 2.73 Savings accounts 288,708 146 0.05 343,008 175 0.05 Certificates of deposit 542,708 21,465 3.96 488,025 14,192 2.91 Total interest-bearing deposits 1,462,039 35,162 2.40 1,460,392 25,438 1.74 Repurchase Agreements 41,506 1,600 3.85 35,543 1,294 3.64 Borrowed funds 85,927 3,969 4.62 98,848 4,496 4.55 Total interest-bearing liabilities 1,589,472 40,731 2.56 1,594,783 31,228 1.96 Demand deposit accounts 293,508 323,694 Other liabilities 41,893 31,347 Total liabilities 1,924,873 1,949,824 Stockholders' equity 150,494 133,537 Total liabilities and stockholders' equity $ 2,075,367 $ 2,083,361 Net interest income $ 48,447 $ 54,555 Net interest spread 2.11 % 2.49 % Net interest margin** 2.54 % 2.83 % Ratio of interest-earning assets to interest-bearing liabilities 1.20 x 1.21 x * Non-accruing loans have been included in the average balances. ** Net interest income divided by average interest-earning assets. 16 The table below sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated.
Both products offer an interest only option where the borrower pays interest only on the outstanding balance each month. Equity lines will typically require a second mortgage appraisal and a second mortgage lender’s title insurance policy. Loans are generally made up to a maximum of 89% of the appraised value of the property less any outstanding liens.
Both products offer an interest only option where the borrower pays interest only on the outstanding balance each month. Equity lines will typically require an appraisal and a second mortgage lender’s title insurance policy. Loans are generally made up to a maximum of 89% of the appraised value of the property less any outstanding liens.
The formation of NWIN Funding, Inc. provides the Bancorp with a vehicle that may be used to raise capital utilizing portfolio mortgages as collateral, without diluting stock ownership. Columbia Development Company, LLC is a wholly owned subsidiary of the Bank and was incorporated under the laws of the State of Indiana.
The formation of NWIN Funding, Inc. provides the Company with a vehicle that may be used to raise capital utilizing portfolio mortgages as collateral, without diluting stock ownership. Columbia Development Company, LLC is a wholly owned subsidiary of the Bank and was incorporated under the laws of the State of Indiana.
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. 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. 6 Loans for the construction of commercial properties are generally located within an area permitting physical inspection and regular review of business records.
As previously discussed, the Bancorp 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. 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.
However, under the FRB’s “Small Bank Holding Company” exemption from consolidated bank holding company capital requirements, bank holding companies and savings and loan holding companies with less than $3 billion in consolidated assets, such as the Bancorp, are exempt from consolidated regulatory capital requirements, unless the FRB determines otherwise in particular cases.
However, under the FRB’s “Small Bank Holding Company” exemption from consolidated bank holding company capital requirements, bank holding companies and savings and loan holding companies with less than $3 billion in consolidated assets, such as the Company, are exempt from consolidated regulatory capital requirements, unless the FRB determines otherwise in particular cases.
Under a rebuttable presumption established by the FRB, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as the Bancorp, would, under the circumstances set forth in the presumption, constitute acquisition of control of the Bancorp.
Under a rebuttable presumption established by the FRB, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as the Company, would, under the circumstances set forth in the presumption, constitute acquisition of control of the Company.
Under the BHCA, without the prior approval of the FRB, the Bancorp may not acquire direct or indirect control of more than 5% of the voting stock or substantially all of the assets of any company, including a bank, and may not merge or consolidate with another bank holding company.
Under the BHCA, without the prior approval of the FRB, the Company may not acquire direct or indirect control of more than 5% of the voting stock or substantially all of the assets of any company, including a bank, and may not merge or consolidate with another bank holding company.
If the Bancorp meets the current public information requirements under Rule 144, each affiliate of the Bancorp who complies with the other conditions of Rule 144 (including those that require the affiliate’s sale to be aggregated with those of certain other persons) would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of (i) 1% of the outstanding shares of the Bancorp or (ii) the average weekly volume of trading in such shares during the preceding four calendar weeks.
If the Company meets the current public information requirements under Rule 144, each affiliate of the Company who complies with the other conditions of Rule 144 (including those that require the affiliate’s sale to be aggregated with those of certain other persons) would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of (i) 1% of the outstanding shares of the Company or (ii) the average weekly volume of trading in such shares during the preceding four calendar weeks.
On March 12, 2023, the Federal Reserve Board announced the creation of a new Bank Term Funding Program (the “BTFP”). The BTFP offers loans of up to one year to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasury securities, agency debt and mortgage-backed securities, and other qualifying assets as collateral.
On March 12, 2023, the Federal Reserve Board announced the creation of a new Bank Term Funding Program (the “BTFP”). The BTFP offered loans of up to one year to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasury securities, agency debt and mortgage-backed securities, and other qualifying assets as collateral.
Under FDICIA, insured state chartered banks are prohibited from engaging as principal in activities that are not permitted for national banks, unless: (i) the FDIC determines that the activity would pose no significant risk to the appropriate deposit insurance fund, and (ii) the bank is, and continues to be, in compliance with all applicable capital standards.
Under FDICIA, insured state chartered banks are prohibited from engaging as principal in activities that are not permitted for national banks, unless: (i) the FDIC determines that the activity would pose no significant risk to the appropriate deposit insurance fund, and (ii) the bank is, and continues to be, in compliance with all applicable capital standards. Branches and Acquisitions.
The following loans, although not inclusive, are considered preferable for the Bancorp’s commercial loan portfolio, loans collateralized by liquid assets; loans secured by general use machinery and equipment; secured short‑term working capital loans to established businesses secured by business assets; short‑term loans with established sources of repayment and secured by sufficient equity and real estate; and unsecured loans to customers whose character and capacity to repay are firmly established.
The following loans, although not inclusive, are considered preferable for the Company’s commercial loan portfolio, loans collateralized by liquid assets; loans secured by general use machinery and equipment; secured short-term working capital loans to established businesses secured by business assets; short-term loans with established sources of repayment and secured by sufficient equity and real estate; and unsecured loans to customers whose character and capacity to repay are firmly established.
Subsequent payments are either applied to the outstanding principal balance, tax and insurance reserve or recorded as interest income, depending on the assessment of the ultimate collectability of the loan. The Bancorp’s mortgage loan collection procedures provide that, when a mortgage loan is 15 days or more delinquent, the borrower will be contacted by mail and payment requested.
Subsequent payments are either applied to the outstanding principal balance, tax and insurance reserve or recorded as interest income, depending on the assessment of the ultimate collectability of the loan. The Company’s mortgage loan collection procedures provide that, when a mortgage loan is 15 days or more delinquent, the borrower will be contacted by mail and payment requested.
In certain instances, the Bancorp may grant a payment deferral. If a loan continues to be delinquent after 60 days and all collection efforts have been exhausted, the Bancorp will initiate legal proceedings. Collection procedures for commercial business loans provide that when a commercial loan becomes ten days delinquent, the borrower will be contacted by mail and payment requested.
In certain instances, the Company may grant a payment deferral. If a loan continues to be delinquent after 60 days and all collection efforts have been exhausted, the Company will initiate legal proceedings. Collection procedures for commercial business loans provide that when a commercial loan becomes ten days delinquent, the borrower will be contacted by mail and payment requested.
The Bank will not extend credit to any of its executive officers, directors, or principal shareholders or to any related interest of that person, except in compliance with the insider lending restrictions of Regulation O under the Federal Reserve Act and in an amount that, when aggregated with all other extensions of credit to that person, exceeds $1,000,000 unless: (1) the extension of credit has been approved in advance by a majority of the entire Board of Directors of the Bank, and (2) the interested party has abstained from participating directly or indirectly in the voting.
The Bank will not extend credit to any of its executive officers, directors, or principal shareholders or to any related interest of that person, except in compliance with the insider lending restrictions of Regulation O under the Federal Reserve Act and in an amount that, when aggregated with all other extensions of credit to that person, exceeds $1.0 million unless: (1) the extension of credit has been approved in advance by a majority of the entire Board of Directors of the Bank, and (2) the interested party has abstained from participating directly or indirectly in the voting.
The “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Form 10-K lists some of the factors that could cause the Bancorp’s actual results to vary materially from those expressed in or implied by any forward-looking statements. We direct your attention to this discussion.
The “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Form 10-K lists some of the factors that could cause the Company’s actual results to vary materially from those expressed in or implied by any forward-looking statements. We direct your attention to this discussion.
Loan Origination Fees. All loan origination and commitment fees, as well as incremental direct loan origination costs, are deferred and amortized into income as yield adjustments. Loan Origination Procedure. The primary sources for loan originations are referrals from commercial customers, real estate brokers and builders, solicitations by the Bancorp’s lending and retail staff, and advertising of loan programs and rates.
Loan Origination Fees. All loan origination and commitment fees, as well as incremental direct loan origination costs, are deferred and amortized into income as yield adjustments. Loan Origination Procedure. The primary sources for loan originations are referrals from commercial customers, real estate brokers and builders, solicitations by the Company’s lending and retail staff, and advertising of loan programs and rates.
Certain loan renewals and extensions may not require approval by the Board of Directors or the Board Risk Management Committee as long as there is no material change, credit downgrade, significant change in borrower or guarantor status, material release, or change in collateral value or the eligible loan renewal or extension is not outside the current concentration limits set by the Board of Directors.
Certain loan renewals and extensions may not require approval by the Board of Directors or the Credit Committee as long as there is no material change, credit downgrade, significant change in borrower or guarantor status, material release or change in collateral value or the eligible loan renewal or extension is not outside the current concentration limits set by the Board of Directors.
While commercial real estate lending is generally considered to involve a higher degree of risk than single‑family residential lending due to the concentration of principal in a limited number of loans and the effects of general economic conditions on real estate developers and managers, the Bancorp has endeavored to reduce this risk in several ways.
While commercial real estate lending is generally considered to involve a higher degree of risk than single-family residential lending due to the concentration of principal in a limited number of loans and the effects of general economic conditions on real estate developers and managers, the Company has endeavored to reduce this risk in several ways.
An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%. Subject to a narrow exception, a receiver or conservator is required to be appointed for an institution that is “critically undercapitalized” within specified time frames.
An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.00%. Subject to a narrow exception, a receiver or conservator is required to be appointed for an institution that is “critically undercapitalized” within specified time frames.
The average life of mortgage loans is substantially less than their contractual terms because of loan prepayments and because of enforcement of due-on-sale clauses, which give the Bancorp the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells the property subject to the mortgage.
The average life of mortgage loans is substantially less than their contractual terms because of loan prepayments and because of enforcement of due-on-sale clauses, which give the Company the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells the property subject to the mortgage.
Unsecured loans are based on the strength of the applicant’s financial condition. All borrowers must meet current underwriting standards. The consumer loan program includes both fixed and variable rate products. Home Equity Line of Credit. The Bancorp offers a fixed and variable rate revolving line of credit secured by the equity in the borrower’s home.
Unsecured loans are based on the strength of the applicant’s financial condition. All borrowers must meet current underwriting standards. The consumer loan program includes both fixed and variable rate products. Home Equity Line of Credit. The Company offers a fixed and variable rate revolving line of credit secured by the equity in the borrower’s home.
If the loan continues in a delinquent status for 120 days, the Bancorp will generally initiate foreclosure proceedings. Collection procedures for consumer loans provide that when a consumer loan becomes ten days delinquent, the borrower will be contacted by mail and payment requested. If the delinquency continues, subsequent efforts will be made to contact the delinquent borrower.
If the loan continues in a delinquent status for 120 days, the Company will generally initiate foreclosure proceedings. Collection procedures for consumer loans provide that when a consumer loan becomes ten days delinquent, the borrower will be contacted by mail and payment requested. If the delinquency continues, subsequent efforts will be made to contact the delinquent borrower.
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 Bancorp may grant a payment deferral or restructure the loan. Once it has been determined that collection efforts are unsuccessful, the Bancorp 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. Once it has been determined that collection efforts are unsuccessful, the Company will initiate legal proceedings.
The Bancorp is subject to the periodic reporting, proxy solicitation, insider trading restrictions and other requirements of the Exchange Act and the rules of the SEC promulgated there under. If the Bancorp has fewer than 1,200 record shareholders, it may deregister its shares under the Exchange Act and cease to be subject to the foregoing requirements.
The Company is subject to the periodic reporting, proxy solicitation, insider trading restrictions and other requirements of the Exchange Act and the rules of the SEC promulgated there under. If the Company has fewer than 1,200 record shareholders, it may deregister its shares under the Exchange Act and cease to be subject to the foregoing requirements.
The primary lending area of the Bancorp encompasses Lake County in northwest Indiana and Cook County in northeast Illinois, where collectively a majority of loan activity is concentrated. The Bancorp is also an active lender in Porter County, and to a lesser extent, LaPorte, Newton, and Jasper counties in Indiana; and DuPage, Lake, and Will counties in Illinois.
The primary lending area of the Company encompasses Lake County in northwest Indiana and Cook County in northeast Illinois, where collectively a majority of loan activity is concentrated. The Company is also an active lender in Porter County, and to a lesser extent, LaPorte, Newton and Jasper counties in Indiana; and DuPage, Lake, and Will counties in Illinois.
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 Bancorp.
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.
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 2023, 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 (“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%.
In evaluating the overall risk associated with the loan, the Bancorp 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 degree of protection provided by the cash flow and value of any underlying collateral.
Under the Dodd-Frank Act, the Bancorp is required to provide its shareholders an opportunity to vote on the executive compensation payable to its named executive officers and on golden parachute payments in connection with mergers and acquisitions. These votes are non-binding and advisory.
Under the Dodd-Frank Act, the Company is required to provide its shareholders an opportunity to vote on the executive compensation payable to its named executive officers and on golden parachute payments in connection with mergers and acquisitions. These votes are non-binding and advisory.
The Bancorp’s earnings and growth, as well as the earnings and growth of the banking industry in general, are affected by the monetary and credit policies of monetary authorities, including the FRB. An important function of the FRB is to regulate the national supply of bank credit in order to combat recession and curb inflationary pressures.
The Company’s earnings and growth, as well as the earnings and growth of the banking industry in general, are affected by the monetary and credit policies of monetary authorities, including the FRB. An important function of the FRB is to regulate the national supply of bank credit in order to combat recession and curb inflationary pressures.
Conventional loans are made up to a maximum of 97% of the purchase price or appraised value, whichever is less. For loans made in excess of 80% of value, private mortgage insurance is generally required in an amount sufficient to reduce the Bancorp’s exposure to 80% or less of the appraised value of the property.
Conventional loans are made up to a maximum of 97% of the purchase price or appraised value, whichever is less. For loans made in excess of 80% of value, private mortgage insurance is generally required in an amount sufficient to reduce the Company’s exposure to 80% or less of the appraised value of the property.
In originating commercial real estate loans, the Bancorp considers the feasibility of the project, the financial strength of the borrowers and lessees, the managerial ability of the borrowers, the location of the project and the economic environment. Management evaluates the debt coverage ratio and analyzes the reliability of cash flows, as well as the quality of earnings.
In originating commercial real estate loans, the Company considers the feasibility of the project, the financial strength of the borrowers and lessees, the managerial ability of the borrowers, the location of the project and the economic environment. Management evaluates the debt coverage ratio and analyzes the reliability of cash flows, as well as the quality of earnings.
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 HTM. AFS securities are those the Bancorp may decide to sell if needed for liquidity, asset-liability management or other reasons.
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.
The impact of Basel IV on the Bancorp will depend on the manner in which it is implemented by the federal banking regulators. Banking regulators may change these capital requirements from time to time, depending on the economic outlook generally and the outlook for the banking industry.
The impact of Basel IV on the Company will depend on the manner in which it is implemented by the federal banking regulators. Banking regulators may change these capital requirements from time to time, depending on the economic outlook generally and the outlook for the banking industry.
If the delinquency continues, subsequent efforts will be made to contact the delinquent borrower. In certain instances, the Bancorp will recast the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize his, her, or its financial affairs.
If the delinquency continues, subsequent efforts will be made to contact the delinquent borrower. In certain instances, the Company will recast the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize his, her, or its financial affairs.
Any property acquired as the result of foreclosure or by voluntary transfer of property made to avoid foreclosure is classified as foreclosed real estate until such time as it is sold or otherwise disposed of by the Bancorp. Foreclosed real estate is recorded at fair value at the date of foreclosure.
Any property acquired as the result of foreclosure or by voluntary transfer of property made to avoid foreclosure is classified as foreclosed real estate until such time as it is sold or otherwise disposed of by the Company. Foreclosed real estate is recorded at fair value at the date of foreclosure.
The Bancorp cannot accurately predict whether any of this potential legislation will ultimately be enacted, and, if enacted, the ultimate effect that it, or implementing regulations, would have upon the financial condition or results of operations of the Bancorp or the Bank.
The Company cannot accurately predict whether any of this potential legislation will ultimately be enacted, and, if enacted, the ultimate effect that it, or implementing regulations, would have upon the financial condition or results of operations of the Company or the Bank.
The activities of the Bancorp and the Bank in the geographic market served involve competition with other banks as well as with other financial institutions and enterprises, many of which have substantially greater resources than those available to the Bancorp.
The activities of the Company and the Bank in the geographic market served involve competition with other banks as well as with other financial institutions and enterprises, many of which have substantially greater resources than those available to the Company.
An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0%, or a common equity Tier 1 ratio of less than 3.0%.
An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.00%, a Tier 1 risk-based capital ratio of less than 4.00%, a leverage ratio of less than 3.00%, or a common equity Tier 1 ratio of less than 3.00%.
In addition, the Bancorp is generally prohibited by the BHCA from engaging in any nonbanking business unless such business is determined by the FRB to be so closely related to banking as to be a proper incident thereto.
In addition, the Company is generally prohibited by the BHCA from engaging in any nonbanking business unless such business is determined by the FRB to be so closely related to banking as to be a proper incident thereto.
Under Indiana law, the Bank is subject to Sections 22(h), 23A and 23B of the Federal Reserve Act, which restrict financial transactions between banks and affiliated companies, such as the Bancorp.
Under Indiana law, the Bank is subject to Sections 22(h), 23A and 23B of the Federal Reserve Act, which restrict financial transactions between banks and affiliated companies, such as the Company.
First mortgage loans must be covered by a lender’s title insurance policy in the amount of the loan. The Current Lending Programs Residential Mortgage Loans. The primary lending activity of the Bancorp 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. 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.
The subsidiary holds real estate properties that the Bank has acquired through the foreclosure process. The consolidated financial statements include the Bancorp, its wholly owned subsidiaries, the Bank and the Bank’s wholly owned subsidiaries, Peoples Service Corporation, NWIN, LLC and Columbia Development Company, LLC. The Bancorp’s business activities include being a holding company for the Bank.
The subsidiary holds real estate properties that the Bank has acquired through the foreclosure process. The consolidated financial statements include the Company, its wholly owned subsidiaries, the Bank and the Bank’s wholly owned subsidiaries, Peoples Service Corporation, NWIN, LLC and Columbia Development Company, LLC. The Company’s business activities include being a holding company for the Bank.
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. Page 29 of 122 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. 23 Federal Deposit Insurance.
The FDIC may also suspend deposit insurance temporarily during the hearing process for a permanent termination of insurance if the institution has no tangible capital. Page 30 of 122 Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank of Indianapolis, which is one of eleven regional Federal Home Loan Banks.
The FDIC may also suspend deposit insurance temporarily during the hearing process for a permanent termination of insurance if the institution has no tangible capital. Federal Home Loan Bank System. The Bank is a member of the Federal Home Loan Bank of Indianapolis, which is one of eleven regional Federal Home Loan Banks.
This support may be required by the FRB at times when the Bancorp may not have the resources to provide it or, for other reasons, would not be inclined to provide it.
This support may be required by the FRB at times when the Company may not have the resources to provide it or, for other reasons, would not be inclined to provide it.
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 2023, the Bancorp 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 2024, the Company did not discover any material cybersecurity incidents. Consumer Financial Protection Bureau.
Page 25 of 122 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.
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.
Projects financed outside of the Bancorp’s primary lending area generally involve borrowers and guarantors who are or were previous customers of the Bancorp or projects that are underwritten according to the Bank’s underwriting standards. Consumer Loans. The Bancorp offers consumer loans to individuals for personal, household or family purposes. Consumer loans are either secured by adequate collateral, or unsecured.
Projects financed outside of the Company’s primary lending area generally involve borrowers and guarantors who are or were previous customers of the Company or projects that are underwritten according to the Bank’s underwriting standards. Consumer Loans. The Company offers consumer loans to individuals for personal, household or family purposes. Consumer loans are either secured by adequate collateral, or unsecured.
Significantly and critically undercapitalized institutions are subject to additional mandatory and discretionary measures. Page 27 of 122 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. 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”).
Also included in Tier 2 capital is the allowance for loan and lease losses 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 Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values.
Risks, uncertainties, and factors that could cause the Bancorp’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; ● continuing effects of inflation; ● current financial conditions within the banking industry, liquidity levels, concentrations in certain loan products or categories, net interest margin compression, 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 Bancorp of outstanding debt or equity securities; Page 5 of 122 ● changes in asset quality and credit risk; ● our ability to sustain revenue and earnings growth; ● customer acceptance of the Bancorp’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 Bancorp 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 (“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: ● 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”).
The following table sets forth certain information at December 31, 2023, regarding the dollar amount of loans in the Bancorp’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, 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 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 $15,000,000. 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 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 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.
All such loans are made in accordance with well-defined underwriting standards. Generally if the properties are not owner occupied, these types of loans require proof of intent to lease and a confirmed end-loan takeout. In general, loans made do not exceed 80% of the appraised value of the property.
Loans are also made for the construction of commercial properties. All such loans are made in accordance with well-defined underwriting standards. Generally if the properties are not owner occupied, these types of loans require proof of intent to lease and a confirmed end-loan takeout. In general, loans made do not exceed 80% of the appraised value of the property.
Government Loans. The Bancorp is permitted to purchase non-rated municipal securities, tax anticipation notes, and warrants within the local market area.
Government Loans. The Company is permitted to purchase non-rated municipal securities, tax anticipation notes, and warrants within the local market area.
An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater, and a common equity Tier 1 ratio of 6.5% or greater.
An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.00% or greater, a Tier 1 risk-based capital ratio of 8.00% or greater, a leverage ratio of 5.00% or greater, and a common equity Tier 1 ratio of 6.50% or greater.
These loans are typically made for terms of 15 to 20 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 Bancorp the opportunity to restructure the loan if economic conditions so warrant.
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.
A loan is considered collateral dependent 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 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.
The Bancorp’s most direct competition for deposits has historically come from commercial banks, savings associations, and credit unions located in its primary market area. Particularly in times of high interest rates, the Bancorp has had significant competition from mutual funds and other firms offering financial services.
The Company’s most direct competition for deposits has historically come from commercial banks, savings associations, and credit unions located in its primary market area. Particularly in times of high interest rates, the Company has had significant competition from mutual funds and other firms offering financial services.
The Bancorp’s competition for loans comes principally from savings associations, commercial banks, mortgage banking companies, credit unions, insurance companies, and other institutional lenders. The Bancorp competes for loans principally through the interest rates and loan fees it charges and the efficiency and quality of the services it provides borrowers and other third-party sources.
The Company’s competition for loans comes principally from savings associations, commercial banks, mortgage banking companies, credit unions, insurance companies, and other institutional lenders. The Company competes for loans principally through the interest rates and loan fees it charges and the efficiency and quality of the services it provides borrowers and other third-party sources.
Although the Bancorp’s priority in extending various types of commercial business loans changes from time to time, the basic considerations in determining the makeup of the commercial business loan portfolio are economic factors, regulatory requirements and money market conditions. The Bancorp seeks commercial loan relationships from the local business community and from its present customers.
Although the Company’s priority in extending various types of commercial business loans changes from time to time, the basic considerations in determining the makeup of the commercial business loan portfolio are economic factors, regulatory requirements and money market conditions. The Company seeks commercial loan relationships from the local business community and from its present customers.
Deposits are the major source of the Bancorp’s funds for lending and other investment purposes. In addition to deposits, the Bancorp 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 Federal Home Loan Bank of Indianapolis (FHLB) and other borrowings.
The privacy provisions of Gramm-Leach affect how consumer information is transmitted through diversified financial services companies and conveyed to outside vendors. The Bancorp 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.
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.
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 Bancorp’s overall cost of funds. Fixed rate advances are payable at maturity, with a prepayment penalty for advances paid prior to maturity.
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.
However, similar standards and/or regulations may be adopted or implemented by federal and state banking agencies in the future which may be applicable to community banking organizations such as the Bancorp. Recent cyberattacks against banks and other financial institutions that resulted in unauthorized access to confidential customer information have prompted the federal banking regulators to issue extensive guidance on cybersecurity.
Additional standards and/or regulations may be adopted or implemented by federal and state banking agencies in the future which may be applicable to community banking organizations such as the Company. Recent cyberattacks against banks and other financial institutions that resulted in unauthorized access to confidential customer information have prompted the federal banking regulators to issue extensive guidance on cybersecurity.
Mortgage banking activities are limited to the sale of fixed rate mortgage loans with contractual maturities generally exceeding fifteen years and greater. These loans are sold, on a case-by-case basis, in the secondary market as part of the Bancorp’s efforts to manage interest rate risk.
Mortgage banking activities are limited to the sale of fixed rate mortgage loans with contractual maturities generally exceeding fifteen years. These loans are sold, on a case-by-case basis, in the secondary market as part of the Company’s efforts to manage interest rate risk.
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. Page 18 of 122 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. 12 Sources of Funds General.
Although institutions with total assets of less than $10 billion are exempt from this requirement, competitive pressures have required smaller depository institutions to reduce fees with respect to these debit card transactions. Federal Securities Law. The shares of Common Stock of the Bancorp have been registered with the SEC under the Exchange Act.
Although institutions with total assets of less than $10 billion are exempt from this requirement, competitive pressures have required smaller depository institutions to reduce fees with respect to these debit card transactions. Federal Securities Law and Nasdaq Listing. The shares of Common Stock of the Company have been registered with the SEC under the Exchange Act.
Federal regulations require FDIC insured depository institutions to meet several minimum capital standards: (i) a common equity Tier 1 capital to risk-based assets ratio of 4.5%; (ii) a Tier 1 capital to risk-based assets ratio of 6.0%; (iii) a total capital to risk-based assets ratio of 8%; and (iv) a 4% Tier 1 capital to total assets leverage ratio.
Federal regulations require FDIC insured depository institutions to meet several minimum capital standards: (i) a common equity Tier 1 capital to risk-based assets ratio of 4.50%; (ii) a Tier 1 capital to risk-based assets ratio of 6.00%; (iii) a total capital to risk-based assets ratio of 8.00%; and (iv) a 4.00% Tier 1 capital to total assets leverage ratio.
The Bancorp maintains its corporate office at 9204 Columbia Avenue, Munster, Indiana, from which it oversees the operation of its 26 branch locations. For further information, see “Properties.” The Bancorp’s Internet address is www.ibankpeoples.com.
The Company maintains its corporate office at 9204 Columbia Avenue, Munster, Indiana, from which it oversees the operation of its 26 branch locations. For further information, see “Properties.” The Company’s Internet address is www.ibankpeoples.com.
Other Future Legislation and Change in Regulations. Various other legislation, including proposals to expand or contract the powers of banking institutions and bank holding companies, is from time to time introduced. This legislation may change banking statutes and the operating environment of the Bancorp and the Bank in substantial and unpredictable ways.
Various other legislation, including proposals to expand or contract the powers of banking institutions and bank holding companies, is from time to time introduced. This legislation may change banking statutes and the operating environment of the Company and the Bank in substantial and unpredictable ways.
Item 1. Business General Finward Bancorp, an Indiana corporation (the “Bancorp” or “Finward”), 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 Bancorp.
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.
Retail and commercial deposits are attracted principally from within the Bancorp’s primary market area. The Bancorp offers a broad selection of deposit instruments including non-interest bearing demand accounts, interest bearing demand accounts, savings accounts, money market deposit accounts, certificate accounts and retirement savings plans.
Retail and commercial deposits are attracted principally from within the Company’s primary market area. The Company offers a broad selection of deposit instruments including non- interest bearing demand accounts, interest bearing demand accounts, savings accounts, money market deposit accounts, certificate accounts and retirement savings plans.
All of the Bancorp’s banking centers and offices are located in its primary market area. Approximately ninety-four percent of the Bancorp’s business activities are within this area. The Bancorp 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-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.
For example, the regulations specify that a bank’s CRA performance will be considered in its expansion (e.g., branching) proposals and may be the basis for approving, denying or conditioning the approval of an application. As of the date of its most recent regulatory examination, the Bank was rated “satisfactory” with respect to its CRA compliance. Gramm-Leach-Bliley Act.
For example, the regulations specify that a bank’s CRA performance will be considered in its expansion (e.g., branching) proposals and may be the basis for approving, denying or conditioning the approval of an application for a merger or acquisition. As of the date of its most recent regulatory examination, the Bank was rated “satisfactory” with respect to its CRA compliance.
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. Page 32 of 122 Mortgage Reform and Anti-Predatory Lending .
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 .
Shares of the Bancorp’s Common Stock held by persons who are affiliates of the Bancorp may not be resold without registration unless sold in accordance with the resale restrictions of Rule 144 under the Securities Act of 1933.
Shares of the Company’s Common Stock held by persons who are affiliates of the Company may not be resold without registration unless sold in accordance with the resale restrictions of Rule 144 under the Securities Act of 1933.
For 2023, the deposit insurance assessment rate before applying one-time assessment credits was approximately 0.100% of insured deposits. No institution may pay a dividend if it is in default of the federal deposit insurance assessment.
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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAmong 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 Bancorp 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.
Biggest changeAmong 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.
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.
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.
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 Bancorp’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: ● 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.
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. 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. 33 We may be exposed to risk of environmental liabilities with respect to real property to which we take title.
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.
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.
Our regulators may subject us to supervisory and enforcement actions, such as the imposition of certain restrictions on our operations, requirements that we take remedial action, the classification of our assets and the determination of the level of our Allowance for credit losses, that are aimed at protecting the insurance fund and the depositors and borrowers of the Bank but that are detrimental to holders of the Bancorp’s common stock.
Our regulators may subject us to supervisory and enforcement actions, such as the imposition of certain restrictions on our operations, requirements that we take remedial action, the classification of our assets and the determination of the level of our Allowance for credit losses, that are aimed at protecting the insurance fund and the depositors and borrowers of the Bank but that are detrimental to holders of the Company’s common stock.
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 Bancorp may temporarily increase operating expenses.
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.
For further discussion, see Notes 1 and 6, “ Summary of Significant Accounting Policies ” and “ Goodwill and Other Intangible Assets ,” to the Consolidated Financial Statements included in Item 8 this report. Damage to our reputation could damage our business. Our business depends upon earning and maintaining the trust and confidence of our customers, investors, and employees.
For further discussion, see Notes 1 and 5, “ Summary of Significant Accounting Policies ” and “ Goodwill and Other Intangible Assets ,” to the Consolidated Financial Statements included in Item 8 this report. Damage to our reputation could damage our business. Our business depends upon earning and maintaining the trust and confidence of our customers, investors, and employees.
As a result, if you acquire the Bancorp’s common stock, you could lose some or all of your investment. The price of our common stock may fluctuate, sometimes significantly, and this may make it difficult for you to resell our common stock at times or at prices you find attractive.
As a result, if you acquire the Company’s common stock, you could lose some or all of your investment. The price of our common stock may fluctuate, sometimes significantly, and this may make it difficult for you to resell our common stock at times or at prices you find attractive.
Department of Labor. ● Fiduciary Risk – the risk of failing to act in our fiduciary capacity in the best interests of the grantors and beneficiaries of trust accounts and benefit plans. The Bancorp is subject to liquidity risk in its operations, which could adversely affect the ability to fund various obligations.
Department of Labor. ● Fiduciary Risk – the risk of failing to act in our fiduciary capacity in the best interests of the grantors and beneficiaries of trust accounts and benefit plans. The Company is subject to liquidity risk in its operations, which could adversely affect the ability to fund various obligations.
However, the Bancorp’s access to liquidity sources could be affected by unrealized losses if securities within the investment portfolio must be sold at a loss or tangible capital ratios decline from an increase in unrealized losses or realized credit losses.
However, the Company’s access to liquidity sources could be affected by unrealized losses if securities within the investment portfolio must be sold at a loss or tangible capital ratios decline from an increase in unrealized losses or realized credit losses.
Higher loan losses could require the Bancorp to increase its Allowance for credit losses through a charge to earnings. When we loan money, we incur the risk that our borrowers will not repay their loans. We reserve for loan losses by establishing an allowance through a charge to earnings.
Higher loan losses could require the Company to increase its allowance for credit losses through a charge to earnings. When we loan money, we incur the risk that our borrowers will not repay their loans. We reserve for loan losses by establishing an allowance through a charge to earnings.
Because payments on loans secured by commercial properties often depend upon the successful operation and management of the properties or related businesses, repayment of such loans may be affected by adverse conditions in the real estate market or the economy, among other things.
Because payments on loans secured by commercial properties often depend upon the successful operation and management of the properties, repayment of such loans may be affected by adverse conditions in the real estate market or the economy, among other things.
Such regulation and supervision governs the activities in which an institution and its holding company may engage and are intended primarily for the protection of the insurance fund and the depositors and borrowers of the Bank rather than for holders of the Bancorp’s common stock.
Such regulation and supervision governs the activities in which an institution and its holding company may engage and are intended primarily for the protection of the insurance fund and the depositors and borrowers of the Bank rather than for holders of the Company’s common stock.
We are subject to federal regulations that seek to protect the Deposit Insurance Fund and the depositors and borrowers of the Bank, and our federal regulators may impose restrictions on our operations that are detrimental to holders of the Bancorp ’ s common stock.
We are subject to federal regulations that seek to protect the Deposit Insurance Fund and the depositors and borrowers of the Bank, and our federal regulators may impose restrictions on our operations that are detrimental to holders of the Company ’ s common stock.
Investment in the Bancorp’s common stock is inherently risky for the reasons described in this “ Risk Factors ” section and elsewhere in this prospectus and is subject to the same market forces that affect the price of common stock in any public company.
Investment in the Company’s common stock is inherently risky for the reasons described in this “ Risk Factors ” section and elsewhere in this prospectus and is subject to the same market forces that affect the price of common stock in any public company.
Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse effect on our business, financial condition, and results of operations. Page 38 of 122 We may not be able to attract and retain skilled people. The Bank’s success depends on its ability to attract and retain skilled people.
Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse effect on our business, financial condition, and results of operations. We may not be able to attract and retain skilled people. The Bank’s success depends on its ability to attract and retain skilled people.
Although the Bancorp’s common stock is listed on the Nasdaq Capital Market, the trading volume in the common stock may be less than that of other, larger financial services companies.
Although the Company’s common stock is listed on the Nasdaq Capital Market, the trading volume in the common stock may be less than that of other, larger financial services companies.
Adverse publicity about the Bancorp, whether or not true, may result in harm to our existing business, customer relationships and prospects.
Adverse publicity about the Company, whether or not true, may result in harm to our existing business, customer relationships and prospects.
The Bancorp 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 Bancorp’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. We may not be able to pay dividends in the future in accordance with past practice.
The Bancorp 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 Bancorp’s board of directors.
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.
A public trading market having the desired characteristics of depth, liquidity, and orderliness depends on the presence in the marketplace of willing buyers and sellers of the Bancorp’s common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which the Bancorp has no control.
A public trading market having the desired characteristics of depth, liquidity, and orderliness depends on the presence in the marketplace of willing buyers and sellers of the Company’s common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which the Company has no control.
Provisions of the Bancorp’s Articles of Incorporation, the Indiana Business Corporation Law, and the federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire the Bancorp, even if doing so would be perceived to be beneficial by the Bancorp’s shareholders.
Provisions of the Company’s Articles of Incorporation, the Indiana Business Corporation Law, and the federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire the Company, even if doing so would be perceived to be beneficial by the Company’s shareholders.
During any period of lower trading volume of the Bancorp’s common stock, significant sales of shares of the Bancorp’s common stock, or the expectation of these sales, could cause the Bancorp’s common stock price to fall. The Bancorp ’ s Articles of Incorporation, Indiana law, and certain banking laws may have an anti-takeover effect.
During any period of lower trading volume of the Company’s common stock, significant sales of shares of the Company’s common stock, or the expectation of these sales, could cause the Company’s common stock price to fall. The Company ’ s Articles of Incorporation, Indiana law, and certain banking laws may have an anti-takeover effect.
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 Bancorp 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.” 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 combination of these provisions could have the effect of inhibiting a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of the Bancorp’s common stock. The Bancorp may issue additional securities, which could dilute the ownership percentage of holders of the Bancorp ’ s common stock.
The combination of these provisions could have the effect of inhibiting a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of the Company’s common stock. The Company may issue additional securities, which could dilute the ownership percentage of holders of the Company ’ s common stock.
All of the instruments held in the Bancorp’s investment portfolio are designated as AFS, 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.
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.
These broad market fluctuations may adversely affect our stock price, notwithstanding our operating results. Page 45 of 122 The trading volume in the Bancorp ’ 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. 39 The trading volume in the Company ’ s common stock is less than that of other larger financial institutions.
Page 36 of 122 Our mortgage lending profitability could be significantly reduced if we are not able to resell mortgages at a reasonable gain on sale or experience other problems with the secondary market process or we are unable to retain our mortgage loan sales force due to regulatory changes.
Our mortgage lending profitability could be significantly reduced if we are not able to resell mortgages at a reasonable gain on sale or experience other problems with the secondary market process or we are unable to retain our mortgage loan sales force due to regulatory changes. Currently, we sell a large portion of the mortgage loans we originate.
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.
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.
From December 31, 2022 to December 31, 2023, the investment portfolio experienced unrealized gains of approximately $16.7 million. The decrease in unrealized losses is reflected in Accumulated Other Comprehensive Income (Loss) (AOCI) on the Bancorp’s balance sheet and reduces the Bancorp’s book capital and tangible common equity ratio. However, unrealized losses do not affect the Bancorp’s regulatory capital ratios.
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.
We may be required to increase our Allowance for credit losses, thus reducing earnings. Commercial business lending may expose the Bancorp to increased lending risks. At December 31, 2023, the Bank’s commercial business loan portfolio amounted to $97.4 million, or 6.5% of total loans.
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.
Page 35 of 122 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, 2023, $681.4 million, or 45.2% 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, 2024, $712.7 million, or 47.3% of the Bank’s total loans receivable had fixed interest rates.
Page 39 of 122 We are exposed to intangible asset risk in that our goodwill may become impaired. As of December 31, 2023, we had $25.7 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, 2024, we had $24.3 million of goodwill and other intangible assets.
Commercial real estate lending may expose the Bancorp to increased lending risks. At December 31, 2023, the Bank’s commercial real estate loan portfolio amounted to $503.2 million, or 33.4% 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, 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.
Page 40 of 122 The Bancorp 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 Order and MOU.
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.
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.
Future economic conditions in our market area will depend on factors outside of our control, such as political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in government, military, and fiscal policies, and inflation.
Future economic conditions in our market area will depend on factors outside of our control, such as political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in government, military, and fiscal policies, and inflation. We face strong competition in all phases of our business from other banks, financial institutions, and non-banks.
In the recent past, our market area, the suburban metropolitan Chicagoland market, the states of Indiana and Illinois, and the U.S. as a whole experienced a downward economic cycle. Significant weakness in market conditions adversely impacted all aspects of the economy.
In the recent past, our market area, the suburban metropolitan Chicagoland market, the states of Indiana and Illinois, and the U.S. as a whole experienced mixed economic conditions.
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.
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.
Currently, we sell a large portion of the mortgage loans we originate. The profitability of our mortgage banking operations depends in large part upon our ability to aggregate a high volume of loans and to sell them in the secondary market at a gain.
The profitability of our mortgage banking operations depends in large part upon our ability to aggregate a high volume of loans and to sell them in the secondary market at a gain. Thus, we are dependent upon the existence of an active secondary market and our ability to profitably sell loans into that market.
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 Bancorp’s financial condition and results of operations.
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.
Management continues to actively monitor the investment portfolio and does not currently anticipate the need to realize losses from the investment portfolio, and it is unlikely the Bancorp will be required to sell the securities before recovery of their amortized cost bases, which may be at maturity.
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.
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.
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.
As of December 31, 2023, the Bancorp held approximately $238.7 million of municipal securities within the investment portfolio, which comprised approximately 64.2% of the portfolio, and approximately $123.5 million of collateralized mortgage obligations and residential mortgage-backed securities within the portfolio, which comprised approximately 33.2% of the portfolio.
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.
Page 44 of 122 Risks Related to the Bancorp ’ s Common Stock An investment in the Bancorp ’ s common stock is not an insured deposit. The Bancorp’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.
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.
The Order is expected to result in additional non-interest BSA compliance expenses for the Bank and the Bancorp. It also may have the effect of limiting or delaying the Bank’s and the Bancorp’s ability to obtain regulatory approval for certain expansionary activities, to the extent desired by the Bancorp.
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.
The Bancorp’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.
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.
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.
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.
Increased competition for bank acquisitions may slow the Bancorp’s ability to grow earning assets at comparable historical growth rates.
In addition, credit unions and FinTech companies are now actively pursuing small bank acquisitions. Increased competition for bank acquisitions may slow the Company’s ability to grow earning assets at comparable historical growth rates.
Significant interruptions to our business from technology issues could result in expensive remediation efforts and distraction of management.
However, such policies, procedures, or insurance may prove insufficient to prevent, repel, or mitigate a cyber incident. Significant interruptions to our business from technology issues could result in expensive remediation efforts and distraction of management.
Risks Related to the Banking Industry Our business may be adversely affected by conditions in the financial markets and economic conditions generally.
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.
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.
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.
As a result, there can be no assurance that the economic recovery will continue, and future deterioration would likely exacerbate the adverse effects of recent difficult market conditions on us and others in the financial institutions industry.
As a result, there can be no assurance that economic conditions will continue on their current course.
Removed
Page 34 of 122 ● 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.
Added
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.
Removed
Unrealized losses in the Bancorp ’ s investment portfolio could affect liquidity. The increase in market interest rates experienced in 2022 and the early months of 2023, caused the Bancorp to experience increased unrealized losses within its investment portfolio.
Added
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.
Removed
Further, these loans typically have larger loan balances, and several of our borrowers have more than one commercial real estate loan outstanding with us.
Added
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.
Removed
Consequently, an adverse development with respect to one loan or one credit relationship can expose us to significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan.
Added
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.
Removed
Finally, if we foreclose on a commercial real estate loan, our holding period for the collateral, if any, typically is longer than for one-to four-family residential mortgage loans because there are fewer potential purchasers of the collateral.
Added
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.
Removed
Because we plan to continue to emphasize the origination of these loans, it may be necessary to increase our allowance for loan losses because of the increased credit risk associated with these types of loans. Any increase to our allowance for loan losses would adversely affect our earnings.
Added
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.
Removed
Thus, we are dependent upon the existence of an active secondary market and our ability to profitably sell loans into that market.
Added
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.
Removed
Page 37 of 122 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. However, such policies, procedures, or insurance may prove insufficient to prevent, repel, or mitigate a cyber incident.
Added
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.
Removed
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
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.
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
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.
Removed
These include, but are not limited to, the following: strengthening the board of directors’ oversight of 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.
Added
Noncompliance or perceived noncompliance with the executive order and related regulatory guidance could expose us to increased regulatory scrutiny, litigation risks, and limitations on business opportunities. At the same time, misalignment with investor and stakeholder expectations regarding ESG and DEI commitments could impair our brand value, reduce employee engagement and retention, and negatively impact our stock performance.
Removed
In addition, under the MOU the Bank has agreed to take various actions and comply with certain requirements to enhance certain areas of the Bank’s operations, including, among other things, the Bank refraining from paying cash dividends without prior regulatory approval and developing and implementing certain plans regarding the Bank’s operations, capital, and strategy.
Added
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.
Removed
Business activity across a wide range of industries and regions was greatly reduced, and local governments and many businesses experienced serious difficulty due to the lack of consumer spending and the lack of liquidity in the credit markets. In addition, unemployment increased significantly during that period, which further contributed to the adverse business environment for households and businesses.
Added
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.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Removed
Item 1C. Cybersecurity Our Board of Directors has delegated primary responsibility for oversight of cybersecurity risk management to the Risk Management Committee of the Board. The Committee receives quarterly reports from the Chief Information Security Officer (CISO) and Chief Risk Officer (CRO), respectively, and reviews them with such officers. These reports are made available to all board members concurrently.
Added
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
Removed
The CRO’s report includes evaluation of the level of cybersecurity risks and strength of mitigating controls. All board members are invited to attend the portion of the Committee’s meetings for review of reports received on risk management from management (e.g., the CRO, CISO, Chief Compliance Officer).
Removed
Our processes for assessing, identifying, and managing material risks from cybersecurity threats are based on examination guidance published by the Federal Financial Institution Examination Council (FFIEC), an interagency body established under the Financial Institutions Regulatory and Interest Rate Control Act of 1978.
Removed
Consistent with FFIEC guidance, the Bank selected and adheres to the risk management framework established by the Cybersecurity Risk Institute known as the “CRI Profile.” The CRI Profile is based primarily on the well-known National Institute of Standards and Technology’s (NIST) “Framework for Improving Critical Infrastructure Cybersecurity” and is tailored to ensure expectations of financial institution regulators are met.
Removed
Our processes are designed to meet standards for all seven CRI Profile functions – governance, identification, detection, protection, response, recovery, and supply chain dependency management. In addition, we adhere to security standards set by the PCI Security Standards Council which are designed to ensure secure payments globally.
Removed
Risks from cybersecurity threats, including risks identified from previous cybersecurity incidents, have required significant investments over time in maturing our Information Security Program and attracting and retaining the personnel with requisite experience and expertise. In particular, the CISO has substantial relevant expertise in the financial services industry and formal training in the areas of information security and cybersecurity risk management.
Removed
We will need to continue to make meaningful investments in cybersecurity controls for continuous improvement and maturation in response to constantly evolving cybersecurity threats. Cybersecurity threats will continue to be endemic to the financial services industry for the foreseeable future. Page 47 of 122

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Bank owns 21 of its branch properties and leases 5 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,with the exception of one branch that is under a short-term lease and does not have a drive-through.
Biggest changeThe 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.
Item 2. Properties The Bancorp maintains its corporate office at 9204 Columbia Avenue, Munster, Indiana, from which it oversees the operation of the Bank’s 26 banking locations.
Item 2. Properties The Company maintains its corporate office at 9204 Columbia Avenue, Munster, Indiana, from which it oversees the operation of the Bank’s 26 banking locations. The Company owns 100% of its single corporate office property location.
As of the date of this report, 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 11 branches located in Cook County, Illinois and 1 branch located in DuPage County, Illinois.
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.
Removed
The Bank outsources its core processing activities to Fidelity National Information Services, Inc., or FIS Corporation located in Jacksonville, Florida. FIS provides real time services for loans, deposits, retail delivery systems, card solutions, digital banking, and wealth management. The net book value of the Bank’s property, premises and equipment totaled $38.4 million at December 31, 2023. Page 48 of 122
Added
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.
Added
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.
Added
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.
Added
Each of the Lease Agreements became effective upon the closing of the sale-leaseback transaction and have an initial term of 15 years. The Bank’s obligations under the Lease Agreements are guaranteed by the Company. The Bank outsources its core processing activities to Fidelity National Information Services, Inc., or FIS Corporation located in Jacksonville, Florida.
Added
FIS provides real time services for loans, deposits, retail delivery systems, card solutions, digital banking, and wealth management. 43

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeManagement, after consultation with legal counsel believes that the ultimate liabilities, if any, resulting from these actions will not have a material adverse effect on the financial position of the Bank or on the consolidated financial position of the Bancorp. Item 4. Mine Safety Disclosures Not applicable
Biggest changeManagement, after consultation with legal counsel believes that the ultimate liabilities, if any, resulting from these actions will not have a material adverse effect on the financial position of the Bank or on the consolidated financial position of the Company. Item 4. Mine Safety Disclosures Not applicable
Item 3. Legal Proceedings The Bancorp and its subsidiaries, from time to time, are involved in legal proceedings in the ordinary course of business against its debtors and are defendants in legal actions arising from normal business activities.
Item 3. Legal Proceedings The Company and its subsidiaries, from time to time, are involved in legal proceedings in the ordinary course of business against its debtors and are defendants in legal actions arising from normal business activities.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeHe is the Chairman of the Indiana Bankers Association. He also serves as the Chairman of the Board of Directors of One Region, a non-profit business organization focused on population growth, and Allies for Community Business, a community-based micro-lending fund serving Chicago and the surrounding metropolitan area. Robert T.
Biggest changeHe served as the Chairman of the Indiana Bankers Association in 2024. He also serves on the Board of Directors of One Region, a non-profit business organization focused on population growth, and Allies for Community Business, a community-based micro-lending fund serving Chicago and the surrounding metropolitan area. Robert T.
Lowry is Executive Vice President, Chief Operating Officer of the Bancorp 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, commercial credit, as well as loan and deposit operations. Mr.
Bochnowski joined the Bancorp in 2010, became Executive Vice President and Chief Operating Officer of the Bancorp 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.
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.
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.
Scheub is a Board Member at Lake County Economic Alliance, and the Indiana University Northwest Business School Advisory Board. Benjamin L. Schmitt is Senior Vice President, Chief Financial Officer and Treasurer of the Bancorp and the Bank. Mr. Schmitt joined the Bancorp and Bank in 2024.
Scheub is a Board Member at Lake County Economic Alliance, and the Indiana University Northwest Business School Advisory Board. Benjamin L. Schmitt is Executive Vice President, Chief Financial Officer and Treasurer of the Company and the Bank. Mr. Schmitt joined the Company and Bank in 2024.
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 Bancorp’s Proxy Statement for the 2023 Annual Meeting of Shareholders: The executive officers of the Bancorp are as follows: Executive Officer Age at December 31, 2023 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 2024 Annual Meeting of Shareholders: The executive officers of the Company are as follows: Executive Officer Age at December 31, 2024 Position Benjamin J.
Schmitt 43 Senior Vice President, Chief Financial Officer and Treasurer The following is a description of the principal occupation and employment of the executive officers of the Bancorp during at least the past five years: Benjamin J. Bochnowski currently serves as President and Chief Executive Officer of the Bancorp and the Chief Executive Officer of the Bank. 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.
Lowry has been with the Bank since 1985 and has previously served as the Bank’s Chief Financial Officer, Treasurer, Controller, Internal Auditor and Assistant Controller. Mr. Lowry is a Certified Public Accountant (CPA) licensed in Indiana and a Chartered Global Management Accountant (CGMA). Mr.
Lowry has been with the Bank since 1985 and has previously served as the Bank’s Chief Financial Officer, Treasurer, Controller, Internal Auditor and Assistant Controller. Mr. Lowry is a Certified Public Accountant (inactive) and a Chartered Global Management Accountant. Mr.
Schmitt received his Bachelor of Business Administration degree in Finance with Honors from the University of Iowa Tippie College of Business. Page 50 of 122 PART II
Schmitt received his Bachelor of Business Administration degree in Finance with Honors from the University of Iowa Tippie College of Business. 45 PART II
Page 49 of 122 Todd M. Scheub is Executive Vice President, Chief Revenue Officer of the Bancorp and President of the Bank. He is responsible for the Bank’s Wealth Management group, Retail Banking group, Marketing, Commercial, and Retail lending groups. Mr. Scheub joined the Bank in 1996 and has previously held positions in the commercial lending group.
Scheub is Executive Vice President, Chief Revenue Officer of the Company and President of the Bank. He is responsible for the Bank’s Wealth Management group, Retail Banking group, Marketing, Commercial, and Retail lending groups. Mr. Scheub joined the Bank in 1996 and has previously held positions in the commercial lending group.
Bochnowski 43 President, Chief Executive Officer of Finward Bancorp, Chief Executive Officer of Peoples Bank Robert T. Lowry 62 Executive Vice President, Chief Operating Officer Todd M. Scheub 56 Executive Vice President, Chief Revenue Officer of Finward Bancorp, President of Peoples Bank Benjamin L.
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+1 added−1 removed1 unchanged
Biggest changePeriod 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, 2023 – January 31, 2023 - N/A - 48,828 February 1, 2023 – February 28, 2023 - N/A - 48,828 March 1, 2023 – March 31, 2023 4,188 $37.45 - 48,828 April 1, 2023 – April 30, 2023 - N/A - 48,828 May 1, 2023 – May 31, 2023 798 $28.88 - 48,828 June 1, 2023 – June 30, 2023 698 $22.80 - 48,828 July 1, 2023 – July 31, 2023 - N/A - 48,828 August 1, 2023 – August 31, 2023 - N/A - 48,828 September 1, 2023 – September 30, 2023 - N/A - 48,828 October 1, 2023 –October 31, 2023 - N/A - 48,828 November 1, 2023 – November 30, 2023 - N/A - 48,828 December 1, 2023 – December 31, 2023 - N/A - 48,828 (1) The stock repurchase program was announced on April 24, 2014, whereby the Bancorp is authorized to repurchase up to 50,000 shares of the Bancorp’s common stock outstanding.
Biggest changePeriod 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.
On April 24, 2014, the Bancorp’s Board of Directors authorized a stock repurchase program to repurchase up to 50,000 shares of the Bancorp’s outstanding common stock, from time to time and subject to market conditions, on the open market or in privately negotiated transactions.
On April 24, 2014, the Company’s Board of Directors authorized a stock repurchase program to repurchase up to 50,000 shares of the Company’s outstanding common stock, from time to time and subject to market conditions, on the open market or in privately negotiated transactions.
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, 2023 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 is reviewed annually by the Board of Directors. No shares were repurchased during the year ended December 31, 2024 under the stock repurchase program.
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Bancorp’s Common Stock is listed on the Nasdaq Capital Market under the symbol “FNWD.” As of March 28, 2024, the Bancorp had 4,304,026 shares of common stock outstanding and 549 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, 2024, the Company had 4,313,698 shares of common stock outstanding and 519 stockholders of record.
For the year ended December 31, 2023, 5,684 shares were reacquired at an average per share price of $34.45 pursuant to these tax withholding transactions. Page 51 of 122
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.
Removed
There is no express expiration date for this program. (2) The number of shares above consist of shares of common stock reacquired from the Bancorp’s executive officers and employees to satisfy the tax withholding obligations on restricted stock awards granted under the Bancorp’s 2015 Stock Option and Incentive Plan.
Added
There is no express expiration date for this program. 46 Item 6. [Reserved]

Item 7. Management's Discussion & Analysis

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

85 edited+14 added−41 removed31 unchanged
Biggest changeA further breakdown of the composition of the commercial real estate loan portfolio as of December 31, 2023 is shown in the table below: Commercial Real Estate (CRE) 12/31/2023* ($millions) # Loans $ Amount % of Total Net Loans CRE Owner Occupied (CRE OO) Food Services & Drinking Places 67 $ 31.2 2.1 % Ambulatory Health Care Services 34 28.4 1.9 % Gasoline Stations & Fuel Dealers 23 25.7 1.7 % Merchant Wholesalers, Durable Goods 16 13.4 0.9 % Other 311 121.4 8.0 % Total CRE Owner Occupied (CRE OO) 451 $ 220.0 14.6 % CRE Non Owner Occupied (CRE NOO) Strip Centers - Lessors 157 $ 124.1 8.2 % Hotels 16 42.5 2.8 % Office Properties - Lessors 54 41.2 2.7 % Industrial Properties - Lessors 59 38.9 2.6 % Special Use - Lessors 12 10.9 0.7 % Big Box Retail - Lessors 2 8.5 0.6 % Mini Warehouses - Lessors 16 7.9 0.5 % Other 14 9.1 0.6 % Total CRE Non Owner Occupied (CRE NOO) 330 283.2 18.8 % Total Commercial Real Estate (OO & NOO) 781 $ 503.2 33.4 % Total Net Loans $ 1,508.8 *North American Industry Classification System (NAICS) classification coding for CRE loans began in 2023, similar NAICS 2022 proforma was not available to report The Bancorp is primarily a portfolio lender.
Biggest changeA 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.
At December 31, 2023, 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.
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.
In determining the acquisition date fair value of purchased credit impaired loans, and in subsequent accounting, the Bancorp aggregates these purchased loans into pools of loans by common risk characteristics, such as credit risk rating and loan type. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively.
In determining the acquisition date fair value of purchased credit impaired loans, and in subsequent accounting, the Company aggregates these purchased loans into pools of loans by common risk characteristics, such as credit risk rating and loan type. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively.
Fees and service charges, wealth management operations income, gains and losses from the sale of assets, provisions for credit losses, income taxes and operating expenses also affect the Bancorp's profitability. A summary of the Bancorp’s significant accounting policies are detailed in Note 1 to the Bancorp’s consolidated financial statements included in this report.
Fees and service charges, wealth management operations income, gains and losses from the sale of assets, provisions for credit losses, income taxes and operating expenses also affect the Company's profitability. A summary of the Company’s significant accounting policies are detailed in Note 1 to the Company’s consolidated financial statements included in this report.
At times, the Bancorp will modify the terms of a loan to forego a portion of interest or principal or reduce the interest rate on the loan to a rate materially less than market rates, or materially extend the maturity date of a loan as part of a concession to a borrower experiencing financial difficulty.
At times, the Company will modify the terms of a loan to forego a portion of interest or principal or reduce the interest rate on the loan to a rate materially less than market rates, or materially extend the maturity date of a loan as part of a concession to a borrower experiencing financial difficulty.
Deposits are a fundamental and cost-effective source of funds for lending and other investment purposes. The Bancorp offers a variety of products designed to attract and retain customers, with the primary focus on building and expanding relationships.
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.
Page 65 of 122 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. Estimated collateral liquidation values are based on established loan underwriting standards and adjusted for current mitigating factors on a loan-by-loan basis.
In addition, under the terms of the MOU, the Bank must seek regulatory approval prior to paying cash dividends. See “– Regulatory Developments Regarding the Bancorp 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 “– Regulatory Developments Regarding the Company and the Bank – Memorandum of Understanding” above.
Borrowed funds decreased due to cyclical inflows and outflows of interest-earning assets and interest-bearing liabilities. Liquidity and Capital Resources For the Bancorp, liquidity management refers to the ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, and pay dividends and operating expenses.
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.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations General The Bancorp's earnings are dependent upon the earnings of the Bank. The Bank's earnings are primarily dependent upon net interest margin.
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 decrease in core deposits and increase in certificate of deposit balances is related to customer preferences for higher yielding deposits. The Bancorp’s borrowed funds are primarily used to fund asset growth not supported by deposit generation.
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.
The primary assets and liabilities of the Bancorp are monetary in nature. As a result, interest rates have a more significant impact on the Bancorp’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or magnitude as the prices of goods and services.
The primary assets and liabilities of the Company are monetary in nature. As a result, interest rates have a more significant impact on the Company’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or magnitude as the prices of goods and services.
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, 2023, the Bancorp 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. At December 31, 2024, the Company had total assets of $2.1 billion and total deposits of $1.8 billion.
The board of directors and management of the Bancorp 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.
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.
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.
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.
Net cash inflows from investing activities totaled $15.0 million during 2023, compared to outflows of $1.1 million during 2022. 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.
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.
Page 53 of 122 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.
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.
No loans were internally classified as doubtful or loss at December 31, 2023 or December 31, 2022.
No loans were internally classified as doubtful or loss at December 31, 2024 or December 31, 2023.
The aggregate amount of dividends that the Bank was eligible to declare in 2023, without the need for qualifying for an exemption or prior DFI approval, was its 2023 net income. On December 26, 2023, the Board of Directors of the Bancorp declared a fourth quarter dividend of $0.12 per share.
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.
During the year ended December 31, 2023, the Bank originated $41.6 million in new 1-4 family loans retained in its portfolio, compared to $105.4 million during the year ended December 31, 2022.
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.
The primary objective of the Bancorp’s investment portfolio is to provide for the liquidity needs of the Bancorp and to contribute to profitability by providing a stable flow of dependable earnings.
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.
The determination of the amounts of the ACL and provisions for credit 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 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.
Management strongly believes that safety and soundness is enhanced by maintaining a high level of capital. Stockholders' equity totaled $147.3 million at December 31, 2023, compared to $136.4 million at December 31, 2022, an increase of $11.0 million (8.0%).
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%).
For the year ended December 31, 2023 (Dollars in thousands) Payment Delay Term Extension Interest Rate Reduction Combination Term Extension and Interest Rate Reduction % of Total Segment Financing Receivables Residential Real Estate $ - $ 868 $ - $ - 0.18 % Total $ - $ 868 $ - $ - 0.06 % There were no commitments to lend additional amounts to the borrowers included in the previous table.
For the year ended December 31, 2024 (Dollars in thousands) Payment Delay Term Extension Interest Rate Reduction Combination Term Extension and Interest Rate Reduction % of Total Segment Financing Receivables Residential Real Estate $ 528 $ 1,115 $ - $ - 0.35 % Home Equity 41 - - - 0.01 % Total $ 569 $ 1,115 $ - $ - 0.11 % For the year ended December 31, 2023 (Dollars in thousands) Payment Delay Term Extension Interest Rate Reduction Combination Term Extension and Interest Rate Reduction % of Total Segment Financing Receivables Residential Real Estate $ - $ 868 $ - $ - 0.18 % Total $ - $ 868 $ - $ - 0.06 % There were no commitments to lend additional amounts to the borrowers included in the previous table.
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.
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.
Management has allocated reserves to both performing and non-performing loans based on current information available. During 2023, net sales of foreclosed real estate totaled $77 thousand and net losses from the 2023 sales totaled $13 thousand.
Management has allocated reserves to both performing and non-performing loans based on current information available. During 2024, net sales of foreclosed real estate totaled $72 thousand and net gain from the 2024 sales totaled $1 thousand.
As of December 31, 2023, the Bancorp’s two investments in trust preferred securities were in “payment in kind” status. 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 on non-accrual status.
As of December 31, 2024, the Company’s two investments in collateralized debt obligations were in “payment in kind” status. 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 on non-accrual status.
The Bancorp 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, 2023, the Bank originated $37.9 million in new fixed rate mortgage loans for sale, compared to $44.9 million during the year ended December 31, 2022.
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.
Purchased loans with evidence of credit quality deterioration since origination are considered purchased credit impaired. Expected future cash flows at the purchase date in excess of the fair value of loans are recorded as interest income over the life of the loans if the timing and amount of the future cash flows is reasonably estimable (“accretable yield”).
Expected future cash flows at the purchase date in excess of the fair value of loans are recorded as interest income over the life of the loans if the timing and amount of the future cash flows is reasonably estimable (“accretable yield”).
The Bancorp'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, 2023, stockholders' equity totaled $147.3 million, with book value per share at $34.28.
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.
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 $371.4 million at December 31, 2023, compared to $370.9 million at December 31, 2022, an increase of $478 thousand or 0.1%.
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%.
The Bancorp's nonperforming loans are summarized below: (Dollars in thousands) Loan Segment December 31, 2023 December 31, 2022 Residential real estate $ 2,824 $ 5,513 Home equity 468 594 Commercial real estate 1,545 3,242 Construction and land development - - Multifamily 3,715 7,064 Commercial business 2,897 1,881 Consumer 2 - Manufactured homes - 82 Government - - Total $ 11,451 $ 18,376 Nonperforming loans to total loans 0.76 % 1.21 % Nonperforming loans to total assets 0.54 % 0.89 % 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 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.
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; and conducting a look-back review of accounts and transaction activity covering the time periods from February 1, 2022 to March 31, 2023 to identify and properly report suspicious activity.
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.
The increase in interest earning asset income for the year ended December 31, 2023, compared to the year ended December 31, 2022, is primarily related to increased reinvestment rates in 2023 for loans, securities, and excess cash balances, as a result of the Federal Reserve rate increases occurring throughout 2023.
The increase in interest earning asset income for the year ended December 31, 2024, compared to the year ended December 31, 2023, is primarily related to increased reinvestment rates in 2024 for loans, securities, and excess cash balances, as a result of the Federal Reserve’s elevated Federal Funds rate levels and increasing long term market rates throughout most of 2024.
(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.
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 extensions have had their maturity dates extended and as a result their monthly payments were reduced.
The Bancorp's substandard loans are summarized below: (Dollars in thousands) Loan Segment December 31, 2023 December 31, 2022 Residential real estate $ 2,098 $ 6,035 Home equity 479 612 Commercial real estate 2,544 7,421 Construction and land development - - Multifamily 4,245 7,064 Commercial business 2,896 1,881 Consumer 2 - Manufactured homes - - Government - - Total $ 12,264 $ 23,013 Page 57 of 122 In addition to identifying and monitoring non-performing and other classified loans, management maintains a list of special mention loans.
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.
In addition, the Bancorp utilizes borrowings (i.e., repurchase agreements, FHLB advances and federal funds purchased) as a source of funds. During 2023, cash and cash equivalents increased $54.7 million compared to a decrease of $1.9 million for 2022.
In addition, the Company utilizes borrowings (i.e., repurchase agreements, FHLB advances and federal funds purchased) as a source of funds. During 2024, cash and cash equivalents decreased $15.4 million compared to an increase of $54.7 million for 2023.
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.
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.
Net cash inflows from financing activities totaled $15.5 million in 2023, compared to net cash outflows of $18.5 million in 2022. The net cash flows from financing activities were primarily a result of net change in deposits, proceeds from borrowings, the net change in repurchase agreements and dividends paid.
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.
Our accounting policies related to the allowance for credit losses is disclosed in the section titled “Critical Accounting Policies” under the heading “Allowance for Credit Losses.” Regulatory Developments Regarding the Bancorp 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”).
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”).
Page 58 of 122 The Bancorp closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of such loans that have been modified during the year ended December 31, 2023.
The Company closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of such modified loans is presented below.
Net income for 2023 was $8.4 million, or $1.96 diluted earnings per common share. The return on average assets was 0.40%, while the return on average stockholders’ equity was 6.28%.
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%.
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 Bancorp’s current credit risk within the loan portfolio and identifies the required allowance for credit losses given the current risk estimates.
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.
During 2023, net cash from operating activities totaled $24.2 million, compared to $17.7 million for 2022. Cash provided from operating activities was primarily a result of net income, sale of loans originated for sale 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 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.
Page 64 of 122 Critical Accounting Estimates Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that management believes are most important to the portrayal of the Bancorp’s financial condition and that require management’s most difficult, subjective or complex judgments. The Bancorp’s most critical accounting estimates are summarized below.
Critical Accounting Policies Critical accounting policies are those accounting policies that management believes are most important to the portrayal of the Company’s financial condition and that require management’s most difficult, subjective or complex judgments. The Company’s most critical accounting policies are summarized below.
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 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.
Loans totaled $1.5 billion and represented 77.2% of interest-earning assets, 71.7% of total assets and 83.4% of total deposits. The loan portfolio, which is the Bancorp’s largest asset, is a significant source of both interest and fee income.
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.
At December 31, 2023, all non-performing loans are also accounted for on a non-accrual basis, except for thirty residential real estate loans totaling $1.1 million, and one commercial loan totaling $712 thousand that remained accruing and more than 90 days past due.
At December 31, 2024, all non-performing loans are also accounted for on a non-accrual basis, except for twenty-nine residential real estate loans totaling $8 thousand which represent loans serviced by third parties that remained accruing and more than 90 days past due.
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.
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.
The increase in interest bearing liability expense is primarily the result of the Bancorp adjusting deposit and repurchase agreement pricing to align with the current interest rate cycle, along with increased borrowing costs as a result of the Federal Reserve rate increases.
The increase in interest bearing liability expense is primarily the result of the Company adjusting deposit and repurchase agreement pricing to align with the current interest rate cycle, along with increased borrowing costs as a result of the Federal Reserve rate increases and long term market rates. 57 The following table shows the change in noninterest income for the year ending December 31, 2024, and December 31, 2023.
Page 60 of 122 The carrying value of the Bancorp’s investment portfolio and other short-term investments and stock balances at December 31, 2023 and 2022 were as follows: December 31, December 31, (Dollars in thousands) 2023 2022 Balance % Securities Balance % Securities U.S. government sponsored entities $ 7,883 2.1 % $ 7,625 2.1 % U.S. treasury securities - 0.0 % 389 0.1 % Collateralized mortgage obligations and residential mortgage-backed securities 123,464 33.2 % 134,116 36.2 % Municipal securities 238,670 64.3 % 227,718 61.3 % Collateralized debt obligations 1,357 0.4 % 1,048 0.3 % Total securities available-for-sale $ 371,374 100.0 % $ 370,896 100.0 % December 31, December 31, YTD (Dollars in thousands) 2023 2022 Change Balance Balance $ % Interest bearing deposits in other financial institutions $ 67,647 $ 11,210 $ 56,437 503.5 % Fed funds sold 419 107 312 291.6 % Certificates of deposit in other financial institutions - 2,456 (2,456 ) -100.0 % Federal Home Loan Bank stock 6,547 6,547 - - The net increase 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 and repurchase agreements.
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.
The Bancorp’s fourth quarter dividend was paid to shareholders on February 5, 2024. Results of Operations – Comparison of 2023 to 2022 Net income for 2023 was $8.4 million, compared to $15.1 million for 2022, a decrease of $6.7 million (44.4%).
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%).
The increase is attributable to decreased unrealized losses within the portfolio. At December 31, 2023, the securities portfolio represented 19.0% of interest-earning assets and 17.6% of total assets compared to 19.5% of interest-earning assets and 17.9% of total assets at December 31, 2022.
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 Bancorp's allowance to total loans and non-performing loans are summarized below: (Dollars in thousands) 12/31/2023 12/31/2022 Allowance for credit losses $ 18,768 $ 12,897 Total loans $ 1,512,595 $ 1,513,631 Non-performing loans $ 11,451 $ 18,376 ACL-to-total loans 1.24 % 0.85 % ACL-to-non-performing loans (coverage ratio) 163.9 % 70.2 % The December 31, 2023, balance in the ACL account is considered adequate by management after extensive analysis performed in accordance with the provisions of the current expected credit loss model.
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.
Management does not expect the actions called for by these regulatory actions to have a substantial impact on the Bancorp’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 combinations.
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%).
The Bancorp’s end-of-period borrowing balances were as follows: December 31, December 31, YTD (Dollars in thousands) 2023 2022 Change Balance Balance $ % Repurchase agreements $ 38,124 $ 15,503 $ 22,621 145.9 % Borrowed funds 80,000 120,000 (40,000 ) -33.3 % Total borrowed funds $ 118,124 $ 135,503 $ (17,379 ) -12.8 % Page 61 of 122 Repurchase agreements increased as part of normal account fluctuations within that product line.
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.
Upon the Bancorp’s determination that a modified loan has subsequently been deemed uncollectible, the loan or lease is written off. Therefore, the amortized cost of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.
Therefore, the amortized cost of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.
The return on average equity was 6.28% for 2023, compared to 10.47% for 2022. Net interest income for 2023, was $54.6 million, a decrease of $12.6 million (18.8%) from $67.1 million for 2022.
The earnings represent a return on average assets of 0.58% for 2024, compared to 0.40% for 2023. The return on average equity was 8.06% for 2024, compared to 6.28% for 2023. Net interest income for 2024, was $48.4 million, a decrease of $6.1 million (11.2%) from $54.6 million for 2023.
The net interest margin was 2.83% for 2023, compared to 3.56% for 2022. The Bancorp’s tax equivalent net interest margin for 2023, was 2.98% compared to 3.74% for 2022. Comparing the net interest margin on a tax equivalent basis more accurately compares the returns on tax-exempt loans and securities to those on taxable interest-earning assets.
Comparing the net interest margin on a tax equivalent basis more accurately compares the returns on tax-exempt loans and securities to those on taxable interest-earning assets. The adjusted net interest income and tax-adjusted net interest margin measures recognize the income tax savings when comparing taxable and tax-exempt assets.
If the segment performs in line with expectations, the deferred cost reserve is paid as a premium to the third party originator of the loan. The unamortized balance of the deferred cost reserve totaled $3.5 million and $4.6 million as of December 31, 2023, and 2022, respectively, and is included in net deferred loan origination cost.
The unamortized balance of the deferred cost reserve totaled $2.9 million and $3.5 million as of December 31, 2024, and 2023, respectively, and is included in net deferred loan origination cost.
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 Bancorp’s consolidated financial statements.
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.
The decreased net interest margin is primarily the result of the increase in short-term interest rates relative to long-term interest rates as part of the Federal Reserve’s response to high inflation and other factors. The compression seen in 2023 may continue moderately, unless target rates decrease, and our interest-bearing liabilities can be repriced at those lower rates.
The decreased net interest margin is primarily the result of elevated short-term interest rates relative to long-term interest rates as part of the Federal Reserve’s response to high inflation and other factors.
YTD (Dollars in thousands, except per share data) Year Ended December 31, 12/31/2023 vs. 12/31/2022 2023 2022 $ Change % Change Noninterest income: Fees and service charges $ 6,024 $ 6,257 $ (233 ) -3.7 % Wealth management operations 2,484 2,113 371 17.6 % Gain on sale of loans held-for-sale, net 1,081 1,368 (287 ) -21.0 % Gain (loss) on sale of securities, net (48 ) 662 (710 ) -107.3 % Increase in cash value of bank owned life insurance 766 810 (44 ) -5.4 % Gain (loss) on sale of foreclosed real estate (13 ) 16 (29 ) -181.3 % Other 452 283 169 59.7 % Total noninterest income $ 10,746 $ 11,509 $ (763 ) -6.6 % The decrease in fees and service charges is primarily the result of decreased lending fees earned resulting from lower loan volume year over year.
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.
Numerous actions have already been taken or commenced by the Bank to strengthen its BSA and anti-money laundering compliance practices, policies, procedures, and controls.
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.
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. 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.
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.
The following table shows the amortized cost of loans at December 31, 2023, that were both experiencing financial difficulty and modified during the year ended December 31, 2023, segregated by portfolio segment and type of modification.
The valuation basis for these modified loans is based on the present value of expected future cash flows; unless consistent cash flows are not present, then the fair value of the collateral securing the loan is the basis for valuation. 52 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.
The combined effective federal and state tax rate for the Bancorp was (4.16%) for the year ended December 31, 2023, compared to 8.9% for the year ended December 31, 2022.
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.
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.
Aggregate substandard loan collateral deficiencies are determined for residential, commercial real estate, commercial business, and consumer loan portfolios.
The primary sources of cash and cash equivalents were proceeds from the sale of loans originated for sale, proceeds from the sale of securities, proceeds from the maturity and paydown of securities, and proceeds from the Federal Reserve’s BTFP. The primary uses of cash and cash equivalents were the payment of dividends, change in deposits, and loan originations.
The primary sources of cash and cash equivalents were proceeds from the sale of loans originated for sale, proceeds from a real estate sale leaseback transaction, proceeds from the sale of securities, proceeds from the maturity and paydown of securities.
The impact of the 4.45% return on interest earning assets and the 1.96% cost of funds resulted in a net interest spread of 2.49% for 2023, compared to a net interest spread of 3.48% for 2022. During 2023, total interest income increased by $13.7 million (19.1%) while total interest expense increased by $26.3 million (539.1%).
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 Bancorp’s end-of-period deposit portfolio balances were as follows: December 31, December 31, YTD (Dollars in thousands) 2023 2022 Change Balance Balance $ % Checking $ 653,529 $ 755,377 $ (101,848 ) -13.5 % Savings 302,782 402,365 (99,583 ) -24.7 % Money market 324,993 254,157 70,836 27.9 % Certificates of deposit 532,117 363,118 168,999 46.5 % Total deposits $ 1,813,421 $ 1,775,017 $ 38,404 2.2 % On December 31, 2023, balances for certificates of deposit totaled $532.1 million, compared to $363.1 million on December 31, 2022, an increase of $169.0 million or 46.5%.
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 increase in wealth management operations is the result of higher fee income year over year due to customer base growth and market conditions. The decrease in gain on sale of loans is the result of a decline in the volume of loans sold due to the increases in interest rates in the economy during 2023 and 2022.
The increase in wealth management operations is the result of higher fee income year over year due to customer base growth and market conditions. We expect demand for fixed rate mortgage loans held-for-sale in the secondary market to be lower as borrowing rates on loans remain elevated.
(Dollars in millions) Minimum Required To Be 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 $ 168.3 10.4 % $ 72.6 4.5 % $ 104.9 6.5 % Tier 1 capital to risk-weighted assets $ 168.3 10.4 % $ 96.9 6.0 % $ 129.1 8.0 % Total capital to risk-weighted assets $ 183.3 11.4 % $ 129.1 8.0 % $ 161.4 10.0 % Tier 1 capital to adjusted average assets $ 168.3 7.8 % $ 86.6 4.0 % $ 108.2 5.0 % Page 62 of 122 The Bancorp’s ability to pay dividends to its shareholders is largely dependent upon the Bank’s ability to pay dividends to the Bancorp.
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.
The decrease is primarily due to lower net interest income, an increase in the provision for credit losses and a decrease in noninterest income, which were partially offset by a decrease in noninterest expenses and a decrease in income tax expense. The earnings represent a return on average assets of 0.40% for 2023, compared to 0.74% for 2022.
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.
December 31, December 31, (Dollars in thousands) 2023 2022 Balance % Loans Balance % Loans Residential real estate $ 484,948 32.1 % $ 484,595 32.1 % Home equity 46,599 3.1 % 38,978 2.6 % Commercial real estate 503,202 33.4 % 486,431 32.2 % Construction and land development 115,227 7.6 % 108,926 7.2 % Multifamily 219,917 14.6 % 251,014 16.6 % Consumer 610 0.0 % 918 0.1 % Manufactured Homes 30,845 2.0 % 34,882 2.3 % Commercial business 97,386 6.5 % 93,278 6.2 % Government 10,021 0.7 % 9,549 0.7 % Loans receivable 1,508,755 100.0 % 1,508,571 100.0 % Plus: Net deferred loans origination costs 3,705 5,083 Undisbursed loan funds 135 (23 ) Loans receivable, net of deferred fees and costs $ 1,512,595 $ 1,513,631 Adjustable rate loans / loans receivable $ 681,444 45.2 % $ 698,842 46.3 % December 31, December 31, 2023 2022 Loans receivable to total assets 71.7 % 73.1 % Loans receivable to earning assets 77.2 % 79.4 % Loans receivable to total deposits 83.4 % 85.3 % Page 55 of 122 Commercial real estate loans remained our largest loan segment and accounted for 33.4% of the total loan portfolio at December 31, 2023 and 32.2% at December 31, 2022.
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.
Page 59 of 122 A deferred cost reserve is maintained for the portfolio of manufactured home loans that have been purchased. This reserve is available for use for manufactured home loan nonperformance and costs associated with nonperformance.
This reserve is available for use for manufactured home loan nonperformance and costs associated with nonperformance. If the segment performs in line with expectations, the deferred cost reserve is paid as a premium to the third party originator of the loan.
Page 56 of 122 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.
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.
However, these expenses are not expected to have a material impact on the results of operations or financial condition of the Bancorp or the Bank. Memorandum of Understanding On November 7, 2023, the Bank entered into a memorandum of understanding (“MOU”) with the FDIC and DFI.
The Bank has incurred and will continue to incur additional non-interest expenses associated with the implementation of the corrective actions set forth in the Order. However, these expenses are not expected to have a material impact on the results of operations or financial condition of the Company or the Bank.
The increase was primarily the result of net income of $8.4 million and a decrease in net unrealized losses on available for sale securities of $12.7 million, which were partially offset by a decrease from the impact of adoption of ASU No. 2016-13 totaling $6.1 million and dividends of $4.5 million.
The increase was primarily the result of net income of $12.1 million and a decrease in net unrealized losses on available for sale securities of $6.5 million and cash dividends of $2.1 million. At December 31, 2024, book value per share was $35.10 compared to $34.28 for 2023.
The decrease in other operating expenses is primarily the result of one-time expenses incurred in the prior year related to the acquisition of Royal Financial. Income tax benefit for the year ended December 31, 2023, totaled $335 thousand, compared to income tax expense of $1.4 million for the year ended December 31, 2022, a decrease of $1.8 million (122.7%).
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%).

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