Finward Bancorp 10-Q

Item 1. Financial Statements and Notes (unaudited) Finward Bancorp Condensed Consolidated Balance Sheets (unaudited) (Dollars in thousands) September 30, 2025 December 31, 2024 ASSETS Cash and non-interest bearing deposits in other financial institutions $ 19,458 $ 17,883 Interest bearing deposits in other financial institutions 84,157 52,047 Federal funds sold 563 654 Total cash and cash equivalents 104,178 70,584 Securities available-for-sale 335,150 333,554 Loans held-for-sale 2,641 1,253 Loans receivable, net of deferred fees and costs 1,473,774 1,508,976 Less: Allowance for credit losses ( 17,977 ) ( 16,911 ) Net loans receivable 1,455,797 1,492,065 Federal Home Loan Bank stock 6,547 6,547 Accrued interest receivable 7,585 7,721 Premises and equipment 45,544 47,259 Cash value of bank owned life insurance 33,843 33,514 Goodwill 22,395 22,395 Other intangible assets 1,273 1,860 Other assets 37,771 43,947 Total assets $ 2,052,724 $ 2,060,699 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing $ 280,296 $ 263,324 Interest bearing 1,470,350 1,497,242 Total 1,750,646 1,760,566 Repurchase agreements 48,426 40,116 Borrowed funds 55,000 65,000 Accrued expenses and other liabilities 33,157 43,603 Total liabilities 1,887,229 1,909,285 Commitments and contingencies Stockholders' Equity: Preferred stock, no par or stated value; 10,000,000 shares authorized, none outstanding - - Common stock, no par or stated value; 10,000,000 shares authorized; shares issued and outstanding: September 30, 2025 - 4,327,511 December 31, 2024 - 4,313,698 - - Additional paid-in capital 70,233 70,034 Accumulated other comprehensive loss ( 49,266 ) ( 58,084 ) Retained earnings 144,528 139,464 Total stockholders' equity 165,495 151,414 Total liabilities and stockholders' equity $ 2,052,724 $ 2,060,699 See accompanying notes to condensed consolidated financial statements. 1 Finward Bancorp Condensed Consolidated Statements of Income (unaudited) Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands, except per share data) 2025 2024 2025 2024 Interest income: Loans receivable $ 20,246 $ 19,660 $ 59,841 $ 57,713 Securities 2,091 2,138 6,332 6,524 Other interest earning assets 1,003 674 2,178 2,346 Total interest income 23,340 22,472 68,351 66,583 Interest expense: Deposits 7,996 8,946 23,821 26,350 Repurchase agreements 392 435 1,110 1,204 Borrowed funds 509 1,085 1,719 3,189 Total interest expense 8,897 10,466 26,650 30,743 Net interest income 14,443 12,006 41,701 35,840 Provision for (benefit from) credit losses ( 301 ) - ( 121 ) 76 Net interest income after provision for credit losses 14,744 12,006 41,822 35,764 Non-interest income: Fees and service charges 1,463 1,463 3,902 3,873 Wealth management operations 759 731 2,074 2,127 Gain (loss) on tax credit investment 23 - 90 - Gain (loss) on sale of loans held-for-sale, net 265 338 873 810 Gain (loss) on sale of securities, net - - - ( 531 ) Increase (decrease) in cash value of bank owned life insurance 210 205 628 610 Gain (loss) on sale of real estate ( 56 ) - ( 56 ) 11,873 Other 249 130 314 154 Total non-interest income 2,913 2,867 7,825 18,916 Non-interest expense: Compensation and benefits 7,330 6,963 22,015 21,109 Occupancy and equipment 2,004 2,181 6,050 6,205 Data processing 1,116 1,165 3,496 3,470 Marketing 257 209 557 579 Federal deposit insurance premiums 399 435 1,303 1,333 Professional and outside services 945 1,251 3,320 4,064 Technology 549 602 1,548 1,734 Other 1,497 1,668 5,066 5,401 Total non-interest expense 14,097 14,474 43,355 43,895 Income before income tax expense 3,560 399 6,292 10,785 Income tax expense (benefit) 63 ( 207 ) 189 756 Net income $ 3,497 $ 606 $ 6,103 $ 10,029 Earnings per common share: Basic $ 0.82 $ 0.14 $ 1.43 $ 2.35 Diluted $ 0.81 $ 0.14 $ 1.42 $ 2.35 Dividends declared per common share $ 0.12 $ 0.12 $ 0.24 $ 0.36 See accompanying notes to condensed consolidated financial statements. 2 Finward Bancorp Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) Three Months Ended September 30 Nine Months Ended September 30 (Dollars in thousands) 2025 2024 2025 2024 Net income $ 3,497 $ 606 $ 6,103 $ 10,029 Net change in net unrealized gains and losses on securities available-for-sale: Unrealized gain (loss) arising during the period 10,912 13,957 11,601 3,907 Less: reclassification adjustment for losses included in net income - - - 531 Net securities gain (loss) during the period 10,912 13,957 11,601 4,438 Tax effect ( 2,618 ) ( 3,259 ) ( 2,783 ) ( 1,066 ) Other comprehensive income (loss), net of tax 8,294 10,698 8,818 3,372 Comprehensive income (loss) net of tax $ 11,791 $ 11,304 $ 14,921 $ 13,401 See accompanying notes to condensed consolidated financial statements. 3 Finward Bancorp Condensed Consolidated Statements of Changes in Stockholder's Equity (unaudited) (Dollars in thousands, except per share data) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive (Loss)/Income Retained Earnings Total Stockholders' Equity Balance at June 30, 2024 $ - $ 69,778 $ ( 58,939 ) $ 137,792 $ 148,631 Net income - - - 606 606 Other comprehensive income (loss), net of tax - - 10,698 - 10,698 Stock-based compensation expense - 138 - - 138 Cash dividends, $ 0.12 per share - - - ( 518 ) ( 518 ) Balance at September 30, 2024 $ - $ 69,916 $ ( 48,241 ) $ 137,880 $ 159,555 Balance at January 1, 2024 $ - $ 69,555 $ ( 51,613 ) $ 129,403 $ 147,345 Net income - - - 10,029 10,029 Other comprehensive income (loss), net of tax - - 3,372 - 3,372 Net surrender value of 3,364 restricted stock awards - ( 82 ) - - ( 82 ) Stock-based compensation expense - 443 - - 443 Cash dividends, $ 0.36 per share - - - ( 1,552 ) ( 1,552 ) Balance at September 30, 2024 $ - $ 69,916 $ ( 48,241 ) $ 137,880 $ 159,555 Balance at June 30, 2025 $ - $ 70,263 $ ( 57,560 ) $ 141,550 $ 154,253 Net income - - - 3,497 3,497 Other comprehensive income (loss), net of tax - - 8,294 - 8,294 Net surrender value of 5,328 restricted stock awards - ( 146 ) - - ( 146 ) Stock-based compensation expense - 116 - - 116 Cash dividend, $ 0.12 per share - - - ( 519 ) ( 519 ) Balance at September 30, 2025 $ - $ 70,233 $ ( 49,266 ) $ 144,528 $ 165,495 Balance at January 1, 2025 $ - $ 70,034 $ ( 58,084 ) $ 139,464 $ 151,414 Net income - - - 6,103 6,103 Other comprehensive income (loss), net of tax - - 8,818 - 8,818 Net surrender value of 5,328 restricted stock awards - ( 146 ) - - ( 146 ) Stock-based compensation expense - 345 - - 345 Cash dividends, $ 0.24 per share - - - ( 1,039 ) ( 1,039 ) Balance at September 30, 2025 $ - $ 70,233 $ ( 49,266 ) $ 144,528 $ 165,495 See accompanying notes to condensed consolidated financial statements. 4 Finward Bancorp Condensed Consolidated Statements of Cash Flows (unaudited) Nine months ended September 30, (Dollars in thousands) 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,103 $ 10,029 Adjustments to reconcile net income to net cash provided by operating activities: Origination of loans for sale ( 29,276 ) ( 22,536 ) Sale of loans originated for sale 28,788 21,051 Depreciation and amortization, net of accretion 4,684 5,532 Stock based compensation expense 345 443 Cash payments for lease liabilities ( 1,201 ) ( 965 ) (Gain) loss on sale of securities, net - 531 (Gain) loss on sale of loans held-for-sale, net ( 906 ) ( 744 ) (Gain) loss on sale of real estate 56 ( 11,873 ) (Gain) loss on sale of foreclosed real estate - ( 1 ) (Increase) decrease of cash value of bank owned life insurance ( 628 ) ( 610 ) (Gain) loss on death benefits of bank-owned life insurance ( 236 ) - (Gain) loss on derivatives 33 ( 66 ) Provision for (benefit from) credit losses ( 121 ) 76 Change in: Interest receivable 136 603 Interest payable ( 542 ) ( 2,294 ) Other assets 2,555 3,134 Accrued expenses and other liabilities ( 7,630 ) ( 3,310 ) Total adjustments ( 3,943 ) ( 11,029 ) Net cash provided by (used in) operating activities 2,160 ( 1,000 ) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities and pay downs of securities available-for-sale 8,934 9,486 Proceeds from sales of securities available-for-sale - 14,698 Net change in loans receivable 34,706 3,891 Purchase of premises and equipment ( 613 ) ( 2,852 ) Proceeds from sale of premises and equipment 667 17,677 Proceeds from sale of foreclosed real estate - 72 Proceeds from death benefits of bank owned life insurance 535 - Net cash provided by (used in) investing activities 44,229 42,972 CASH FLOWS FROM FINANCING ACTIVITIES: Change in deposits ( 9,920 ) ( 64,611 ) Proceeds from borrowed funds 30,000 150,000 Repayment of borrowed funds ( 40,000 ) ( 145,000 ) Net surrender value of restricted stock awards ( 146 ) ( 82 ) Change in repurchase agreements 8,310 4,914 Dividends paid ( 1,039 ) ( 1,552 ) Net cash provided by (used in) financing activities ( 12,795 ) ( 56,331 ) Net change in cash and cash equivalents 33,594 ( 14,359 ) Cash and cash equivalents at beginning of period 70,584 86,008 Cash and cash equivalents at end of period $ 104,178 $ 71,649 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 26,728 $ 33,038 Income taxes - 385 Noncash activities: Dividends declared not paid - 518 Right-of-use asset obtained in exchange for lease liability - 16,140 See accompanying notes to condensed consolidated financial statements. 5 Finward Bancorp Notes to Condensed Consolidated Financial Statements (unaudited) Note 1 - Basis of Presentation Organization and Description of Business The condensed consolidated financial statements include the accounts of Finward Bancorp (the “Company” or “FNWD”) and Peoples Bank (the “Bank”), and the Bank’s wholly-owned subsidiaries, Peoples Service Corporation, NWIN, LLC, NWIN Funding, Incorporated, and Columbia Development Company, LLC. The Company has no other business activity other than being a holding company for the Bank and the Company’s earnings are primarily dependent upon the earnings of the Bank. The accompanying unaudited condensed consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by U.S. generally accepted accounting principles ("GAAP") for complete presentation of condensed consolidated financial statements. In the opinion of management, the condensed consolidated financial statements contain all adjustments necessary to present fairly the condensed consolidated balance sheets of the Company as of September 30, 2025, and December 31, 2024, and the condensed consolidated statements of income, comprehensive income (loss), and changes in stockholders’ equity for the three and nine months ended September 30, 2025, and 2024, and condensed consolidated statements of cash flows for the nine months ended September 30, 2025, and 2024. The income reported for the nine months ended September 30, 2025, is not necessarily indicative of the results to be expected for the full year. The Company's revenue is primarily derived from the business of banking. The Company's financial performance is monitored on a consolidated basis by the CEO, who is considered to be the Company's Chief Operating Decision Maker ("CODM"). This review is supported by the Chief Financial Officer, Chief Revenue Officer, and Chief Operating Officer. Financial performance is reported to the CODM monthly. The presentation of financial performance to the CODM is consistent with amounts and financial statement line items shown in the Company's consolidated balance sheets and consolidated statements of income. Additionally, the Company's significant expenses are adequately segmented by category and amount in the consolidated statements of income to include all significant items when considering both qualitative and quantitative factors. Significant expenses of the Company include compensation and benefits, net occupancy expense, equipment costs, data processing fees, and professional fees. All of the Company’s financial results are similar and considered by management to be aggregated into one reportable operating segment. The Company's revenue is primarily derived from the business of banking and the Company’s CODM evaluates financial performance on a company-wide basis. Accordingly, all of the Company’s operations are considered by management to be aggregated in one reportable operating segment. The Notes to the Condensed Consolidated Financial Statements appearing in Finward Bancorp’s Annual Report on Form 10-K (2024 Annual Report), which include descriptions of significant accounting policies, should be read in conjunction with these interim financial statements. The Condensed Consolidated Balance Sheet at December 31, 2024, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for condensed financial statements. Note 2 - Use of Estimates Preparing condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period, as well as the disclosures provided. 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. Note 3 – Accounting Pronouncements Recently Adopted or Issued In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendment in Response to the SEC’s Disclosure Update and Simplification Initiative. The ASU incorporates several disclosure and presentation requirements currently residing in the SEC Regulations S-X and S-K. The amendments will be applied prospectively and are effective when the SEC removes the related requirements from Regulations S-X or S-K. Any amendments the SEC 6 does not remove by June 30, 2027 will not be effective. As we are currently subject to these SEC requirements, this ASU is not expected to have a material impact on our condensed consolidated financial statements or related disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid and to improve the effectiveness of income tax disclosures. This accounting standards update will be effective for us for fiscal year 2025, with early adoption permitted. We are currently evaluating the impact of this accounting standard, but do not expect it to have a material impact on our condensed consolidated financial statements. In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures, which requires public business entities to disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. The amendments in this update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. We are currently evaluating the impact of this accounting standard, but we do not expect it to have a material impact on our condensed consolidated financial statements. In November 2024, the FASB issued ASU 2024-04, Debt-Debt With Conversion and Other Options, which clarifies the requirements for determining whether certain settlements of convertible debt instruments, including convertible debt instruments with cash conversion features or convertible debt instruments that are not currently convertible, should be accounted for as an induced conversion. The amendments are effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods beginning after December 15, 2025. Early adoption is permitted. We are currently evaluating the impact of this accounting standard, but we do not expect it to have a material impact on our condensed consolidated financial statements. In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which introduces a practical expedient for all entities and an accounting policy election that is available to all entities other than public business entities related to applying ASC-320 to simplify the measurement of credit losses on current accounts receivable and current contract assets that occur from transactions accounted for under ASC 606. The amendments are effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods beginning after December 15, 2025. Early adoption is permitted. We are currently evaluating the impact of this accounting standard, but we do not expect it to have a material impact on our condensed consolidated financial statements. Note 4 - Securities The estimated fair value of available-for-sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows: (Dollars in thousands) Cost Basis Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value September 30, 2025 U.S. government sponsored entities $ 8,884 $ - $ ( 498 ) $ 8,386 Collateralized mortgage obligations and residential mortgage-backed securities 126,998 - ( 20,705 ) 106,293 Municipal securities 261,936 - ( 43,081 ) 218,855 Collateralized debt obligations 2,145 - ( 529 ) 1,616 Total securities available-for-sale $ 399,963 $ - $ ( 64,813 ) $ 335,150 7 (Dollars in thousands) Cost Basis Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value December 31, 2024 U.S. government sponsored entities $ 8,884 $ - $ ( 823 ) $ 8,061 Collateralized mortgage obligations and residential mortgage-backed securities 135,974 - ( 26,649 ) 109,325 Municipal securities 262,954 - ( 48,205 ) 214,749 Collateralized debt obligations 2,156 - ( 737 ) 1,419 Total securities available-for-sale $ 409,968 $ - $ ( 76,414 ) $ 333,554 The cost basis and estimated fair value of available-for-sale debt securities at September 30, 2025, by contractual maturity, were as follows. Securities not due at a single maturity date, primarily collateralized mortgage obligations and residential mortgage-backed securities, are shown separately. (Dollars in thousands) Available-for-sale September 30, 2025 Cost Basis Estimated Fair Value Due in one year or less $ - $ - Due from one to five years 12,686 11,927 Due from five to ten years 51,314 46,151 Due over ten years 208,965 170,779 Collateralized mortgage obligations and residential mortgage-backed securities 126,998 106,293 Total $ 399,963 $ 335,150 Sales of available-for-sale securities were as follows for the quarter ended: Three Months Ended September 30 Nine Months Ended September 30 2025 2024 2025 2024 Proceeds $ - $ - $ - $ 14,698 Gross gains - - - - Gross losses - - - ( 531 ) Accumulated other comprehensive income/(loss) balances, net of tax, related to available-for-sale securities, were as follows: (Dollars in thousands) Unrealized loss Beginning balance, June 30, 2025 $ ( 57,560 ) Period change 8,294 Ending balance, September 30, 2025 $ ( 49,266 ) 8 (Dollars in thousands) Unrealized loss Beginning balance, June 30, 2024 $ ( 58,939 ) Current period change 10,698 Ending balance, September 30, 2024 $ ( 48,241 ) (Dollars in thousands) Unrealized loss Beginning Balance, January 1, 2025 $ ( 58,084 ) Period change 8,818 Ending Balance, September 30, 2025 $ ( 49,266 ) (Dollars in thousands) Unrealized loss Beginning balance, January 1, 2024 $ ( 51,613 ) Current period change 3,372 Ending balance, September 30, 2024 $ ( 48,241 ) Securities with market values of approximately $ 334.4 million and $ 326.5 million were pledged as of September 30, 2025 and December 31, 2024, respectively, as collateral for repurchase agreements, public funds, and for other purposes as permitted or required by law. Securities with unrealized losses at September 30, 2025, and December 31, 2024 not recognized in income are as follows: (Dollars in thousands) Less than 12 months 12 months or longer Total Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Percentage of Total Portfolio in Loss Position September 30, 2025 U.S. government sponsored entities $ - $ - $ 8,386 $ ( 498 ) $ 8,386 $ ( 498 ) 100.0 % Collateralized mortgage obligations and residential mortgage-backed securities - - 106,293 ( 20,705 ) 106,293 ( 20,705 ) 100.0 % Municipal securities - - 218,855 ( 43,081 ) 218,855 ( 43,081 ) 100.0 % Collateralized debt obligations - - 1,616 ( 529 ) 1,616 ( 529 ) 100.0 % Total temporarily impaired $ - $ - $ 335,150 $ ( 64,813 ) $ 335,150 $ ( 64,813 ) 100.0 % Number of securities - 411 411 9 (Dollars in thousands) Less than 12 months 12 months or longer Total Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Percentage of Total Portfolio in Loss Position December 31, 2024 U.S. government sponsored entities $ - $ - $ 8,061 $ ( 823 ) $ 8,061 $ ( 823 ) 100.0 % Collateralized mortgage obligations and residential mortgage-backed securities - - 109,325 ( 26,649 ) 109,325 ( 26,649 ) 100.0 % Municipal securities 3,310 ( 156 ) 211,439 ( 48,049 ) 214,749 ( 48,205 ) 100.0 % Collateralized debt obligations - - 1,419 ( 737 ) 1,419 ( 737 ) 100.0 % Total temporarily impaired $ 3,310 $ ( 156 ) $ 330,244 $ ( 76,258 ) $ 333,554 $ ( 76,414 ) 100.0 % Number of securities 4 409 413 Unrealized losses on securities have not been recognized into income because the securities are of high credit quality or have undisrupted cash flows. Management has the intent and ability to hold these securities for the foreseeable future, and the decline in fair value is largely due to changes in interest rates and volatility in securities markets. The fair values are expected to recover as the securities approach maturity. Collateralized debt obligations with a cost basis of $ 2.1 million and fair value of $ 1.6 million at September 30, 2025 and $ 1.4 million at December 31, 2024, had previously recorded impairment of $ 173 thousand, which will not be recoverable until maturity of the security. Accrued interest receivable on AFS debt securities totaled $ 2.2 million at September 30, 2025, and $ 2.3 million at December 31, 2024. These amounts are excluded from the estimate of credit losses. The Company made the policy election to exclude accrued interest from the amortized cost basis of AFS debt securities and report accrued interest separately on the condensed consolidated balance sheet. Note 5 - Loans Receivable The Company’s current lending programs are described below: Residential Real Estate. A 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. 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. Loans insured by private mortgage insurance companies can be made for up to 97 % of value. Fixed rate loans generally conform to Freddie Mac guidelines for loans purchased under the 1-4 family program. Loan interest rates are determined based on secondary market yield requirements and local market conditions. Fixed rate mortgage loans may be sold and/or classified as held for sale to control exposure to interest rate risk. The Company’s Adjustable-Rate Mortgage Loans (“ARMs”) include offerings that have a three , five , seven or ten year fixed period. The ability of the Company to successfully market ARM’s depends upon loan demand, prevailing interest rates, volatility of interest rates, and terms offered by competitors. 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. 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. 10 Fixed-term home improvement and equity loans are made up to a maximum of 85 % of the appraised value of the improved property, less any outstanding liens. These loans are offered on both a fixed and variable rate basis with a maximum term of 240 months. All home equity loans are made on a direct basis to borrowers. Commercial Real Estate and Multifamily Loans. Commercial real estate loans are typically made to a maximum of 80 % of the appraised value. Such loans are generally made on an adjustable-rate basis. 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 warrant. Commercial real estate loans include loans secured by commercial rental units, apartments, condominium developments, small shopping centers, owner occupied commercial/industrial properties, hospitality units and other retail and commercial developments. 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. 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. 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. 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. Construction and Land Development. Construction loans on residential properties are made primarily to individuals who are under contract with a general contractor. The maximum loan-to-value ratio is 89 % of either the current appraised value or the cost of construction, whichever is less. Residential construction loans are typically made for a period of one year . 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 loans 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. Commercial construction loans are typically made for periods not to exceed two years or date of occupancy, whichever is less. Commercial Business. 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. Prudent lending policies based upon sound credit analysis governs the extension of commercial credit. The following loans, although not inclusive, are considered preferable for the Company’s commercial loan portfolio: agriculture loans, 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. 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. 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. Manufactured Homes. The Company has purchased fixed rate closed loans from a third-party that are subject to the Company’s underwriting requirements and secured by manufactured homes. The maturity date on these loans can range up to 25 years. In addition, these loans are partially secured by a reserve account held at the Company. Government Loans. The Company is permitted to purchase non-rated municipal securities, tax anticipation notes and warrants within the local market area. 11 Loans consist of the following as of September 30, 2025, and December 31, 2024: (Dollars in thousands) September 30, 2025 December 31, 2024 Loans secured by real estate: Residential real estate $ 450,007 $ 467,293 Home equity 51,813 49,758 Commercial real estate 564,558 551,674 Construction and land development 79,678 82,874 Multifamily 192,698 212,455 Total loans secured by real estate 1,338,754 1,364,054 Commercial business 96,192 104,246 Consumer 348 551 Manufactured homes 24,372 26,708 Government 12,298 11,024 Loans receivable 1,471,964 1,506,583 Add: Net deferred loan origination costs 1,719 2,439 Loan clearing funds 91 ( 46 ) Loans receivable, net of deferred fees and costs $ 1,473,774 $ 1,508,976 12 The Company's age analysis of past due loans is summarized below: (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Total Past Due and Accruing Current Accruing Loans Nonaccrual Loans Total Loans Receivable September 30, 2025 Residential real estate $ 4,848 $ 615 $ - $ 5,463 $ 438,730 $ 444,193 $ 5,814 $ 450,007 Home equity 375 263 - 638 50,294 50,932 881 51,813 Commercial real estate 2,714 6,349 - 9,063 553,431 562,494 2,064 564,558 Construction and land development 811 - - 811 78,150 78,961 717 79,678 Multifamily 174 491 - 665 190,301 190,966 1,732 192,698 Commercial business 2,041 47 - 2,088 91,420 93,508 2,684 96,192 Consumer - - - - 348 348 - 348 Manufactured homes 81 90 - 171 24,201 24,372 - 24,372 Government - - - - 12,298 12,298 - 12,298 Total $ 11,044 $ 7,855 $ - $ 18,899 $ 1,439,173 $ 1,458,072 $ 13,892 $ 1,471,964 December 31, 2024 Residential real estate $ 4,423 $ 1,184 $ - $ 5,607 $ 457,021 $ 462,628 $ 4,665 $ 467,293 Home equity 1,002 123 - 1,125 48,150 49,275 483 49,758 Commercial real estate 4,556 571 - 5,127 545,267 550,394 1,280 551,674 Construction and land development 2,039 - - 2,039 80,177 82,216 658 82,874 Multifamily 1,961 359 - 2,320 206,773 209,093 3,362 212,455 Commercial business 493 508 - 1,001 99,955 100,956 3,290 104,246 Consumer 5 - - 5 546 551 - 551 Manufactured homes 428 54 - 482 26,226 26,708 - 26,708 Government - - - - 11,024 11,024 - 11,024 Total $ 14,907 $ 2,799 $ - $ 17,706 $ 1,475,139 $ 1,492,845 $ 13,738 $ 1,506,583 The following table shows the amortized cost of loans, segregated by portfolio segment, credit quality rating and year of origination as of September 30, 2025, and December 31, 2024, and gross charge-offs for the nine months ended September 30, 2025, and for the year ended December 31, 2024. September 30, 2025 2025 2024 2023 2022 2021 Prior Revolving Revolving Converted to Term Total Total Loans Receivable $ 96,295 $ 125,770 $ 128,741 $ 272,358 $ 271,138 $ 474,161 $ 102,022 $ 1,479 $ 1,471,964 Total current period gross charge-off $ ( 33 ) $ - $ ( 44 ) $ - $ ( 2 ) $ ( 339 ) $ - $ - $ ( 418 ) Residential real estate Pass (1-6) $ 8,909 $ 17,218 $ 28,272 $ 82,991 $ 95,407 $ 202,715 $ 3,465 $ - $ 438,977 13 Special Mention (7) - - 459 1,324 739 2,610 - - 5,132 Substandard (8) 127 - 869 1,484 528 2,890 - - 5,898 Total $ 9,036 $ 17,218 $ 29,600 $ 85,799 $ 96,674 $ 208,215 $ 3,465 $ - $ 450,007 Current period gross charge-off - - - - - - - - - Home equity Pass (1-6) $ 626 $ 94 $ 43 $ 239 $ 51 $ 2,338 $ 46,043 $ 1,032 $ 50,466 Special Mention (7) - 28 7 - 20 74 145 186 460 Substandard (8) - - - - - 217 409 261 887 Total $ 626 $ 122 $ 50 $ 239 $ 71 $ 2,629 $ 46,597 $ 1,479 $ 51,813 Current period gross charge-off - - - - - - - - - Commercial real estate Pass (1-6) $ 46,040 $ 60,004 $ 63,815 $ 110,836 $ 84,291 $ 176,061 $ 3,367 $ - $ 544,414 Special Mention (7) 25 873 2,221 4,853 3,423 6,685 - - 18,080 Substandard (8) - - - 826 - 1,238 - - 2,064 Total $ 46,065 $ 60,877 $ 66,036 $ 116,515 $ 87,714 $ 183,984 $ 3,367 $ - $ 564,558 Current period gross charge-off - - - - - - - - - Construction and land development Pass (1-6) $ 26,125 $ 26,218 $ 16,188 $ 3,165 $ 1,562 $ 1,010 $ 3,103 $ - $ 77,371 Substandard (8) - - 1,002 64 1,241 - - - 2,307 Total $ 26,125 $ 26,218 $ 17,190 $ 3,229 $ 2,803 $ 1,010 $ 3,103 $ - $ 79,678 Current period gross charge-off - - - - - - - - - Multifamily Pass (1-6) $ 4,040 $ 6,317 $ 8,059 $ 54,547 $ 66,642 $ 48,206 $ 346 $ - $ 188,157 Special Mention (7) 262 - - 758 375 1,414 - - 2,809 Substandard (8) - - 208 417 - 1,107 - - 1,732 Total $ 4,302 $ 6,317 $ 8,267 $ 55,722 $ 67,017 $ 50,727 $ 346 $ - $ 192,698 Current period gross charge-off - - - - - ( 46 ) - - ( 46 ) Commercial business Pass (1-6) $ 4,972 $ 12,472 $ 6,226 $ 7,795 $ 4,902 $ 11,562 $ 43,819 $ - $ 91,748 Special Mention (7) 47 64 326 65 24 - 1,234 - 1,760 Substandard (8) 158 87 960 179 128 1,081 91 - 2,684 Total $ 5,177 $ 12,623 $ 7,512 $ 8,039 $ 5,054 $ 12,643 $ 45,144 $ - $ 96,192 Current period gross charge-off - - ( 44 ) - - ( 293 ) - - ( 337 ) Consumer Pass (1-6) $ 154 $ 65 $ 86 $ 22 $ 21 $ - $ - $ - $ 348 Total $ 154 $ 65 $ 86 $ 22 $ 21 $ - $ - $ - $ 348 14 Current period gross charge-off ( 33 ) - - - ( 2 ) - - - ( 35 ) Manufactured homes Pass (1-6) $ - $ - $ - $ 1,749 $ 10,707 $ 11,826 $ - $ - $ 24,282 Special Mention (7) - - - - - 90 - - $ 90 Substandard (8) - - - - - - - - - Total $ - $ - $ - $ 1,749 $ 10,707 $ 11,916 $ - $ - $ 24,372 Current period gross charge-off - - - - - - - - - Government Pass (1-6) $ 4,810 $ 2,330 $ - $ 1,044 $ 1,077 $ 3,037 $ - $ - $ 12,298 Total $ 4,810 $ 2,330 $ - $ 1,044 $ 1,077 $ 3,037 $ - $ - $ 12,298 Current period gross charge-off - - - - - - - - - December 31, 2024 2024 2023 2022 2021 2020 Prior Revolving Revolving Converted to Term Total Total Loans Receivable $ 124,670 $ 143,098 $ 291,855 $ 308,352 $ 211,268 $ 324,738 $ 102,602 $ - $ 1,506,583 Total current period gross charge-off $ ( 64 ) $ - $ ( 1,010 ) $ ( 125 ) $ ( 2 ) $ ( 1,267 ) $ - $ - ( 2,468 ) Residential real estate Pass (1-6) $ 13,118 $ 30,947 $ 90,324 $ 99,390 $ 102,552 $ 119,449 $ 2,468 $ - $ 458,248 Special Mention (7) - 371 365 1,064 554 1,937 - - 4,291 Substandard (8) - 539 1,161 601 510 1,943 - - 4,754 Total $ 13,118 $ 31,857 $ 91,850 $ 101,055 $ 103,616 $ 123,329 $ 2,468 $ - $ 467,293 Current period gross charge-off - - - - - ( 28 ) - - ( 28 ) Home equity Pass (1-6) $ 193 $ 68 $ 153 $ 110 $ - $ 3,342 $ 44,943 $ - $ 48,809 Special Mention (7) - 132 - - 3 15 309 - 459 Substandard (8) 26 - 138 - - 218 108 - 490 Total $ 219 $ 200 $ 291 $ 110 $ 3 $ 3,575 $ 45,360 $ - $ 49,758 Current period gross charge-off - - - - - - - - - Commercial real estate Pass (1-6) $ 49,861 $ 67,290 $ 123,342 $ 96,206 $ 53,864 $ 148,529 $ 2,976 $ - $ 542,068 Special Mention (7) 974 - 1,036 2,375 668 2,930 25 - 8,008 Substandard (8) - - - - 202 1,396 - - 1,598 Total $ 50,835 $ 67,290 $ 124,378 $ 98,581 $ 54,734 $ 152,855 $ 3,001 $ - $ 551,674 Current period gross charge-off - - - - - - - - - 15 Construction and land development Pass (1-6) $ 34,599 $ 24,360 $ 3,732 $ 7,867 $ 224 $ 820 $ 5,312 $ - $ 76,914 Special Mention (7) - - - 1,207 2,468 - - - 3,675 Substandard (8) - 1,018 - 1,267 - - - - 2,285 Total $ 34,599 $ 25,378 $ 3,732 $ 10,341 $ 2,692 $ 820 $ 5,312 $ - $ 82,874 Current period gross charge-off - - - - - - - - - Multifamily Pass (1-6) $ 6,398 $ 8,923 $ 56,771 $ 74,716 $ 36,075 $ 20,066 $ 627 $ - $ 203,576 Special Mention (7) - - 780 3,332 1,217 - - - 5,329 Substandard (8) - - 446 1,219 1,516 369 - - 3,550 Total $ 6,398 $ 8,923 $ 57,997 $ 79,267 $ 38,808 $ 20,435 $ 627 $ - $ 212,455 Current period gross charge-off - - - ( 125 ) - - - - ( 125 ) Commercial business Pass (1-6) $ 14,655 $ 8,123 $ 9,441 $ 6,094 $ 3,653 $ 11,416 $ 44,046 $ - $ 97,428 Special Mention (7) - 25 978 39 - 800 1,686 - 3,528 Substandard (8) - 1,139 80 171 177 1,621 102 - 3,290 Total $ 14,655 $ 9,287 $ 10,499 $ 6,304 $ 3,830 $ 13,837 $ 45,834 $ - $ 104,246 Current period gross charge-off - - ( 1,010 ) - - ( 1,239 ) - - ( 2,249 ) Consumer Pass (1-6) $ 301 $ 163 $ 34 $ 51 $ - $ 2 $ - $ - $ 551 Substandard (8) - - - - - - - - - Total $ 301 $ 163 $ 34 $ 51 $ - $ 2 $ - $ - $ 551 Current period gross charge-off ( 64 ) - - - ( 2 ) - - - ( 66 ) Manufactured homes Pass (1-6) $ - $ - $ 1,634 $ 11,360 $ 7,559 $ 6,101 $ - $ - $ 26,654 Substandard (8) - - - 28 26 - - - 54 Total $ - $ - $ 1,634 $ 11,388 $ 7,585 $ 6,101 $ - $ - $ 26,708 Current period gross charge-off - - - - - - - - - Government Pass (1-6) $ 4,545 $ - $ 1,440 $ 1,255 $ - $ 3,784 $ - $ - $ 11,024 Total $ 4,545 $ - $ 1,440 $ 1,255 $ - $ 3,784 $ - $ - $ 11,024 Current period gross charge-off - - - - - - - - - The Company has established a standard loan grading system to assist management, lenders and review personnel in their analysis and supervision of the loan portfolio. The use and application of these grades by the Company is uniform and conforms to regulatory definitions. The loan grading system is as follows: 1 – Superior Quality Loans in this category are substantially risk free. Loans fully collateralized by a Bank certificate of deposit or Bank deposits with a hold are substantially risk free. 16 2 – Excellent Quality The borrower generates excellent and consistent cash flow for debt coverage, excellent average credit scores, excellent liquidity and net worth and are reputable operators with over 15 years' experience. Current and debt to tangible net worth ratios are excellent. Loan to value is substantially below policy and collateral condition is excellent. 3 – Great Quality The borrower generates more than sufficient cash flow to fund debt service and cash flow is improving. Average credit scores are very strong. Operators are reputable with significant years of experience. Liquidity, net worth, current and debt to tangible net worth ratios are very strong. Loan to value is significantly below policy and collateral condition is significantly above average. 4 – Above Average Quality The borrower generates more than sufficient cash flow to fund debt service, but cash flow trends may be stable or slightly declining. Average credit scores are strong. The borrower is a reputable operator with many years of experience. Liquidity, net worth, current and debt to tangible net worth ratios are strong. Loan to value is below policy and collateral condition is above average. 5 – Average Quality Borrowers are considered creditworthy and can repay the debt in the normal course of business, however, cash flow trends may be inconsistent or fluctuating. Average credit scores are satisfactory, and years of experience is acceptable. Liquidity and net worth are satisfactory. Current and debt to tangible net worth ratios are average. Loan to value is slightly below policy and the collateral condition is slightly above average. 6 – Pass Borrowers are considered creditworthy, but financial condition may show signs of weakness due to internal or external factors. Cash flow trends may be declining annually. Average credit scores may be low but remain acceptable. The borrower has limited years of experience. Liquidity, net worth, current and debt to tangible net worth ratios are below average. Loan to value is nearing policy limits and collateral condition is average. 7 – Special Mention A special mention asset has identified weaknesses that deserve Management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. There is still adequate protection by the current sound worth and paying capacity of the obligor or of the collateral pledged. The Special Mention rating is viewed as transitional and will be monitored closely. Loans in this category may exhibit some of the following risk factors. Cash flow trends may be consistently declining or may be questionable. Debt coverage ratios may be at or near 1:1. Average credit scores may be very weak, or the borrower may have minimal years of experience. Liquidity, net worth, current and debt to tangible net worth ratios may be very weak. Loan to value may be at policy limits or may exceed policy limits. Collateral condition may be below average. 8 – Substandard This classification consists of loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Financial statements normally reveal some or all of the following: poor trends, lack of earnings and cash flow, excessive debt, lack of liquidity, and the absence of creditor protection. Loans are still considered collectible, but due to increased risks and defined weaknesses of the credit, some loss could be incurred in collection if the deficiencies are not corrected. 9 – Doubtful Such loans have been placed on nonaccrual status and may be heavily dependent upon collateral possessing a value that is difficult to determine or based upon some near-term event which lacks clear certainty. These loans have all of the weaknesses of those classified as Substandard; however, based on existing conditions, these weaknesses make full collection of the principal balance highly improbable. 10 – Loss Loans that are considered uncollectible and of such little value that continuing to carry them as assets is not warranted. Loans with risk classifications of pass and special mention were part of the pooled loan ACL analysis. Loans classified as substandard or worse were individually evaluated for impairment and specific reserves were established, if applicable. Risk 17 gradings for loans with balances greater than $ 1 million are updated every 12 months through analysis during origination, renewals, modifications, or regular annual review. Risk gradings for loans with balances less than $ 1 million are updated primarily through analysis during origination, renewals, modifications, or periodic review. Risk gradings are also downgraded due to delinquency at month end. In particular, 60 days past due are downgraded to Special Mention, while 90 days past due are further downgraded to Substandard. Modifications to Borrowers Experiencing Financial Difficulty The allowance of credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The starting point to estimate such credit losses is historical loss information. The Company uses a probability of default/loss given default model to determine the allowance for credit losses recorded at origination. Occasionally, the Company subsequently modifies loans to borrowers experiencing financial difficulty by providing the following terms of relief: principal forgiveness, term extension, payment delay, or interest rate reduction. In some cases, the Bank provides multiple types of modifications on one loan. Because the effect of most modifications to borrowers experiencing financial difficulty is already included in the allowance for credit losses, no change to the allowance for credit losses is generally recorded for these modifications. The following table shows the amortized cost basis of loans at September 30, 2025, that were both experiencing financial difficulty and modified during the three and nine months ended September 30, 2025, segregated by portfolio segment and type of modification. The percentage of the amortized cost of loans that were modified to borrowers in financial distress as compared to the amortized cost of each segment of financing receivable is also presented below. For the three months ended September 30, 2025 (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 $ - $ 307 $ - $ - 0.07 % Commercial real estate - 390 - - 0.07 % Total $ - $ 697 $ - $ - 0.05 % For the three months ended September 30, 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 $ 121 $ 332 $ - $ - 0.10 % Total $ 121 $ 332 $ - $ - 0.03 % 18 For the nine months ended September 30, 2025 (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 $ - $ 472 $ - $ - 0.10 % Commercial real estate 135 390 - - 0.09 % Construction and land development 654 - - - 0.82 % Commercial business 1,053 - - - 1.09 % Total $ 1,842 $ 862 $ - $ - 0.18 % For the nine months ended September 30, 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 $ 253 $ 1,807 $ - $ - 0.44 % Total $ 253 $ 1,807 $ - $ - 0.14 % The financial effects of payment delay modifications and term extension modifications had a forbearance average of five months and one hundred eighty-seven months weighted average extension to life of loan, respectively. There were no commitments to lend additional amounts to the borrowers included in the previous tables. The borrowers with term extension have had their maturity dates extended and as a result their monthly payments were reduced or had payments added to the end of the loan which resulted in payment relief. For the three months ended September 30, 2025 (Dollars in thousands) Principal Forgiveness Weighted average interest rate reduction Weighted average term extension (months) Payment delay (months) Residential real estate $ - — % 7 - Commercial real estate $ - — % 180 - For the three months ended September 30, 2024 (Dollars in thousands) Principal Forgiveness Weighted average interest rate reduction Weighted average term extension (months) Payment delay (months) Residential real estate $ - — % 4 7 For the nine months ended September 30, 2025 (Dollars in thousands) Principal Forgiveness Weighted average interest rate reduction Weighted average term extension (months) Payment delay (months) Residential real estate $ - — % 7 - Commercial real estate $ - — % 180 5 19 For the nine months ended September 30, 2024 (Dollars in thousands) Principal Forgiveness Weighted average interest rate reduction Weighted average term extension (months) Payment delay (months) Residential real estate $ - — % 4 5 The Company closely monitors the performance of loans that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following tables present the performance of such loans in the twelve months following modification. September 30, 2025 (Dollars in thousands) Current 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Residential real estate $ 500 $ - $ 378 $ 315 Home equity 30 - - - Commercial real estate 390 - - 135 Construction and land development - - - 654 Commercial business 2 - - 1,051 Total $ 922 $ - $ 378 $ 2,155 September 30, 2024 (Dollars in thousands) Current 30-59 Days Past Due 60-89 Days Past Due Greater Than 90 Days Past Due Residential real estate $ 774 $ 194 $ 121 $ 132 Total $ 774 $ 194 $ 121 $ 132 Upon the Company’s determination that a modified loan has subsequently been deemed uncollectible, the loan 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. All modified loans are deemed collectible. Foreclosures As part of the normal course of business, the Company had $ 2.1 million in loans involved in the foreclosure process at September 30, 2025 compared to $ 700 thousand at December 31, 2024. The Company had no other real estate owned as of September 30, 2025 and December 31, 2024. Acquired Loan Purchase Discounts As part of the fair value of loans receivable, there was a net fair value discount for loans acquired of $ 3.9 million at September 30, 2025, compared to $ 4.4 million at December 31, 2024. Accretable yield, or income recorded for the nine months ended September 30, is as follows: (Dollars in thousands) Total 2024 $ 649 2025 610 20 Accretable yield, or income expected to be recorded in the future is as follows: (Dollars in thousands) Total Remainder of 2025 $ 142 2026 440 2027 296 2028 280 2029 246 2030 and thereafter 2,302 Total $ 3,706 Allowance for Credit Losses The allowance for credit losses is established for current expected credit losses on the Company’s loan portfolio utilizing guidance in Accounting Standards Codification (ASC) Topic 326. The determination of the allowance requires significant judgment to estimate credit losses measured on a collective pool basis when similar risk characteristics exist, and for loans evaluated individually. In determining the allowance, the Company estimates expected future losses for the loan’s entire contractual term adjusted for expected payments when appropriate. The allowance estimate considers relevant available information, from internal and external sources relating to the historical loss experience, current conditions, and reasonable and supportable forecasts for the Company’s outstanding loan balances. The allowance is an estimation that reflects management’s evaluation of expected losses related to the Company’s financial assets measured at amortized cost. To ensure that the allowance is maintained at an adequate level, a detailed analysis is performed on a quarterly basis and an appropriate provision is made to adjust the allowance. The Company categorizes the loan portfolio into nine segments based on similar risk characteristics. Loans within each segment are collectively evaluated using the probability of default (“PD”)/loss given default (“LGD”) methodology (PD/LGD). In creating the “current expected credit loss (CECL)” model as required under ASC 326, the Company has established a two-year reasonable and supportable forecast period with a two-year straight line reversion to the long-term historical average. Due to its minimal loss history, the Company elected to use peer data for a more reasonable calculation. The following tables show the changes in the allowance for credit losses, segregated by portfolio segment, for the three and nine months ended September 30, 2025, and 2024. The Company's activity in the allowance for credit losses, by loan segment, is summarized below for the three months ended September 30, 2025: (Dollars in thousands) Beginning Balance Charge-offs Recoveries Provisions Ending Balance Allowance for credit losses: Residential real estate $ 2,755 $ - $ 15 $ ( 22 ) $ 2,748 Home equity 738 - - ( 56 ) 682 Commercial real estate 9,150 - - 86 9,236 Construction and land development 1,495 - - ( 345 ) 1,150 Multifamily 2,301 - 1 226 2,528 Commercial business 1,603 ( 276 ) - 141 1,468 Consumer 2 ( 14 ) 6 9 3 Manufactured homes 125 - - ( 9 ) 116 Government 15 - - 31 46 Total $ 18,184 $ ( 290 ) $ 22 $ 61 $ 17,977 21 The Company's activity in the allowance for credit losses, by loan segment, is summarized below for the three months ended September 30, 2024: (Dollars in thousands) Beginning Balance Charge-offs Recoveries Provisions Ending Balance Allowance for credit losses: Residential real estate $ 4,297 $ ( 28 ) $ 9 $ 170 $ 4,448 Home equity 727 - - 107 834 Commercial real estate 6,903 - 1 ( 622 ) 6,282 Construction and land development 3,067 - - ( 261 ) 2,806 Multifamily 879 - - 650 1,529 Commercial business 2,205 ( 2 ) 222 ( 179 ) 2,246 Consumer 5 ( 17 ) 1 16 5 Manufactured homes 157 - - 90 247 Government 90 - - 28 118 Total $ 18,330 $ ( 47 ) $ 233 $ - $ 18,516 The Company's activity in the allowance for credit losses, by loan segment, is summarized below for the nine months ended September 30, 2025: (Dollars in thousands) Beginning Balance Charge-offs Recoveries Provisions Ending Balance Allowance for credit losses: Residential real estate $ 4,481 $ - $ 50 $ ( 1,783 ) $ 2,748 Home equity 835 - - ( 153 ) 682 Commercial real estate 6,444 - 4 2,788 9,236 Construction and land development 2,651 - - ( 1,501 ) 1,150 Multifamily 1,003 ( 46 ) 11 1,560 2,528 Commercial business 1,185 ( 337 ) 460 160 1,468 Consumer 5 ( 35 ) 7 26 3 Manufactured homes 252 - - ( 136 ) 116 Government 55 - - ( 9 ) 46 Total $ 16,911 $ ( 418 ) $ 532 $ 952 $ 17,977 22 The Company's activity in the allowance for credit losses, by loan segment, is summarized below for the nine months ended September 30, 2024: (Dollars in thousands) Beginning Balance Charge-offs Recoveries Provisions Ending Balance Allowance for credit losses: Residential real estate $ 3,984 $ ( 28 ) $ 30 $ 462 $ 4,448 Home equity 698 - - 136 834 Commercial real estate 7,045 - 3 ( 766 ) 6,282 Construction and land development 4,206 - - ( 1,400 ) 2,806 Multifamily 933 ( 66 ) 31 631 1,529 Commercial business 1,649 ( 2 ) 230 369 2,246 Consumer 7 ( 60 ) 7 51 5 Manufactured homes 181 - - 66 247 Government 65 - - 53 118 Total $ 18,768 $ ( 156 ) $ 301 $ ( 397 ) $ 18,516 A collateral dependent financial loan relies solely on the operation or sale of the collateral for repayment. 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. However, as other sources of repayment become inadequate over time, the significance of the collateral's value increases and the loan may become collateral-dependent. The table below presents the amortized cost basis and allowance for credit losses (“ACL”) allocated for collateral dependent loans in accordance with ASC 326, which are individually evaluated to determine expected credit losses. (Dollars in thousands) September 30, 2025 Real Estate Equipment/Inventory Accounts Receivable Vehicles Total ACL Allocation Residential real estate $ 2,970 $ - $ - $ - $ 2,970 $ 40 Home equity 206 - - - 206 - Commercial real estate 2,455 - - - 2,455 98 Construction and land development 2,306 - - - 2,306 - Multifamily 1,732 - - - 1,732 407 Commercial business - 1,520 942 222 2,684 367 Total $ 9,669 $ 1,520 $ 942 $ 222 $ 12,353 $ 912 23 (Dollars in thousands) December 31, 2024 Real Estate Equipment/Inventory Accounts Receivable Vehicles Total ACL Allocation Residential real estate $ 3,012 $ - $ - $ - $ 3,012 $ 50 Home equity 219 - - - 219 - Commercial real estate 1,598 - - - 1,598 43 Construction and land development 2,285 - - - 2,285 - Multifamily 3,550 - - - 3,550 - Commercial business 712 1,399 1,428 144 3,683 191 Total $ 11,376 $ 1,399 $ 1,428 $ 144 $ 14,347 $ 284 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. 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 $ 2.5 million and $ 2.9 million as of September 30, 2025, and December 31, 2024, respectively, and is included in net deferred loan origination cost. The following table presents non–accrual loans and loans past due over 90 days still on accrual by class of loans: As of September 30, 2025 Nonaccrual with No Allowance for Credit Loss Nonaccrual with Allowance for Credit Loss Nonaccrual Loans in Total Loans Past Due over 90 Days Still Accruing Residential real estate $ 1,705 $ 4,109 $ 5,814 $ - Home equity 30 851 881 - Commercial real estate 1,505 559 2,064 - Construction and land development 717 - 717 - Multifamily 625 1,107 1,732 - Commercial business 2,193 491 2,684 - Total $ 6,775 $ 7,117 $ 13,892 $ - As of December 31, 2024 Nonaccrual with No Allowance for Credit Loss Nonaccrual with Allowance for Credit Loss Nonaccrual Loans in Total Loans Past Due over 90 Days Still Accruing Residential real estate $ 1,514 $ 3,150 $ 4,664 $ - Home equity 179 304 483 - Commercial real estate 1,078 202 1,280 - Construction and land development 659 - 659 - Multifamily 3,362 - 3,362 - Commercial business 3,099 191 3,290 - Total $ 9,891 $ 3,847 $ 13,738 $ - Accrued interest receivable on loans totaled $ 5.3 million on September 30, 2025, as well as $ 5.3 million on December 31, 2024, and is excluded from the estimate of credit losses. The Company made the accounting policy election to not measure an ACL for accrued interest receivable. Accrued interest deemed uncollectible will be written off through interest income. 24 Liability for Credit Losses on Unfunded Loan Commitments The liability for credit losses inherent in unfunded loan commitments is included in accrued expenses and other liabilities on the Condensed Consolidated Balance Sheet. The adequacy of the reserve for unfunded commitments is determined quarterly based on methodology similar to the methodology for determining the ACL. The following table shows the changes in the liability for credit losses on unfunded loan commitments. (Dollars in thousands) Three months ended, September 30, 2025 Three months ended, September 30, 2024 Balance, beginning of period $ 2,027 $ 3,914 Provision for (benefit from) unfunded loan commitments ( 361 ) - Balance, end of period $ 1,666 $ 3,914 (Dollars in thousands) Nine months ended, September 30, 2025 Nine months ended, September 30, 2024 Balance, beginning of period $ 2,739 $ 3,441 Provision for (benefit from) unfunded loan commitments ( 1,073 ) 473 Balance, end of period $ 1,666 $ 3,914 Note 6 – Intangibles and Acquisition-Related Accounting (Dollars in thousands) 2025 2024 Goodwill balance January 1, $ 22,395 $ 22,395 Goodwill balance September 30, $ 22,395 $ 22,395 Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. The Company’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of the Company to provide quality, cost effective banking services in a competitive marketplace. Goodwill is tested periodically for impairment. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated, and goodwill is written down to its implied fair value. There has not been any impairment of goodwill identified or recorded. In addition to goodwill, a core deposit intangible was established from previous acquisitions. The Company had core deposit intangible balances of $ 1.3 million and $ 1.9 million as of September 30, 2025, and December 31, 2024, respectively. The table below summarizes the intangibles amortization: The amortization recorded for the quarter ended September 30, is as follows: (Dollars in thousands) Total 2024 $ 352 2025 $ 141 The amortization recorded for the nine months ended September 30, is as follows: (Dollars in thousands) Total 2024 $ 1,069 2025 $ 587 25 Amortization to be recorded in future periods, is as follows: (Dollars in thousands) Total Remainder of 2025 $ 101 2026 361 2027 294 2028 228 2029 162 Thereafter 127 Total $ 1,273 Note 7 – Deposits The Company’s end-of-period deposit portfolio balances were as follows: (Dollars in thousands) September 30, 2025 December 31, 2024 Checking $ 579,760 $ 591,487 Savings 257,058 275,121 Money market 377,155 333,705 Certificates of deposit 536,673 560,253 Total deposits $ 1,750,646 $ 1,760,566 The aggregate amount of retail and brokered certificates of deposit with a balance of $250 thousand or more was approximately $ 120.7 million at September 30, 2025 and $ 141.4 million at December 31, 2024. At September 30, 2025, selected maturities of retail and brokered certificate of deposits were as follows: (Dollars in thousands) 2025 $ 242,577 2026 285,430 2027 7,334 2028 1,002 2029 211 Thereafter 119 Total $ 536,673 Note 8 - Concentrations of Credit Risk The Company grants residential, commercial real estate, commercial business, and installment loans to customers primarily in Lake County in northwest Indiana and Cook County in northeast Illinois. 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. Substantially all loans are secured by specific items of collateral including residences, commercial real estate, land development, business assets and consumer assets. 26 Note 9 - Earnings per Share Earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding. A reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations for the three and nine months ended September 30, 2025 and 2024, are as follows: Three months ended September 30, Nine months ended September 30, (dollars in thousands except per share data) 2025 2024 2025 2024 Basic earnings per common share: Net income as reported $ 3,497 $ 606 $ 6,103 $ 10,029 Weighted average common shares outstanding—basic 4,273,022 4,260,809 4,270,652 4,259,063 Basic earnings per common share $ 0.82 $ 0.14 $ 1.43 $ 2.35 Diluted earnings per common share: Net income as reported $ 3,497 $ 606 $ 6,103 $ 10,029 Weighted average common shares outstanding 4,273,022 4,260,809 4,270,652 4,259,063 Add: Dilutive effect of unvested restricted stock awards 25,985 20,339 20,519 12,601 Weighted average common shares outstanding—diluted 4,299,007 4,281,148 4,291,171 4,271,664 Diluted earnings per common share $ 0.81 $ 0.14 $ 1.42 $ 2.35 Note 10 - Stock Based Compensation The Company replaced its expired 2015 Stock Option and Incentive Plan with a new equity incentive plan named the Finward Bancorp 2025 Omnibus Equity Incentive Plan (the “Plan”), which was adopted by the Company’s Board of Directors on March 21, 2025, and approved by the Company’s shareholders on May 22, 2025. The maximum number of shares of common stock cumulatively available for issuance under the 2025 Omnibus Plan is 265,174 shares. Awards granted under the Plan may be in the form of incentive stock options, non-qualified stock options, restricted stock, unrestricted stock, restricted stock units, performance shares, stock appreciation rights, or any combination thereof, as provided in the Plan. Unvested awards granted under the prior plan will continue to be governed by the terms of the award agreements entered into with the participants under the prior plan. Shares of common stock underlying awards granted under the prior plan that expire, terminate, or are canceled or forfeited under the terms of the prior plan will be available for issuance under the new plan. As required by the Stock Compensation Topic, companies are required to record compensation cost for stock options and awards provided to employees in return for employment service. For the three months ended September 30, 2025, stock based compensation expense of $ 116 thousand was recorded, compared to $ 138 thousand for the three months ended September 30, 2024. For the nine months ended September 30, 2025, stock based compensation expense of $ 345 thousand was recorded, compared to $ 443 thousand for the nine months ended September 30, 2024. It is anticipated that current outstanding unvested awards will result in additional compensation expense of approximately $ 700 thousand with a weighted average life of 2.1 years. Restricted stock awards are issued with an award price equal to the market price of the Company’s common stock on the award date and vest one year after the grant date for independent directors and three years after the grant date for employees. Forfeiture provisions exist for personnel that separate employment before the vesting period expires. A summary of restricted stock activity under the Company’s Plan described above for the nine months ended September 30, 2025, follows: 27 Non-vested Shares Shares Weighted Average Grant Date Fair Value Non-vested at January 1, 2025 44,570 $ 36.74 Granted 20,321 27.08 Vested ( 17,253 ) 27.34 Forfeited ( 1,180 ) 27.76 Non-vested at September 30, 2025 46,458 $ 36.24 Note 11 – Derivative Financial Instruments The Company uses derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities. The Company has certain interest rate derivative positions that are not designated as hedging instruments. Derivative assets and liabilities are recorded at fair value on the Condensed Consolidated Balance Sheet and do not take into account the effects of master netting agreements. Master netting agreements allow the Company to settle all derivative contracts held with a single counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable. These derivative positions relate to transactions in which the Company enters into an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, the Company agrees to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the client to effectively convert a variable rate loan to a fixed rate. Because the terms of the swaps with the customers and the other financial institutions offset each other, with the only difference being counterparty credit risk, changes in the fair value of the underlying derivative contracts are not materially different and do not significantly impact the Company’s results of operations. The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (i.e., interest rate lock commitment). The interest rate lock commitments are considered derivatives and are recorded on the accompanying condensed consolidated balance sheets at fair value in accordance with FASB ASC 815, Derivatives and Hedging. The following table shows the amounts of non-hedging derivative financial instruments: September 30, 2025 Asset derivatives Liability derivatives (Dollars in thousands) Statement of Financial Condition classification Fair value Statement of Financial Condition classification Fair value Interest rate swap contracts Other assets $ 4,086 Other liabilities $ 4,086 Interest rate lock commitments Other assets 49 N/A - Total $ 4,135 $ 4,086 28 December 31, 2024 Asset derivatives Liability derivatives (Dollars in thousands) Statement of Financial Condition classification Fair value Statement of Financial Condition classification Fair value Interest rate swap contracts Other assets $ 5,486 Other liabilities $ 5,486 Interest rate lock commitments Other assets 24 N/A - Total $ 5,510 $ 5,486 The following table shows the amounts included in the Statements of Income for non-hedging derivative financial instruments: Three Months Ended September 30, (Dollars in thousands) Statement of Income Classification 2025 2024 Interest rate swap contracts Fees and service charges $ 170 $ 179 Interest rate lock commitments Gain on sale of loans held-for-sale, net ( 17 ) 65 Total $ 153 $ 244 Nine Months Ended September 30, (Dollars in thousands) Statement of Income Classification 2025 2024 Interest rate swap contracts Fees and service charges $ 140 $ 149 Interest rate lock commitments Gain on sale of loans held-for-sale, net ( 33 ) 66 Total $ 107 $ 215 The following table shows the offsetting of financial assets and derivative assets: Gross Amounts not Offset in the Statement of Financial Condition (Dollars in thousands) Gross Amounts of Recognized Assets Gross Amounts Offset in the Statement of Financial Condition Net Amounts of Assets Presented in the Statement of Financial Condition Financial Instruments Cash Collateral Received Net Amount September 30, 2025 Interest rate swap contracts $ 4,086 $ - $ 4,086 $ - $ 2,180 $ 1,906 Interest rate lock commitments 49 - 49 - - 49 Total $ 4,135 $ - $ 4,135 $ - $ 2,180 $ 1,955 29 Gross Amounts not Offset in the Statement of Financial Condition (Dollars in thousands) Gross Amounts of Recognized Assets Gross Amounts Offset in the Statement of Financial Condition Net Amounts of Assets Presented in the Statement of Financial Condition Financial Instruments Cash Collateral Received Net Amount December 31, 2024 Interest rate swap contracts $ 5,486 $ - $ 5,486 $ - $ 5,120 $ 366 Interest rate lock commitments 82 - 82 - - 82 Total $ 5,568 $ - $ 5,568 $ - $ 5,120 $ 448 The following table shows the offsetting of financial liabilities and derivative liabilities: Gross Amounts not Offset in the Statement of Financial Condition (Dollars in thousands) Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statement of Financial Condition Net Amounts of Assets Presented in the Statement of Financial Condition Financial Instruments Cash Collateral Pledged Net Amount September 30, 2025 Interest rate swap contracts $ 4,086 $ - $ 4,086 $ - $ - $ 4,086 Gross Amounts not Offset in the Statement of Financial Condition (Dollars in thousands) Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statement of Financial Condition Net Amounts of Assets Presented in the Statement of Financial Condition Financial Instruments Cash Collateral Pledged Net Amount December 31, 2024 Interest rate swap contracts $ 5,486 $ - $ 5,486 $ - $ - $ 5,486 Note 12 - Fair Value The Fair Value Measurements Topic establishes a hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Topic describes three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. 30 Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The fair values of securities available-for-sale are determined on a recurring basis by obtaining quoted prices on nationally recognized securities exchanges or pricing models utilizing significant observable inputs such as matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. Different judgments and assumptions used in pricing could result in different estimates of value. In certain cases where market data is not readily available because of a lack of market activity or little public disclosure, values may be based on unobservable inputs and classified in Level 3 of the fair value hierarchy. The Company evaluates AFS security impairment on a quarterly basis. This allows the Company to maintain the same amortized cost basis of the securities before and after adoption date. The Company has $ 173 thousand of previously recorded credit impairment on collateralized debt obligations. The Company believes this continues to represent the expected credit losses of the amortized cost basis, therefore, has established an ACL for AFS debt securities. The ACL is monitored quarterly and is measured by evaluating the present value of cash flows as compared to the amortized cost basis of the security. To the extent that there are improvements in credit related to these securities, the ACL will be reduced to account for the improvements. If any improvements in credit exceed the amount of previously reduced amortized cost bases, recoveries will be recorded through the income statement in the period received. The allowance for collateralized debt credit losses was at $ 173 thousand at September 30, 2025 and December 31, 2024. The Company’s subordination for each collateralized debt obligation is calculated by taking the total performing collateral and subtracting the sum of the total collateral within the Company’s class and the total collateral within all senior classes, and then stating this result as a percentage of the total performing collateral. This measure is an indicator of the level of collateral that can default before potential cash flow disruptions may occur. In addition, management calculates subordination assuming future collateral defaults by utilizing the default/deferral assumptions in the Company’s impairment analysis. Subordination assuming future default/deferral assumptions is calculated by deducting future defaults from the current performing collateral. At September 30, 2025 and December 31, 2024, management reviewed the subordination levels for each security in context of the level of current collateral defaults and deferrals within each security; the potential for additional defaults and deferrals within each security; the length of time that the security has been in “payment in kind” status; and the Company’s class position within each security. At September 30, 2025 and December 31, 2024, the collateralized debt obligations with a cost basis of $ 2.1 million and $ 2.2 million have been placed in “payment in kind” status. The Company’s securities that are classified as “payment in kind” are a result of not receiving the scheduled quarterly interest payments. For the securities in “payment in kind” status, management anticipates to receive the unpaid contractual interest payments from the issuer, because of the self- correcting cash flow waterfall provisions within the structure of the securities. When a tranche senior to the Company’s position fails the coverage test, the Company’s interest cash flows are paid to the senior tranche and recorded as a reduction of principal. The coverage test represents an over collateralization target by stating the balance of the performing collateral as a percentage of the balance of the Company’s tranche, plus the balance of all senior tranches. The principal reduction in the senior tranche continues until the appropriate coverage test is passed. As a result of the principal reduction in the senior tranche, more cash is available for future payments to the Company’s tranche. Management will not capitalize the “payment in kind” interest payments to the book value of the securities and will keep these securities in nonaccrual status until the quarterly interest payments resume. The fair value of the Company’s interest rate swap contracts, both assets and liabilities, are valued by a third- party pricing agent using an income approach and are classified within Level 2 of the valuation hierarchy. The fair value of the Company’s interest rate lock commitments is based on the price of the underlying loans expected to be sold to an investor while taking into consideration the probability the rate lock commitments will close and are classified within Level 2 of the valuation hierarchy. The Company utilized a third-party pricing service for classifying and valuing the fair value of collateralized debt obligations held. These securities were categorized as unobservable Level 3 and priced using an Option-Adjusted Discounted Cash flow model to value these securities. The significant inputs to this model include yield, prepayment speed, default rate, and loss severity. 31 Assets and Liabilities Measured at Fair Value on a Recurring Basis There were no transfers to or from Levels 1 and 2 during the nine months ended September 30, 2025 and the year ended December 31, 2024. Changes in Level 3 assets relate to the result of change in estimated fair values, payments received, and sales of securities that have been classified as Level 3 during the nine months ended September 30, 2025 and all of 2024. Assets measured at fair value on a recurring basis are summarized below: Fair Value Measurements at September 30, 2025 Using (Dollars in thousands) Estimated Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Interest rate swap contracts $ 4,086 $ - $ 4,086 $ - Interest rate lock commitments 49 - 49 - Available-for-sale debt securities: U.S. government sponsored entities 8,386 - 8,386 - Collateralized mortgage obligations and residential mortgage-backed securities 106,293 - 106,293 - Municipal securities 218,855 - 218,855 - Collateralized debt obligations 1,616 - - 1,616 Total securities available-for-sale $ 335,150 $ - $ 333,534 $ 1,616 Liabilities: Interest rate swap contracts $ 4,086 $ - $ 4,086 $ - Fair Value Measurements at December 31, 2024 Using (Dollars in thousands) Estimated Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Interest rate swap contracts $ 5,486 $ - $ 5,486 $ - Interest rate lock commitments 82 - 82 - Available-for-sale debt securities: U.S. government sponsored entities 8,061 - 8,061 - Collateralized mortgage obligations and residential mortgage-backed securities 109,325 - 109,325 - Municipal securities 214,749 - 214,749 - Collateralized debt obligations 1,419 - - 1,419 Total securities available-for-sale $ 333,554 $ - $ 332,135 $ 1,419 Liabilities: Interest rate swap contracts $ 5,486 $ - $ 5,486 $ - 32 A reconciliation of available-for-sale securities, which require significant adjustment based on unobservable data, are presented in the following table: (Dollars in thousands) Estimated Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Available-for- sale securities Beginning balance, January 1, 2025 $ 1,419 Principal payments ( 11 ) Total unrealized gains, included in other comprehensive income (loss) 208 Ending balance, September 30, 2025 $ 1,616 Beginning balance, January 1, 2024 $ 1,357 Principal payments ( 11 ) Total unrealized gains, included in other comprehensive income (loss) 94 Ending balance, September 30, 2024 $ 1,440 Assets measured at fair value on a non-recurring basis are summarized below: Fair Value Measurements at September 30, 2025 Using (Dollars in thousands) Estimated Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Collateral dependent loans $ - $ - $ - $ - Fair Value Measurements at December 31, 2024 Using (Dollars in thousands) Estimated Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Collateral dependent loans $ 1,496 $ - $ - $ 1,496 Significant (Level 3) Inputs The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements. (Dollars in thousands) Fair Value at September 30, 2025 Valuation Technique Significant Unobservable Inputs Range Weighted-Average Range Collateral dependent loans $ - Fair Value of Collateral Discount for type of property and current market conditions — % - — % — % 33 (Dollars in thousands) Fair Value at December 31, 2024 Valuation Technique Significant Unobservable Inputs Range Weighted-Average Range Collateral dependent loans $ 1,496 Fair Value of Collateral Discount for type of property and current market conditions 0 % - 80 % 8 % The following table shows carrying values and related estimated fair values of financial instruments not carried at fair value in the condensed consolidated balance sheets as of the dates indicated. Estimated fair values are further categorized by the inputs used to measure fair value. Items that are not financial instruments are not included. September 30, 2025 Estimated Fair Value Measurements at September 30, 2025 Using (Dollars in thousands) Carrying Value Estimated Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial assets: Cash and cash equivalents $ 104,178 $ 104,178 $ 104,178 $ - $ - Loans held-for-sale 2,641 2,781 - 2,781 - Loans receivable, net 1,455,797 1,416,903 - - 1,416,903 Federal Home Loan Bank stock 6,547 6,547 - 6,547 - Accrued interest receivable 7,585 7,585 - 7,585 - Financial liabilities: Non-interest bearing deposits 280,296 280,296 280,296 - - Interest bearing deposits 1,470,350 1,468,712 933,677 535,035 - Repurchase agreements 48,426 48,415 40,680 7,735 - Borrowed funds 55,000 54,347 - 54,347 - Accrued interest payable 1,162 1,162 - 1,162 - 34 December 31, 2024 Estimated Fair Value Measurements at December 31, 2024 Using (Dollars in thousands) Carrying Value Estimated Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial assets: Cash and cash equivalents $ 70,584 $ 70,584 $ 70,584 $ - $ - Loans held-for-sale 1,253 1,277 - 1,277 - Loans receivable, net 1,492,065 1,435,148 - - 1,435,148 Federal Home Loan Bank stock 6,547 6,547 - 6,547 - Accrued interest receivable 7,721 7,721 - 7,721 - Financial liabilities: Non-interest bearing deposits 263,324 263,324 263,324 - - Interest bearing deposits 1,497,242 1,496,638 936,989 559,649 - Repurchase agreements 40,116 39,960 32,364 7,596 - Borrowed funds 65,000 63,432 - 63,432 - Accrued interest payable 620 620 - 620 - The following methods were used to estimate the fair value of financial instruments presented in the preceding table at September 30, 2025 and December 31, 2024: Cash and cash equivalent carrying amounts approximate fair value. The fair values of securities available-for-sale are obtained from broker pricing (Level 2), with the exception of collateralized debt obligations, which are valued by a third-party specialist (Level 3). Loans held-for-sale comprise residential mortgages and are priced based on values established by the secondary mortgage markets (Level 2). The estimated fair value for net loans receivable is based on the exit price notion which is the exchange price that would be received to transfer the loans at the most advantageous market price in an orderly transaction between market participants on the measurement date (Level 3). Federal Home Loan Bank stock is estimated at book value due to restrictions that limit the sale or transfer of the security. Interest rate swap agreements, both assets and liabilities, are valued by a third-party pricing agent using an income approach (Level 2). Fair values of accrued interest receivable and payable approximate book value, as the carrying values are determined using the observable interest rate, balance, and last payment date. Non-interest and interest bearing deposits, which include checking, savings, and money market deposits, are estimated to have fair values based on the amount payable as of the reporting date (Level 1). The fair value of fixed-maturity certificates of deposit (included in interest bearing deposits) are based on estimates of the rate the Company would pay on similar deposits, applied for the time period until maturity (Level 2). Estimated fair values for short-term repurchase agreements, which represent sweeps from demand deposits to accounts secured by pledged securities, are estimated based on the amount payable as of the reporting date (Level 1). Longer-term repurchase agreements, with contractual maturity dates of quarter or more, are based on estimates of the rate the Company would pay on similar deposits, applied for the time period until maturity (Level 2). Short-term borrowings are generally only held overnight, therefore, their carrying amount is a reasonable estimate of fair value (Level 1). The fair value of FHLB Advances are estimated by discounting the future cash flows using quoted rates from the FHLB for similar advances with similar maturities (Level 2). The estimated fair value of other financial instruments, and off-balance sheet loan commitments, approximate cost and are not considered significant to this presentation. Note 13 - Borrowings At September 30, 2025, and December 31, 2024, borrowed funds are summarized below: 35 (Dollars in thousands) September 30, 2025 December 31, 2024 FHLB Fixed rate advance with outstanding rate of 4.85 %, maturing May 16, 2025 $ - $ 10,000 FHLB Fixed rate advance with outstanding rate of 4.77 %, maturing May 19, 2025 - 10,000 FHLB Fixed rate advance with outstanding rate of 3.63 %, maturing March 7, 2028 (1) 10,000 - FHLB Fixed rate advance with outstanding rate of 3.46 %, maturing June 26, 2028 (1) 10,000 - FHLB Fixed rate advance with outstanding rate of 3.38 %, maturing August 7, 2028 (1) - 10,000 FHLB Fixed rate advance with outstanding rate of 3.84 %, maturing February 28, 2029 (1) 15,000 15,000 FHLB Fixed rate advance with outstanding rate of 3.74 %, maturing February 28, 2029 (1) 10,000 10,000 FHLB Fixed rate advance with outstanding rate of 3.22 %, maturing August 7, 2029 (1) - 10,000 FHLB Fixed rate advance with outstanding rate of 2.95 %, maturing April 29, 2030 (1) 10,000 - Total $ 55,000 $ 65,000 (1) FHLB retains putable option to call these advances after a period of time. At September 30, 2025, scheduled maturities of borrowed funds were as follows: (Dollars in thousands) 2025 $ - 2026 - 2027 - 2028 20,000 2029 25,000 2030 10,000 Total $ 55,000 The Company has available liquidity of $ 942.0 million including borrowing capacity from the FHLB and Federal Reserve facilities and other sources. The Company also maintains a $ 25.0 million line of credit with the Federal Home Loan Bank of Indianapolis. The Company did not have a balance at September 30, 2025, or as of December 31, 2024. The Company did not have other borrowings at September 30, 2025, or as of December 31, 2024. Note 14 - Leases Under ASC 842, operating lease expense is generally recognized on a straight-line basis over the term of the lease. 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. 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. Each of the Lease Agreements became effective upon 36 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. As the rate implicit in the leases generally is not readily determinable for our operating leases, the discount rates used to determine the present value of our lease liability are based on our incremental borrowing rate at the lease commencement date and commensurate with the remaining lease term. Our incremental borrowing rate for a lease is the rate of interest we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are excluded from our weighted-average remaining lease term. The following table summarizes supplemental cash flow and other information related to our operating leases: (Dollars in thousands) Nine Months Ended September 30, 2025 2024 Gain on sale-leaseback transaction, net $ - $ ( 11,772 ) Operating cash flows Cash paid for amounts included in the measurement of lease liabilities for leases 1,201 965 ROU assets obtained in exchange for lease liabilities - operating leases (1) - 16,140 Weighted-average remaining lease terms (in years) - operating leases 13 14 Weighted-average discount rate - operating leases 7.67 % 7.67 % Variable lease payments $ 209 $ 209 Operating lease costs 1,442 1,078 Total lease costs (2) $ 1,651 $ 1,287 (1) Right of Use Asset included in Premises and equipment on the consolidated balance sheet (2) Included in occupancy and equipment costs on the condensed consolidated statements of income 37 The following table represents the maturity of the Company's operating lease liabilities as of September 30, 2025: (Dollars in thousands) Maturity Analysis Remainder 2025 $ 399 2026 1,622 2027 1,657 2028 1,692 2029 1,679 2030 1,688 Thereafter 15,110 Total 23,847 Less: Present value discount ( 9,193 ) Lease liability $ 14,654 38