Finward Bancorp

Previous wording

Finward Bancorp (the “Company”) is a financial holding company registered with the Board of Governors of the Federal Reserve System. Peoples Bank (“the Bank”), an Indiana commercial bank, is a wholly-owned subsidiary of the Company. The Company has no other business activity other than being a holding company for the Bank. The following management’s discussion and analysis presents information concerning our financial condition as of June 30, 2025 and December 31, 2024, and the results of operations for the three and six months ending June 30, 2025 and June 30, 2024. This discussion should be read in conjunction with the condensed consolidated financial statements and other financial data presented elsewhere herein and with the financial statements and other financial data, as well as the Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Current wording

Finward Bancorp (the “Company”) is a financial holding company registered with the Board of Governors of the Federal Reserve System. Peoples Bank (“the Bank”), an Indiana commercial bank, is a wholly-owned subsidiary of the Company. The Company has no other business activity other than being a holding company for the Bank. The following management’s discussion and analysis presents information concerning our financial condition as of September 30, 2025 and December 31, 2024, and the results of operations for the three and nine months ending September 30, 2025 and September 30, 2024. This discussion should be read in conjunction with the condensed consolidated financial statements and other financial data presented elsewhere herein and with the condensed consolidated financial statements and other financial data, as well as the Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Previous wording

At June 30, 2025, the Company had total assets of $2.1 billion, loans receivable, net of deferred fees and costs, of $1.5 billion and total deposits of $1.8 billion. Stockholders' equity totaled $154.3 million or 7.5% of total assets, with a book value per share of $35.67. Net income for the three months ended June 30, 2025, was $2.2 million, or $0.50 earnings per diluted common share. For the three months ended June 30, 2025, the return on average assets (ROA) was 0.42%, while the return on average stockholders’ equity (ROE) was 5.66%. Net income for the six months ended June 30, 2025, was $2.6 million, or $0.61 earnings per diluted common share. For the six months ended June 30, 2025, the ROA was 0.25%, while the ROE was 3.39%.

Current wording

At September 30, 2025, the Company had total assets of $2.1 billion, loans receivable, net of deferred fees and costs, of $1.5 billion and total deposits of $1.8 billion. Stockholders' equity totaled $165.5 million or 8.1% of total assets, with a book value per share of $38.24. Net income for the three months ended September 30, 2025, was $3.5 million, or $0.81 earnings per diluted common share. For the three months ended September 30, 2025, the return on average assets (ROA) was 0.68%, while the return on average stockholders’ equity (ROE) was 8.96%. Net income for the nine months ended September 30, 2025, was $6.1 million, or $1.42 earnings per diluted common share. For the nine months ended September 30, 2025, the ROA was 0.40%, while the ROE was 5.27%.

Previous wording

During the six months ended June 30, 2025, total assets decreased by $2.8 million (0.14%), with interest-earning assets decreasing by $2.7 million (0.14%). At both June 30, 2025 and December 31, 2024, interest-earning assets totaled $1.9 billion. Earning assets represented 92.3% of total assets at both June 30, 2025 and December 31, 2024.

Current wording

During the nine months ended September 30, 2025, total assets decreased by $8.0 million (0.39%), with interest-earning assets decreasing by $1.6 million (0.08%). At both September 30, 2025 and December 31, 2024, interest-earning assets totaled $1.9 billion. Earning assets represented 92.6% of total assets at September 30, 2025 and 92.3% December 31, 2024.

Previous wording

Our total commercial real estate portfolio (which includes but is not limited to loans secured by office space, medical office space, and mixed-use retail/office space) totaled $551.1 million as of June 30, 2025, compared to $551.7 million as of December 31, 2024. Given prevailing market conditions such as continued elevated interest rate levels, reduced occupancy as a result of the increase in hybrid work arrangements, we are carefully monitoring these loans for signs of deterioration in credit quality.

Current wording

Our total commercial real estate portfolio (which includes but is not limited to loans secured by office space, medical office space, and mixed-use retail/office space) totaled $564.6 million as of September 30, 2025, compared to $551.7 million as of December 31, 2024. Given prevailing market conditions such as continued elevated interest rate levels, reduced occupancy as a result of the increase in hybrid work arrangements, we are carefully monitoring these loans for signs of deterioration in credit quality.

Previous wording

Commercial real estate loans remained our largest loan segment and accounted for 37.2% of the total loan portfolio at June 30, 2025 and 36.6% at December 31, 2024. A further breakdown of the composition of the commercial real estate loan portfolio as of June 30, 2025 and December 31, 2024 is shown in the table below:

Current wording

Commercial real estate loans remained our largest loan segment and accounted for 38.4% of the total loan portfolio at September 30, 2025 and 36.6% at December 31, 2024. A further breakdown of the composition of the commercial real estate loan portfolio as of September 30, 2025 and December 31, 2024 is shown in the table below:

Previous wording

The Company is primarily a portfolio lender. Mortgage banking activities historically have been limited to the sale of fixed rate mortgage loans with contractual maturities greater than 15 years. These loans are identified as held for sale when originated and sold, on a loan-by-loan basis, in the secondary market. The Company will also retain fixed rate mortgage loans with a contractual maturity greater than 15 years on a limited basis. During the six months June 30, 2025, the Company originated $18.1 million in new fixed rate mortgage loans for sale, compared to $10.6 million during the six months ended June 30, 2024. Net gains realized from the mortgage loan sales totaled $608 thousand for the six months ended June 30, 2025, compared to $472 thousand for the six months ended June 30, 2024. At June 30, 2025, the Company had $834 thousand in loans that were classified as held for sale, compared to $1.3 million at December 31, 2024.

Current wording

The Company is primarily a portfolio lender. Mortgage banking activities historically have been limited to the sale of fixed rate mortgage loans with contractual maturities greater than 15 years. These loans are identified as held for sale when originated and sold, on a loan-by-loan basis, in the secondary market. The Company will also retain fixed rate mortgage loans with a contractual maturity greater than 15 years on a limited basis. During the nine months ended September 30, 2025, the Company originated $29.3 million in new fixed rate mortgage loans for sale, compared to $22.5 million during the nine months ended September 30, 2024. Net gains realized from the mortgage loan sales totaled $873 thousand for the nine months ended September 30, 2025, compared to $810 thousand for the nine months ended September 30, 2024. At September 30, 2025, the Company had $2.6 million in loans that were classified as held for sale, compared to $1.3 million at December 31, 2024.

Previous wording

Non-performing loans include those loans that are 90 days or more past due and those loans that have been placed on non-accrual status. The Company will at times maintain certain loans on accrual status, despite being over 90 days past due, for short periods of time when management has reason to believe payments are in the process of being received.

Current wording

Non-performing loans include those loans that are 90 days or more past due and those loans that have been placed on nonaccrual status. The Company will at times maintain certain loans on accrual status, despite being over 90 days past due, for short periods of time when management has reason to believe payments are in the process of being received.

Previous wording

At June 30, 2025, management is of the opinion that there are no loans where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which will imminently result in such loans being classified as past due or non-accrual. Management does not presently anticipate that any of the non-performing loans or classified loans would materially affect future operations, liquidity or capital resources.

Current wording

At September 30, 2025, management is of the opinion that there are no loans where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which will imminently result in such loans being classified as past due or nonaccrual. Management does not presently anticipate that any of the non-performing loans or classified loans would materially affect future operations, liquidity or capital resources.

Previous wording

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. 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, all of which is designated as available-for-sale, totaled $327.8 million at June 30, 2025, compared to $333.6 million at December 31, 2024, a decrease of $5.7 million (1.7%). The decrease in securities available for sale from year end, was primarily due to payoffs of collateralized mortgage obligations and residential mortgage-backed securities within the portfolio. The yield on the securities portfolio was 2.40% for both the six months ended June 30, 2025 and the six months ended June 30, 2024. Management did not execute any securities sale transactions during the quarter. At June 30, 2025, the securities portfolio represented 17.3% of interest-earning assets and 15.9% of total assets compared to 17.5% of interest-earning assets and 16.2% of total assets at December 31, 2024.

Current wording

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. Funds are generally invested in federal funds, interest bearing balances in other financial institutions, U.S. government securities, U.S. treasury securities, federal agency obligations, obligations of state and local municipalities, mortgage-backed securities, and corporate securities. The securities portfolio, all of which is designated as available-for-sale, totaled $335.2 million at September 30, 2025, compared to $333.6 million at December 31, 2024, an increase of $1.6 million (0.5%). The increase in securities available for sale from year end, was primarily due to an increase in the fair value of the overall portfolio. The yield on the securities portfolio was 2.40% for the nine months ended September 30, 2025 and 2.39% for the nine months ended September 30, 2024. Management did not execute any securities sale transactions during the quarter. At September 30, 2025, the securities portfolio represented 17.6% of interest-earning assets and 16.3% of total assets compared to 17.5% of interest-earning assets and 16.2% of total assets at December 31, 2024.

Previous wording

As of June 30, 2025, deposits totaled $1.8 billion, a decrease of $5.7 million or 0.32% compared to December 31, 2024. Core deposits totaled $1.2 billion at June 30, 2025 compared to $1.2 billion on December 31, 2024, an increase of $11.8 million or 1.0%. Core deposits include checking, savings, and money market accounts and represented 69.1% of the Company’s total deposits at June 30, 2025. On June 30, 2025, balances for certificates of deposit totaled $542.7 million, compared to $560.3 million on December 31, 2024, a decrease of $17.6 million or 3.1%. The decrease in deposits is primarily related to a reduction in depositor certificate of deposit activity and planned adjustments to deposit pricing.

Current wording

As of September 30, 2025, deposits totaled $1.8 billion, a decrease of $9.9 million or 0.6% compared to December 31, 2024. Core deposits totaled $1.2 billion at September 30, 2025 compared to $1.2 billion on December 31, 2024. Core deposits include checking, savings, and money market accounts and represented 69.3% of the Company’s total deposits at September 30, 2025. On September 30, 2025, balances for certificates of deposit totaled $536.7 million, compared to $560.3 million on December 31, 2024, a decrease of $23.6 million or 4.2%. The decrease in deposits is primarily related to a reduction in depositor certificate of deposit activity and planned adjustments to deposit pricing.

Previous wording

Checking account balances increased $2.0 million and interest bearing savings account balances decreased $9.1 million from year end primarily due to decreases in personal passbook savings account balances. Money market account balances increased by $18.9 million from year end due to business and retail consumer preferences. Certificates of deposits decreased by $17.6 million primarily reflecting customer prioritization of more liquid deposit products. We strive to maintain balances of personal and business checking and savings accounts through our focus on quality customer service, the desire of customers to deal with a local bank, the convenience of our branch network and the breadth and depth of our product line.

Current wording

Checking account balances decreased $11.7 million and interest bearing savings account balances decreased $18.1 million from year end primarily due to decreases in personal statement savings account balances. Money market account balances increased by $43.5 million from year end due to business and retail consumer preferences. Certificates of deposits decreased by $23.6 million primarily reflecting customer prioritization of more liquid deposit products. We strive to maintain balances of personal and business checking and savings accounts through our focus on quality customer service, the desire of customers to deal with a local bank, the convenience of our branch network and the breadth and depth of our product line.

Previous wording

Non-interest bearing demand accounts comprised 16.0% of total deposits at June 30, 2025 and 15.0% of total deposits at December 31, 2024. Interest bearing demand accounts, including money market and savings accounts, comprised 53.0% of total deposits at June 30, 2025 and 53.2% at December 31, 2024. Time accounts as a percentage of total deposits were 31.0% at June 30, 2025 and 31.8% at December 31, 2024.

Current wording

Non-interest bearing demand accounts comprised 16.0% of total deposits at September 30, 2025 and 15.0% of total deposits at December 31, 2024. Interest bearing demand accounts, including money market and savings accounts, comprised 53.2% of total deposits at both September 30, 2025 and December 31, 2024. Time accounts as a percentage of total deposits were 30.7% at September 30, 2025 and 31.8% at December 31, 2024.

Previous wording

Deposit rates decreased in the three and six months ended June 30, 2025 compared to same periods in 2024, primarily driven by a decrease in short-term market interest rates.

Current wording

Deposit rates decreased in the three and nine months ended September 30, 2025 compared to same periods in 2024, primarily driven by a decrease in short-term market interest rates.

Previous wording

Borrowings and repurchase agreements totaled $113.3 million at June 30, 2025 compared to $105.1 million at December 31, 2024, an increase of $8.2 million or 7.8%. The increase in borrowings from December 31, 2024, was the result of additional repurchase agreement activity. As of June 30, 2025, 72% of our deposits are fully FDIC insured, and another 8% are further backed by the Indiana Public Deposit Insurance Fund. The Company’s liquidity position remains strong with solid core deposit customer relationships, excess cash, debt securities, and access to diversified borrowing sources. As of June 30, 2025, the Company had available liquidity of $728.5 million including borrowing capacity from the FHLB and Federal Reserve facilities.

Current wording

Borrowings and repurchase agreements totaled $103.4 million at September 30, 2025 compared to $105.1 million at December 31, 2024, a decrease of $1.7 million or 1.6%. The decrease in borrowings from December 31, 2024, was the result of the maturity of FHLB advances partially offset by additional repurchase agreement activity. As of September 30, 2025, 72% of our deposits are fully FDIC insured, and another 8% are further backed by the Indiana Public Deposit Insurance Fund. The Company’s liquidity position remains strong with solid core deposit customer relationships, excess cash, debt securities, and access to diversified borrowing sources. As of September 30, 2025, the Company had available liquidity of $737.1 million including borrowing capacity from the FHLB and Federal Reserve facilities.

Previous wording

Other assets totaled $41.6 million at June 30, 2025, compared to $43.9 million at December 31, 2024. The decrease in other assets is primarily related to decreased fair value of the Company’s interest rate swap contract derivative. Accrued expenses and other liabilities totaled $35.5 million at June 30, 2025, compared to $43.6 million at December 31, 2024. The decrease in accrued expenses and other liabilities is primarily the result of the decreased fair value of the Company's interest rate swap contract derivative, along with other activities such as a decrease in other collateral balances and ACH prefunding balances.

Current wording

Other assets totaled $37.8 million at September 30, 2025, compared to $43.9 million at December 31, 2024. The decrease in other assets is primarily related to decreased fair value of the Company’s interest rate swap contract derivative and a reduction in the deferred tax asset. Accrued expenses and other liabilities totaled $33.2 million at September 30, 2025, compared to $43.6 million at December 31, 2024. The decrease in accrued expenses and other liabilities is primarily the result of the decreased fair value of the Company's interest rate swap contract derivative, along with other activities such as a decrease in other collateral balances and ACH prefunding balances.

Previous wording

If interest rates across the yield curve were to uniformly decrease, this analysis suggests the Bank may be positioned for relatively neutral to positive improvements in net interest income over the next twelve months. If interest rates across the yield curve were to uniformly increase, this analysis suggests we would experience a reduction in net interest income over the next twelve months.

Current wording

If interest rates across the yield curve were to uniformly decrease, this analysis suggests the Bank may be positioned for relatively neutral to modestly negative changes in net interest income over the next twelve months. If interest rates across the yield curve were to uniformly increase by approximately 100 to 300 basis points, this analysis suggests we would experience positive impact to net interest income over the next twelve months. If interest rates across the yield curve were to uniformly increase by a more material amount (400 basis points and above), the analysis suggests we would shift into experiencing negative impacts to net interest income over the next twelve months.

Previous wording

Although customer deposits remain our preferred funding source, maintaining additional sources of liquidity is part of our prudent liquidity risk management practices. We have the ability to borrow from the FHLB. At June 30, 2025, we had five outstanding advances totaling $65 million and the ability to borrow up to $433.7 million from the FHLB. We also have the ability to borrow from the Federal Reserve Bank of Chicago. At June 30, 2025, we had no outstanding balance from the Federal Reserve Bank of Chicago. At June 30, 2025, cash and cash equivalents were $103.4 million and secured borrowing capacity at the Federal Reserve Bank totaled $253.8 million, providing total liquidity sources of $728.5 million (excluding brokered deposit capacity).

Current wording

Although customer deposits remain our preferred funding source, maintaining additional sources of liquidity is part of our prudent liquidity risk management practices. We have the ability to borrow from the FHLB. At September 30, 2025, we had five outstanding advances totaling $55 million and the ability to borrow up to $436.0 million from the FHLB. We also have the ability to borrow from the Federal Reserve Bank of Chicago. At September 30, 2025, we had no outstanding balance from the Federal Reserve Bank of Chicago. At September 30, 2025, cash and cash equivalents were $104.2 million and secured borrowing capacity at the Federal Reserve Bank totaled $260.2 million, providing total additional liquidity sources of $737.1 million (excluding brokered deposit capacity).

Previous wording

During the six months ended June 30, 2025, cash and cash equivalents increased by $32.8 million compared to a $2.8 million decrease for the six months ended June 30, 2024. The primary sources of cash and cash equivalents were sales of loans originated for sale and the net change in loans receivable. The primary uses of cash and cash equivalents were loan originations and the net change in accrued expenses and other liabilities. Cash provided by operating activities totaled $1.0 million for the six months ended June 30, 2025, compared to cash provided of $2.7 million for the six months ended June 30, 2024. Cash used in operating activities was primarily a result of net income and sale of loans originated for sale offset by loans originated for sale and net change in accrued expenses and other liabilities. Cash provided by investing activities totaled $29.9 million for the current period, compared to cash provided in investing activities of $42.4 million for the six months ended June 30, 2024. Cash provided by investing activities for the current six-month period was primarily related to net change in loans receivable and proceeds from maturities of securities. Cash provided by financing activities totaled $2.0 million during the current period compared to net cash used in financing activities of $47.9 million for the six months ended June 30, 2024. The net cash used in financing activities was primarily the result of net change in deposits offset by the change in repurchase agreements. On a cash basis, the Company paid dividends on common stock of $520 thousand for the six months ended June 30, 2025, and $1.0 million for the six months ended June 30, 2024.

Current wording

During the nine months ended September 30, 2025, cash and cash equivalents increased by $33.6 million compared to a $14.4 million decrease for the nine months ended September 30, 2024. The primary sources of cash and cash equivalents were sales of loans originated for sale and the net change in loans receivable. The primary uses of cash and cash equivalents were loan originations and the net change in accrued expenses and other liabilities. Cash provided by operating activities totaled $2.2 million for the nine months ended September 30, 2025, compared to cash used of $1.0 million for the nine months ended September 30, 2024. Cash used in operating activities was primarily a result of net income and sale of loans originated for sale offset by loans originated for sale and net change in accrued expenses and other liabilities. Cash provided by investing activities totaled $44.2 million for the current period, compared to cash provided in investing activities of $43.0 million for the nine months ended September 30, 2024. Cash provided by investing activities for the current nine-month period was primarily related to net change in loans receivable and proceeds from maturities of securities. Cash used in financing activities totaled $12.8 million during the current period compared to net cash used in financing activities of $56.3 million for the nine months ended September 30, 2024. The net cash used in financing activities was primarily the result of net change in deposits offset by the change in repurchase agreements. On a cash basis, the Company paid dividends on common stock of $1.0 million for the nine months ended September 30, 2025, and $1.6 million for the nine months ended September 30, 2024.

Previous wording

At June 30, 2025, outstanding commitments to fund loans totaled $239.4 million. Approximately 60.2% of the commitments were at variable rates. Standby letters of credit, which are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party, totaled $15.8 million at June 30, 2025. Management believes that the Company has sufficient cash flow and borrowing capacity to fund all outstanding commitments and letters of credit, while maintaining proper levels of liquidity.

Current wording

At September 30, 2025, outstanding commitments to fund loans totaled $269.5 million. Approximately 60.9% of the commitments were at variable rates. Standby letters of credit, which are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party, totaled $15.1 million at September 30, 2025. Management believes that the Company has sufficient cash flow and borrowing capacity to fund all outstanding commitments and letters of credit, while maintaining proper levels of liquidity.

Previous wording

Management strongly believes that maintaining a high level of capital enhances safety and soundness. During the six months ended June 30, 2024, stockholders' equity increased by $2.8 million (1.9%). During the six months ended June 30, 2024, stockholders’ equity was primarily increased by net income of $2.6 million and other comprehensive income as the result of market value changes within the securities portfolio of $524 thousand offset by dividends declared of $520 thousand. 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 will be reviewed annually by the Board of Directors. No shares were repurchased under the program during the first six months of 2025 or 2024. During 2025, 16,469 restricted stock shares vested under the Incentive Plan outlined in Note 10 of the financial statements, of which 5,105 of these shares were withheld in the form of a net surrender to cover the withholding tax obligations of the vesting employees. The repurchase of these surrendered shares is considered outside of the scope of the formal board approved stock repurchase program.

Current wording

$1.0 million. 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 will be reviewed annually by the Board of Directors. No shares were repurchased under the program during the first nine months of 2025 or 2024. During 2025, 17,253 restricted stock shares vested under the Incentive Plan outlined in Note 10 of the condensed consolidated financial statements, of which 5,328 of these shares were withheld in the form of a net surrender to cover the withholding tax obligations of the vesting employees. The repurchase of these surrendered shares is considered outside of the scope of the formal board approved stock repurchase program.

Previous wording

During the six months ended June 30, 2025, the Company’s and Bank’s risk weighted assets continued to be negatively impacted by regulatory requirements regarding collateralized debt obligations. The regulatory requirements state that for collateralized debt obligations that have been downgraded below investment grade by the rating agencies, increased risk-based asset weightings are required. The Company currently holds pooled collateralized debt obligations with a cost basis of $2.1 million. These investments currently have ratings that are below investment grade. As a result, approximately $1.6 million of risk-based assets are generated by the collateralized debt obligations in the Company’s and Bank’s total risk based capital calculation.

Current wording

During the nine months ended September 30, 2025, the Company’s and Bank’s risk weighted assets continued to be negatively impacted by regulatory requirements regarding collateralized debt obligations. The regulatory requirements state that for collateralized debt obligations that have been downgraded below investment grade by the rating agencies, increased risk-based asset weightings are required. The Company currently holds pooled collateralized debt obligations with a cost basis of $2.1 million. These investments currently have ratings that are below investment grade. As a result, approximately $1.6 million of risk-based assets are generated by the collateralized debt obligations in the Company’s and Bank’s total risk based capital calculation.

Previous wording

The Company’s ability to pay dividends to its shareholders is largely dependent upon the Bank’s ability to pay dividends to the Company. Under Indiana law, the Bank may pay dividends from its undivided profits (generally, earnings less losses, bad debts, taxes and other operating expenses) as is considered expedient by the Bank’s Board of Directors. However, the Bank must obtain the approval of the Indiana Department of Financial Institutions (DFI) if the total of all dividends declared by the Bank during the current year, including the proposed dividend, would exceed the sum of retained net income for the year to date plus its retained net income for the previous two years. For this purpose, “retained net income,” means net income as calculated for call report purposes, less all dividends declared for the applicable period. An exemption from DFI approval would require that the Bank have been assigned a composite uniform financial institutions rating of 1 or 2 as a result of the most recent federal or state examination; the proposed dividend would not result in a Tier 1 leverage ratio below 7.5%; and that the Bank not be subject to any corrective action, supervisory order, supervisory agreement, or board approved operating agreement. In addition, under the terms of the MOU, the Bank must seek regulatory approval prior to paying cash dividends. See “– Recent Developments Regarding the Company and the Bank – Memorandum of Understanding” above. Moreover, the FDIC and the Federal Reserve Board may prohibit the payment of dividends if it determines that the payment of dividends would constitute an unsafe or unsound practice in light of the financial condition of the Bank. Assuming receipt of regulatory approval for all cash dividends declared by the Bank under the terms of the MOU, the aggregate amount of dividends that the Bank is eligible to declare in 2025, without the need for qualifying for a further exemption or prior DFI approval under the terms of Indiana law described above, is its 2025 net income. On April 9, 2025, the Board of Directors of the Company declared the most recently quarterly dividend of $0.12 per share. The Company’s quarterly dividend was paid to shareholders on May 12, 2025 to shareholders of record on April 22, 2025.

Current wording

The Company’s ability to pay dividends to its shareholders is largely dependent upon the Bank’s ability to pay dividends to the Company. Under Indiana law, the Bank may pay dividends from its undivided profits (generally, earnings less losses, bad debts, taxes and other operating expenses) as is considered expedient by the Bank’s Board of Directors. However, the Bank must obtain the approval of the Indiana Department of Financial Institutions (DFI) if the total of all dividends declared by the Bank during the current year, including the proposed dividend, would exceed the sum of retained net income for the year to date plus its retained net income for the previous two years. For this purpose, “retained net income,” means net income as calculated for call report purposes, less all dividends declared for the applicable period. An exemption from DFI approval would require that the Bank have been assigned a composite uniform financial institutions rating of 1 or 2 as a result of the most recent federal or state examination; the proposed dividend would not result in a Tier 1 leverage ratio below 7.5%; and that the Bank not be subject to any corrective action, supervisory order, supervisory agreement, or board approved operating agreement. In addition, under the terms of the MOU, the Bank must seek regulatory approval prior to paying cash dividends. See “– Recent Developments Regarding the Company and the Bank – Memorandum of Understanding” above. Moreover, the FDIC and the Federal Reserve Board may prohibit the payment of dividends if it determines that the payment of dividends would constitute an unsafe or unsound practice in light of the financial condition of the Bank. Assuming receipt of regulatory approval for all cash dividends declared by the Bank under the terms of the MOU, the aggregate amount of dividends that the Bank is eligible to declare in 2025, without the need for qualifying for a further exemption or prior DFI approval under the terms of Indiana law described above, is its 2025 net income. On August 15, 2025, the Board of Directors of the Company declared the most recent quarterly dividend of $0.12 per share. The Company’s quarterly dividend was paid to shareholders on September 12, 2025 to shareholders of record on August 29, 2025.

Previous wording

For the quarter ended June 30, 2025, the Company reported net income of $2.2 million, compared to net income of $143 thousand for the quarter ended June 30, 2024, an increase of $2.0 million. For the quarter ended June 30, 2025, the ROA was 0.42%, compared to 0.03 % for the quarter ended June 30, 2024. The ROE was 5.66% for the quarter ended June 30, 2025, compared to 0.39% for the quarter ended June 30, 2024.

Current wording

For the quarter ended September 30, 2025, the Company reported net income of $3.5 million, compared to net income of $606 thousand for the quarter ended September 30, 2024, an increase of $2.9 million. For the quarter ended September 30, 2025, the ROA was 0.68%, compared to 0.12 % for the quarter ended September 30, 2024. The ROE was 8.96% for the quarter ended September 30, 2025, compared to 1.60% for the quarter ended September 30, 2024.

Previous wording

Net interest income for the quarter ended June 30, 2025, was $13.9 million, an increase of $1.9 million (15.7%), compared to $12.1 million for the quarter ended June 30, 2024. The weighted-average yield on interest-earning assets was 4.82% for the quarter June 30, 2025, compared to 4.64% for the quarter ended June 30, 2024. The weighted-average cost of interest-bearing liabilities for the quarter ended June 30, 2025, was 2.22% compared to 2.55% for the quarter ended June 30, 2024. The impact of the 4.82% return on interest-earning assets and the 2.22% cost of interest-bearing liabilities resulted in an interest rate spread of 2.60% for the current quarter, an increase from the 2.09% spread for the quarter ended June 30, 2024. On a tax adjusted basis, the Company’s net interest margin was 3.11% for the quarter ended June 30, 2025, compared to 2.67% for the quarter ended June 30, 2024. The Company believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully-taxable equivalent basis, as these measures provide useful information to make peer comparisons. Net interest margin on a tax-equivalent basis represents a non-GAAP financial measure. See the non-GAAP reconciliation table immediately below and the section captioned “Non-GAAP Financial Measures” for further disclosure regarding non-GAAP financial measures.

Current wording

Net interest income for the quarter ended September 30, 2025, was $14.4 million, an increase of $2.4 million (20.3%), compared to $12.0 million for the quarter ended September 30, 2024. The weighted-average yield on interest-earning assets was 4.91% for the quarter September 30, 2025, compared to 4.70% for the quarter ended September 30, 2024. The weighted-average cost of interest-bearing liabilities for the quarter ended September 30, 2025, was 2.25% compared to 2.63% for the quarter ended September 30, 2024. The impact of the 4.91% return on interest-earning assets and the 2.25% cost of interest-bearing liabilities resulted in an interest rate spread of 2.66% for the current quarter, an increase from the 2.07% spread for the quarter ended September 30, 2024. On a tax adjusted basis, the Company’s net interest margin was 3.18% for the quarter ended September 30, 2025, compared to 2.66% for the quarter ended September 30, 2024. The Company believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully-taxable equivalent basis, as these measures provide useful information to make peer comparisons. Net interest margin on a tax-equivalent basis represents a non-GAAP financial measure. See the non-GAAP reconciliation table immediately below and the section captioned “Non-GAAP Financial Measures” for further disclosure regarding non-GAAP financial measures.

Previous wording

Increases in non-interest expenses during the quarter ended June 30, 2025 were primarily attributable to higher compensation and benefits expenses and higher data processing expenses offset by lower occupancy and equipment expenses and professional and outside services fees.

Current wording

Decreases in non-interest expenses during the quarter ended September 30, 2025 were primarily attributable to lower occupancy and equipment expenses relating to reduced depreciation of our fixed assets, lower professional and outside services fees relating to implementation of the corrective actions set forth in the Consent Order, and lower other expenses relating to reduced core deposit intangible amortization from prior acquisitions. These decreases were partially offset by higher compensation and benefits expense, driven by annual merit-based increases and other refinements in roles and responsibilities within the organization.

Previous wording

The benefit for income taxes was $35 thousand for the quarter ended June 30, 2025, as compared to the benefit of $9 thousand for the quarter ended June 30, 2024. The effective tax rate was negative 1.7% for the quarter ended June 30, 2025 as compared to negative 6.7% for the quarter ended June 30, 2024. The Company’s lower current effective tax rate for the quarter ended June 30, 2025, is primarily a result of a decrease in estimated full year 2025 tax accrual based on updated projected earnings levels.

Current wording

The expense for income taxes was $63 thousand for the quarter ended September 30, 2025, as compared to the benefit of $207 thousand for the quarter ended September 30, 2024. The effective tax rate was 1.8% for the quarter ended September 30, 2025 as compared to negative 51.9% for the quarter ended September 30, 2024. The Company’s higher current effective tax rate for the quarter ended September 30, 2025, is primarily a result of updated projected earnings levels used in estimating full year 2025 tax accrual.

Previous wording

Results of Operations - Comparison of the Six Months Ended June 30, 2025 to June 30, 2024

Current wording

Results of Operations - Comparison of the Nine Months Ended September 30, 2025 to September 30, 2024

Previous wording

For the six months ended June 30, 2025, the Company reported net income of $2.6 million, a decrease of $6.8 million (72.3%) compared to $9.4 million for the six months ended June 30, 2024. For the six months ended June 30, 2025, the ROA was 0.25%, compared to 0.91% for the six months ended June 30, 2024. The ROE was 3.39% for the six months ended June 30, 2025, compared to 12.81% for the six months ended June 30, 2024.

Current wording

For the nine months ended September 30, 2025, the Company reported net income of $6.1 million, a decrease of $3.9 million (39.1%) compared to $10.0 million for the nine months ended September 30, 2024. For the nine months ended September 30, 2025, the ROA was 0.40%, compared to 0.64% for the nine months ended September 30, 2024. The ROE was 5.27% for the nine months ended September 30, 2025, compared to 4.50% for the nine months ended September 30, 2024.

Previous wording

Net interest income for the six months ended June 30, 2025, was $27.3 million, an increase of $3.4 million (14.4%), compared to $23.8 million for the six months ended June 30, 2024. The weighted-average yield on interest-earning assets was 4.77% for the six months ended June 30, 2025 compared to 4.58% for the six months ended June 30, 2024. The weighted-average cost of interest-bearing liabilities for the six months ended June 30, 2025, was 2.25% compared to 2.54% for the six months ended June 30, 2024. The impact of the 4.77% return on interest-earning assets and the 2.25% cost of interest-bearing liabilities resulted in an interest rate spread of 2.52% for the six months ended June 30, 2025, an increase from the 2.04% spread for the six months ended June 30, 2024. The Company’s net interest margin on a tax-equivalent basis was 3.03% for the six months ended June 30, 2025, compared to 2.62% for the six months ended June 30, 2024. The Company believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully-taxable equivalent basis, as these measures provide useful information to make peer comparisons. Tax adjusted net interest margin represents a non-GAAP financial measure. See the non-GAAP reconciliation table immediately below and the section captioned “Non-GAAP Financial Measures” for further disclosure regarding non-GAAP financial measures.

Current wording

Net interest income for the nine months ended September 30, 2025, was $41.7 million, an increase of $5.9 million (16.4%), compared to $35.8 million for the nine months ended September 30, 2024. The weighted-average yield on interest-earning assets was 4.82% for the nine months ended September 30, 2025 compared to 4.62% for the nine months ended September 30, 2024. The weighted-average cost of interest-bearing liabilities for the nine months ended September 30, 2025, was 2.25% compared to 2.57% for the nine months ended September 30, 2024. The impact of the 4.82% return on interest-earning assets and the 2.25% cost of interest-bearing liabilities resulted in an interest rate spread of 2.57% for the nine months ended September 30, 2025, an increase from the 2.05% spread for the nine months ended September 30, 2024. The Company’s net interest margin on a tax-equivalent basis was 3.08% for the nine months ended September 30, 2025, compared to 2.63% for the nine months ended September 30, 2024. The Company believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully-taxable equivalent basis, as these measures provide useful information to make peer comparisons. Tax adjusted net interest margin represents a non-GAAP financial measure. See the non-GAAP reconciliation table immediately below and the section captioned “Non-GAAP Financial Measures” for further disclosure regarding non-GAAP financial measures.

Previous wording

The increased net interest income and net interest margin for the six months ended June 30, 2025, was primarily the result of reduced deposit and borrowing costs as a result of the Federal Reserve's reduction of federal funds rates year over year and increased loan yields as commercial loans mature and/or reprice.

Current wording

The increased net interest income and net interest margin for the nine months ended September 30, 2025, was primarily the result of reduced deposit and borrowing costs as a result of the Federal Reserve's reduction of federal funds rates year over year and increased loan yields as commercial loans mature and/or reprice.

Previous wording

The following table shows the change in non-interest expense for the six months ended June 30, 2025, and June 30, 2024.

Current wording

The following table shows the change in non-interest expense for the nine months ended September 30, 2025, and September 30, 2024.

Previous wording

Decreases in non-interest expenses during the six months ended June 30, 2025, were primarily attributable to non-recurring professional and outside service expenses occurring during 2024 which were associated with the implementation of the corrective actions set forth in the Consent Order and sale leaseback transaction, as well as lower technology costs in 2025. This decrease in non-interest expense was primarily offset by increases in compensation and benefit expense driven by annual merit-based increases.

Current wording

Decreases in non-interest expenses during the nine months ended September 30, 2025, were primarily attributable to non-recurring professional and outside service expenses occurring during 2024 which were associated with the implementation of the corrective actions set forth in the Consent Order and sale leaseback transaction, as well as lower technology costs in 2025. This decrease in non-interest expense was primarily offset by increases in compensation and benefit expense driven by annual merit-based increases.

Previous wording

The provision for income taxes was $126 thousand for the six months ended June 30, 2025 as compared to the provision of $963 thousand for the six months ended June 30, 2024. The effective tax rate was 4.6% for the six months ended June 30, 2025, as compared to 9.3% for the six months ended June 30, 2024. The Company’s year-to-date effective tax rate for the six months ended June 30, 2025, decreased primarily due to a decrease in estimated full year 2025 tax accrual based on updated projected earnings levels.

Current wording

The provision for income taxes was $189 thousand for the nine months ended September 30, 2025 as compared to the provision of $756 thousand for the nine months ended September 30, 2024. The effective tax rate was 3.0% for the nine months ended September 30, 2025, as compared to 7.0% for the nine months ended September 30, 2024. The Company’s year-to-date effective tax rate for the nine months ended September 30, 2025, decreased primarily due to a decrease in estimated full year 2025 tax accrual based on updated projected earnings levels.