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Item 2. Management’s Discussion and Analysis

2026-05-13 compared with 2025-11-12 · 142 added, 264 removed, 403 unchanged (50% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

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.

Finward Bancorp is a financial holding company registered with the Board of Governors of the Federal Reserve System.

Peoples Bank, an Indiana commercial bank, is a wholly-owned subsidiary of the Company.

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.

The following management’s discussion and analysis presents information concerning our financial condition as of March 31, 2026 and December 31, 2025, and the results of operations for the three months ending March 31, 2026 and March 31, 2025.

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, 2025.

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.

At March 31, 2026, the Company had total assets of $2.0 billion, loans receivable, net of deferred fees and costs, of $1.4 billion and total deposits of $1.7 billion.

Stockholders' equity totaled $172.4 million or 8.6% of total assets, with a book value per share of $39.81.

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%.

Recent Developments Regarding the Company and the Bank

On July 4, 2025, President Trump signed into law the legislation commonly referred to as the One Big Beautiful Bill Act (“OBBBA”), which is a sweeping federal reconciliation package that permanently extends and expands key provisions of the 2017 Tax Cuts and Jobs Act, introduces new tax benefits (including elevated standard deductions, higher state-and-local tax (SALT) caps, and no taxation on tips and overtime income for certain workers), and enacts broad reductions in government spending.

The OBBBA is a complex revision to the U.S.

federal income tax laws with potentially far-reaching consequences.

The OBBBA will require subsequent rulemaking in a number of areas.

The long-term impact of the OBBBA on the Company, the Bank, our shareholders, and the banking industry in general cannot be reliably predicted at this early stage of the new law’s implementation.

Shareholders are urged to consult with their own tax advisors regarding the impact of the OBBBA to them and their acquisition, ownership, and disposition of the Company's common stock.

The Company's management continues to evaluate the impact of the OBBBA on the Company, the Bank, and its business, financial condition, and results of operations.

Termination of Consent Order

On August 6, 2025, the FDIC and the Indiana Department of Financial Institutions ("DFI") terminated the Consent Order issued to the Bank that was effective on November 7, 2023 relating to the Bank's compliance with the Bank Secrecy Act and its implementing regulations (collectively, the "BSA").

The termination of the Consent Order follows the Bank's successful resolution of the deficiencies in the Bank's BSA compliance and anti-money laundering compliance program which was the subject of the Consent Order.

Memorandum of Understanding

On August 9, 2024, the Bank entered into a memorandum of understanding (“MOU”) with the FDIC and DFI.

Net income for the three months ended March 31, 2026, was $2.2 million, or $0.52 earnings per diluted common share.

For the three months ended March 31, 2026, the ROA was 0.44%, while the ROE was 5.00%.

On August 9, 2024, the Bank entered into a memorandum of understanding with the FDIC and DFI.

The MOU is an informal administrative agreement pursuant to which the Bank has agreed to take various actions and comply with certain requirements to enhance certain areas of the Bank’s operations.

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The MOU will remain in effect until modified or terminated by the FDIC and DFI.

Management does not expect the actions called for by these regulatory actions to have a substantial impact on the Company’s or the Bank’s ongoing day-to-day operations, although they may have the effect of limiting or delaying the Bancorp’s or the Bank’s ability or plans to expand and engage in business acquisitions.

Management does not expect the actions called for by the MOU to have a substantial impact on the Company’s or the Bank’s ongoing day-to-day operations, although they may have the effect of limiting or delaying the Bancorp’s or the Bank’s ability or plans to expand and engage in business acquisitions.

Financial Condition

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.

During the three months ended March 31, 2026, total assets decreased by $6.0 million (0.30%), with interest-earning assets decreasing by $2.2 million (0.12%).

At both March 31, 2026 and December 31, 2025, interest-earning assets totaled $1.9 billion.

Earning assets represented 92.9% of total assets at March 31, 2026 and 92.7% December 31, 2025.

Loan Portfolio

Loans receivable, net of deferred fees and costs totaled $1.5 billion at both September 30, 2025 and December 31, 2024.

Loans receivable, net of deferred fees and costs totaled $1.46 billion at March 31, 2026 and $1.45 billion at December 31, 2025.

The loan portfolio, which is the Company’s largest asset, is the primary source of both interest and fee income.

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The Company’s end-of-period loan balances were as follows:

September 30, 2025 December 31, 2024

March 31, 2026 December 31, 2025

(Dollars in thousands) Balance % Loans Balance % Loans

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Adjustable rate loans / loans receivable $ 817,446 56.2 % $ 811,901 56.0 %

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.

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 March 31, 2026, compared to $555.6 million as of December 31, 2025.

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.

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:

Commercial Real Estate (CRE) September 30, 2025 December 31, 2024

Commercial real estate loans remained our largest loan segment and accounted for 38.8% of the total loan portfolio at March 31, 2026 and 38.3% at December 31, 2025.

A further breakdown of the composition of the commercial real estate loan portfolio as of March 31, 2026 and December 31, 2025 is shown in the table below:

Commercial Real Estate (CRE) March 31, 2026 December 31, 2025

(Dollars in thousands) # Loans $ Amount % of Total Gross Loans # Loans $ Amount % of Total Gross Loans

CRE Owner Occupied (CRE OO)

Food services & drinking places 65 $ 35,602 2.4 % 65 $ 35,961 2.5 %

Gasoline stations & fuel dealers 32 30,925 2.1 % 28 28,957 1.9 %

Ambulatory health care services 32 32,326 2.2 % 32 31,262 2.2 %

Gasoline stations and fuel dealers 32 29,803 2.1 % 31 29,848 2.1 %

Repair and maintenance 35 17,957 1.2 % 37 18,333 1.3 %

Specialty trade contractors 34 16,051 1.1 % 32 15,571 1.1 %

Motor vehicles and parts dealers 19 11,006 0.8 % 17 6,319 0.4 %

Merchant wholesalers, durable goods 11 10,719 0.7 % 12 10,888 0.8 %

Truck transportation 15 10,850 0.7 % 12 10,350 0.7 %

Personal and laundry services 36 12,049 0.8 % 33 10,248 0.7 %

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Other 178 86,894 6.1 % 191 86,344 5.7 %

Total CRE Owner Occupied (CRE OO) 478 $ 252,945 17.2 % 468 $ 246,609 16.4 %

CRE Non Owner Occupied (CRE NOO)

Strip centers - lessors 167 $ 143,540 9.8 % 165 $ 140,360 9.3 %

Hotels 17 46,842 3.2 % 18 48,659 3.2 %

CRE OO 465 261,741 18.0 % 472 253,454 17.4 %

Retail centers - lessors 166 $ 143,339 9.9 % 165 $ 138,425 9.5 %

Industrial properties - lessors 68 51,514 3.5 % 65 49,502 3.4 %

Office properties - lessors 61 41,575 2.9 % 62 42,139 2.9 %

Hotels 16 39,517 2.7 % 16 40,047 2.8 %

Special use - lessors 9 10,360 0.7 % 10 10,501 0.7 %

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Other 5 624 — % 9 5,371 0.4 %

Total CRE Non Owner Occupied (CRE NOO) 347 $ 311,613 21.2 % 343 $ 305,065 20.2 %

Total Commercial Real Estate (OO & NOO) 825 $ 564,558 38.4 % 811 $ 551,674 36.6 %

Total CRE NOO 346 $ 302,872 20.8 % 348 $ 302,140 20.9 %

Total CRE OO & NOO 811 $ 564,613 38.8 % 820 $ 555,594 38.3 %

Total Gross Loans $ 1,453,420 $ 1,448,824

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This may be done as a part of a renewal, loan workout or as a part of the usual and customary real estate review process that monitors the risks associated with the Bank’s loan portfolios.

The following table sets forth certain information at September 30, 2025, regarding the dollar amount of loans in the Company’s portfolio based on their contractual terms to maturity.

The following table sets forth certain information at March 31, 2026, regarding the dollar amount of loans in the Company’s portfolio based on their contractual terms to maturity.

Demand loans, loans having no schedule of repayment and no stated maturity, and overdrafts are reported as due in one year or less.

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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.

During the three months ended March 31, 2026, the Company originated $9.4 million in new fixed rate mortgage loans for sale, compared to $9.6 million during the quarter ended March 31, 2025.

Net gains realized from the mortgage loan sales totaled $257 thousand for the three months ended March 31, 2026, compared to $230 thousand for the quarter ended March 31, 2025.

At March 31, 2026, the Company had no loans that were classified as held for sale, compared to $1.1 million at December 31, 2025.

Asset Quality

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(Dollars in thousands)

Loan Segment September 30, 2025 December 31, 2024

Loan Segment March 31, 2026 December 31, 2025

Residential real estate $ 6,797 $ 5,932

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Commercial business 1,299 1,439

Manufactured homes 90 71

Total $ 12,371 $ 11,162

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Substandard loans include potential problem loans, where information about possible credit issues or other conditions causes management to question the ability of such borrowers to comply with loan covenants or repayment terms.

No loans were internally classified as doubtful or loss at September 30, 2025 or December 31, 2024.

No loans were internally classified as doubtful or loss at March 31, 2026 or December 31, 2025.

The Company's substandard loans are summarized below:

(Dollars in thousands)

Loan Segment September 30, 2025 December 31, 2024

Loan Segment March 31, 2026 December 31, 2025

Residential real estate $ 6,797 $ 6,016

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(Dollars in thousands)

Loan Segment September 30, 2025 December 31, 2024

Loan Segment March 31, 2026 December 31, 2025

Residential real estate $ 6,492 $ 4,797

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Total $ 28,345 $ 24,512

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.

At March 31, 2026, 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.

The allowance for credit losses (ACL) is a valuation allowance for expected losses over the estimated life of loan portfolio, increased by the provision for credit losses, and decreased by charge-offs net of recoveries.

The ACL is a valuation allowance for expected losses over the estimated life of loan portfolio, increased by the provision for credit losses, and decreased by charge-offs net of recoveries.

A loan is charged off against the allowance by management as a loss when deemed uncollectible, although collection efforts continue and future recoveries may occur.

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The Company's provision for (benefit from) credit losses for the period ended are summarized below:

(Dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30,

(Dollars in thousands) Three Months Ended March 31,

Loan Segment 2026 2025

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The Company's charge-off and recovery information is summarized below:

(Dollars in thousands) Three Months Ended September 30, 2025

Loan Segment Charge-offs Recoveries Net (Charge-offs)

Residential real estate $ - $ 15 $ 15

Multifamily - 1 1

Commercial business (276) - (276)

Consumer (14) 6 (8)

Total $ (290) $ 22 $ (268)

(Dollars in thousands) Three Months Ended September 30, 2024

Loan Segment Charge-offs Recoveries Net (Charge-offs)

Residential real estate $ (28) $ 9 $ (19)

Commercial real estate - 1 1

Commercial business (2) 222 220

Consumer (17) 1 (16)

Total $ (47) $ 233 $ 186

(Dollars in thousands) Nine Months Ended September 30, 2025

(Dollars in thousands) Three Months Ended March 31, 2026

Loan Segment Charge-offs Recoveries Net (Charge-offs)

Residential real estate $ (5) $ 21 $ 16

Commercial real estate - 4 4

Multifamily (46) 11 (35)

Commercial business (337) 460 123

Consumer (14) 1 (13)

Total $ (19) $ 22 $ 3

(Dollars in thousands) Nine Months Ended September 30, 2024

(Dollars in thousands) Three Months Ended March 31, 2025

Loan Segment Charge-offs Recoveries Net (Charge-offs)

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The Company's allowance to total loans and non-performing loans are summarized below:

(Dollars in thousands) September 30, 2025 December 31, 2024

(Dollars in thousands) March 31, 2026 December 31, 2025

Allowance for credit losses $ 17,285 $ 17,506

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Funds are generally invested in federal funds, interest bearing balances in other financial institutions, U.S.

government securities, U.S.

government agency 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.

The securities portfolio, all of which is designated as available-for-sale, totaled $307.7 million at March 31, 2026, compared to $316.2 million at December 31, 2025, a decrease of $8.5 million (2.7%).

The decrease in securities available for sale from year end, was primarily due to an increase in the negative fair value adjustment to the portfolio.

The yield on the securities portfolio was 2.22% for the three months ended March 31, 2026 and 2.38% for the quarter ended March 31, 2025.

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.

At March 31, 2026, the securities portfolio represented 16.4% of interest-earning assets and 15.3% of total assets compared to 16.9% of interest-earning assets and 15.6% of total assets at December 31, 2025.

The Company’s end-of-period investment portfolio and other short-term investments and stock balances were as follows:

September 30, 2025 December 31, 2024

March 31, 2026 December 31, 2025

(Dollars in thousands) Balance % Securities Balance % Securities

government sponsored entities $ 8,386 2.5 % $ 8,061 2.4 %

government agency securities $ 8,483 2.8 % $ 8,466 2.7 %

Collateralized mortgage obligations and residential mortgage-backed securities 101,902 33.1 % 104,665 33.1 %

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Total securities available-for-sale $ 307,686 100.0 % $ 316,227 100.0 %

(Dollars in thousands) September 30, 2025 December 31, 2024 $ Change % Change

(Dollars in thousands) March 31, 2026 December 31, 2025 $ Change % Change

Interest bearing deposits in other financial institutions $ 102,997 $ 101,382 $ 1,615 1.6 %

Fed funds sold 563 654 (91) (13.9 %)

Federal Home Loan Bank stock 6,547 6,547 - -

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The contractual maturities and weighted average yields for the U.S.

government agency securities, municipal securities, and collateralized debt obligations at September 30, 2025, are summarized in the table below.

government agency securities, municipal securities, and collateralized debt obligations at March 31, 2026, are summarized in the table below.

Securities not due at a single maturity date, such as mortgage-backed securities and collateralized mortgage obligations, are shown separately.

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The Company’s end-of-period deposit portfolio balances were as follows:

(Dollars in thousands) September 30, 2025 December 31, 2024 $ Change % Change

(Dollars in thousands) March 31, 2026 December 31, 2025 $ Change % Change

Checking $ 587,575 $ 592,214 $ (4,639) (0.8 %)

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Total deposits $ 1,719,071 $ 1,726,971 $ (7,900) (0.5 %)

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.

As of March 31, 2026, deposits totaled $1.72 billion, a decrease of $7.9 million or 0.5% compared to December 31, 2025.

Core deposits totaled $1.2 billion at both March 31, 2026 and December 31, 2025.

Core deposits include checking, savings, and money market accounts and represented 71.6% of the Company’s total deposits at March 31, 2026.

On March 31, 2026, balances for certificates of deposit totaled $488.8 million, compared to $499.6 million on December 31, 2025, a decrease of $10.8 million or 2.2%.

The decrease in deposits is primarily related to cyclical flows and continued planned adjustments to deposit pricing.

Checking account balances decreased $4.6 million and interest bearing savings account balances decreased $0.6 million from year end primarily due to decreases in personal statement savings account balances.

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Certificates of deposits decreased by $10.8 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.

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.

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.

Non-interest bearing demand accounts comprised 16.2% of total deposits at March 31, 2026 and 15.5% of total deposits at December 31, 2025.

Interest bearing demand accounts, including money market and savings accounts, comprised 55.6% of total deposits at both March 31, 2026 and December 31, 2025.

Time accounts as a percentage of total deposits were 28.4% at March 31, 2026 and 28.9% at December 31, 2025.

The following table presents the average daily amount of deposits and average rates paid on such deposits for the periods indicated.

The amounts are stated in thousands (000’s).

Nine Months Ended September 30,

Three Months Ended March 31,

Amount Rate % Amount Rate %

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Total deposits $ 1,718,620 1.62 % $ 1,760,390 1.83 %

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.

Deposit rates decreased in the three months ended March 31, 2026 compared to same periods in 2025, primarily driven by a decrease in short-term market interest rates.

Borrowed Funds

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The Company’s end-of-period borrowing balances were as follows:

(Dollars in thousands) September 30, 2025 December 31, 2024 $ Change % Change

Repurchase agreements $ 48,426 $ 40,116 $ 8,310 20.7 %

(Dollars in thousands) March 31, 2026 December 31, 2025 $ Change % Change

Federal funds purchased and repurchase agreements $ 40,815 $ 39,703 $ 1,112 2.8 %

Borrowed funds 50,000 45,000 5,000 11.1 %

Total borrowed funds $ 90,815 $ 84,703 $ 6,112 7.2 %

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.

Borrowings, federal funds purchased, and repurchase agreements totaled $90.8 million at March 31, 2026 compared to $84.7 million at December 31, 2025, a decrease of $6.1 million or 7.2%.

The increase in borrowings from December 31, 2025, was the result of new FHLB advances and additional repurchase agreement activity.

As of March 31, 2026, 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.

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.

As of March 31, 2026, the Company had available liquidity of $555.0 million including borrowing capacity from the FHLB and Federal Reserve facilities.

Other assets totaled $35.1 million at March 31, 2026, compared to $34.9 million at December 31, 2025.

The increase in other assets is primarily related an increase in the deferred tax asset.

Accrued expenses and other liabilities totaled $32.9 million at March 31, 2026, compared to $34.8 million at December 31, 2025.

The decrease in accrued expenses and other liabilities is primarily the result of decreased ACH prefunding balances.

Market Risk and Interest Rate Sensitivity

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The Company incurs market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads.

As of September 30, 2025, the Company has identified interest rate risk as our primary source of market risk.

As of March 31, 2026, the Company has identified interest rate risk as our primary source of market risk.

Interest Rate Risk

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The Company’s Board of Directors establishes broad policy limits with respect to interest rate risk.

As part of this policy, the Asset Liability Committee, or ALCO, establishes specific operating guidelines within the parameters of the Board of Director’s policies.

As part of this policy, ALCO establishes specific operating guidelines within the parameters of the Board of Director’s policies.

In general, the ALCO focuses on ensuring a stable and steadily increasing flow of net interest income through managing the size and mix of the balance sheet.

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Evaluation of Interest Rate Risk

We use income simulations, an analysis of core funding utilization, and economic value of equity (EVE) simulations as our primary tools in measuring and managing interest rate risk.

These tools are utilized to quantify the potential earnings impact of changing interest rates over a 12-month simulation horizon (income simulations) as well as identify expected earnings trends given longer term rate cycles (long term simulations, core funding utilizations, and EVE simulation).

We use income simulations, an analysis of core funding utilization, and EVE at Risk simulations as our primary tools in measuring and managing interest rate risk.

A standard gap report and funding matrix will also be utilized to provide supporting detailed information on the expected timing of cashflow and repricing opportunities.

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Doing so necessitates an assessment of rate changes over varying time horizons and of varying/sufficient degrees such that the impact of embedded options within the balance sheet are sufficiently examined.

We utilize a simulation model as our primary tool to assess the direction and magnitude of variations in net interest income and EVE resulting from potential changes in market interest rates.

We utilize a simulation model as our primary tool to assess the direction and magnitude of variations in net interest income and EVE at Risk resulting from potential changes in market interest rates.

Key assumptions in the model, which we believe are reasonable but which may have a significant impact on results, include:

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The resulting change in net interest income is an indication of the sensitivity of our earnings to directional changes in market interest rates.

The simulation also measures the change in EVE, or the net present value of our assets and liabilities, under an immediate shift, or shock, in interest rates under various scenarios, as calculated by discounting the estimated future cash flows using market-based discount rates.

The following table shows the impact of changes in interest rates on net interest income over the next twelve months and EVE based on our balance sheet as of September 30, 2025 (dollars in millions):

Interest Rate Scenario EVE* Percent Change Net interest income Percent Change

The simulation also measures the change in EVE at Risk, or the net present value of our assets and liabilities, under an immediate shift, or shock, in interest rates under various scenarios, as calculated by discounting the estimated future cash flows using market-based discount rates.

The following table shows the impact of changes in interest rates on net interest income over the next twelve months and EVE at Risk based on our balance sheet as of March 31, 2026 (dollars in millions):

Interest Rate Scenario EVE at Risk Percent Change Net interest income Percent Change

+400 Bps $ 253 -29.3 % $ 63.7 -0.4 %

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-400 Bps $ 252 -29.5 % $ 64.7 1.2 %

* Economic Value of Equity ("EVE") at Risk

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.

If interest rates across the yield curve were to uniformly decrease or increase up to 400 basis points, this analysis suggests the Bank maybe positioned for relatively neutral to modestly negative or positive changes in net interest income over the next twelve months.

We also forecast the impact of immediate and parallel interest rate shocks on net interest income under various scenarios to measure the sensitivity of our earnings under extreme conditions.

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While maturities and scheduled amortization of loans and securities are predictable sources of liquidity, deposit flows and loan and securities prepayments are greatly influenced by general interest rates, economic conditions, and competition.

Our most liquid assets are unencumbered cash and due from banks and unpledged securities classified as available for sale, which could be liquidated, subject to market

Our most liquid assets are unencumbered cash and due from banks and unpledged securities classified as available for sale, which could be liquidated, subject to market conditions.

In the future, our liquidity position will be affected by the level of customer deposits and payments, as well as acquisitions, dividends, and share repurchases in which we may engage.

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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.

At March 31, 2026, we had five outstanding advances totaling $50 million and the ability to borrow up to $269.5 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).

The following table shows the Company’s sources of liquidity as of September 30, 2025 and December 31, 2024:

At March 31, 2026, we had no outstanding balance from the Federal Reserve Bank of Chicago.

At March 31, 2026, cash and cash equivalents were $118.8 million and secured borrowing capacity at the Federal Reserve Bank totaled $244.5 million, providing total additional liquidity sources of $555.0 million (excluding brokered deposit capacity).

The following table shows the Company’s sources of liquidity as of March 31, 2026 and December 31, 2025:

Sources of Liquidity

As of September 30, 2025 As of December 31, 2024

As of March 31, 2026 As of December 31, 2025

Outstanding Additional Capacity Outstanding Additional Capacity

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Total $ 50,642 $ 555,014 $ 45,000 $ 673,942

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.

At September 30, 2025, outstanding commitments to fund loans totaled $269.5 million.

During the three months ended March 31, 2026, cash and cash equivalents decreased by $0.9 million compared to a $1.7 million increase for the quarter ended March 31, 2025.

The primary sources of cash and cash equivalents were sales of loans originated for sale and the proceeds from borrowings.

The primary uses of cash and cash equivalents were loan originations and the purchase of loans.

Cash provided by operating activities totaled $3.6 million for the three months ended March 31, 2026, compared to cash used of $3.8 million for the quarter ended March 31, 2025.

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.

Cash used in investing activities totaled $2.2 million for the current period, compared to cash provided by investing

activities of $19.7 million for the quarter ended March 31, 2025.

Cash used in investing activities for the current three-month period was primarily related to the purchase of loans.

Cash used in financing activities totaled $2.4 million during the current period compared to net cash used in financing activities of $14.1 million for the quarter ended March 31, 2025.

The net cash used in financing activities was primarily the result of net change in deposits offset by the proceeds from borrowed funds.

On a cash basis, the Company paid dividends on common stock of $520 thousand for the three months ended March 31, 2026, and $518 thousand for the quarter ended March 31, 2025.

At March 31, 2026, outstanding commitments to fund loans totaled $267.9 million.

Approximately 59.9% 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.

Standby letters of credit, which are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party, totaled $15.0 million at March 31, 2026.

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.

Management strongly believes that maintaining a high level of capital enhances safety and soundness.

During the nine months ended September 30, 2025, stockholders' equity increased by $14.1 million 9.3%.

During the nine months ended September 30, 2025, stockholders’ equity was primarily increased by net income of $6.1 million and other comprehensive income as the result of market value changes within the securities portfolio of $8.8 million offset by dividends declared of

$1.0 million.

During the three months ended March 31, 2026, stockholders' equity decreased by $2.3 million 1.3%.

During the three months ended March 31, 2026, stockholders’ equity was primarily decreased by net income of $2.2 million and offset by other comprehensive income as the result of market value changes within the securities portfolio of $4.1 million and 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.

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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.

No shares were repurchased under the program during the first three months of 2026 or 2025.

During 2025, 6,025 restricted stock shares vested under the Incentive Plan outlined in Note 10 of the condensed consolidated financial statements, of which 1,508 of these shares were withheld in the form of a net surrender to cover the withholding tax obligations of the vesting employees.

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In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions by the institution and certain discretionary bonus payments to management if an institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.

On March 19, 2026, the federal banking regulators issued three proposals to modernize the regulatory capital framework for banks of all sizes.

The federal banking agencies stated the proposals would streamline capital requirements and better align regulatory capital with risk while maintaining the safety and soundness of the banking system.

The proposals are intended to be the final phase of the Basel capital reforms.

Comments on the proposals are due by June 18, 2026.

The Company's management continues to evaluate the impact of these proposals on the Company, the Bank, and its business, financial condition, and results of operations.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required the FRB to set minimum capital levels for bank holding companies that are as stringent as those required for insured depository subsidiaries.

However, under the FRB’s “Small Bank Holding Company” exemption from consolidated bank holding company capital requirements, bank holding companies and savings and loan holding companies with less than $3 billion in consolidated assets, such as the Company, are exempt from consolidated regulatory capital requirements, unless the FRB determines otherwise in particular cases.

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.

During the three months ended March 31, 2026, 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.

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As a result, approximately $1.9 million of risk-based assets are generated by the collateralized debt obligations in the Company’s and Bank’s total risk based capital calculation.

In addition, the following table shows that, at September 30, 2025 and December 31, 2024, the Bank’s capital exceeded all applicable regulatory capital requirements as set forth in 12 C.F.R.

In addition, the following table shows that, at March 31, 2026 and December 31, 2025, the Bank’s capital exceeded all applicable regulatory capital requirements as set forth in 12 C.F.R.

(Dollars in thousands) Actual Minimum Required For

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Corrective Action Regulations

September 30, 2025 Amount Ratio Amount Ratio Amount Ratio

March 31, 2026 Amount Ratio Amount Ratio Amount Ratio

Common equity tier 1 capital to risk-weighted assets $ 188,162 12.03 % $ 70,362 4.50 % $ 101,634 6.50 %

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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.

However, the Bank must obtain the approval of the DFI if the total of all dividends declared by the Bank during the current year, including the proposed dividend, would exceed the sum of retained net income for the year to date plus its retained net income for the previous two years.

For this purpose, “retained net income,” means net income as calculated for call report purposes, less all dividends declared for the applicable period.

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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.

See “– Summary” 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 2026, without the need for qualifying for a further exemption or prior DFI approval under the terms of Indiana law described above, is its 2026 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.

Results of Operations - Comparison of the Three Months Ended September 30, 2025 and September 30, 2024

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.

Information relating to the average consolidated balance sheet and the yield on average earning assets and cost of average liabilities for the periods indicated are in the following table.

Dividing the related interest, on an annualized basis, by the average balance of assets or liabilities drives the disclosed rates.

Average balances are derived from daily balances.

Quarter Ended

(Dollars in thousands) Average Balances, Interest, and Rates

(unaudited) September 30, 2025 September 30, 2024

Balance Interest Rate (%) Average

Balance Interest Rate (%)

Interest bearing deposits in other financial institutions $ 90,880 $ 991 4.36 % $ 54,084 $ 665 4.92 %

Federal funds sold 1,285 12 3.74 % 682 9 5.28 %

Securities available-for-sale 327,030 1,965 2.40 % 342,451 2,031 2.37 %

Loans receivable 1,474,324 20,246 5.49 % 1,506,967 19,660 5.22 %

Federal Home Loan Bank stock 6,547 126 7.70 % 6,547 107 6.54 %

Total interest earning assets 1,900,066 $ 23,340 4.91 % 1,910,731 $ 22,472 4.70 %

Cash and non-interest bearing deposits in other financial institutions 24,882 22,478

Allowance for credit losses (18,243) (18,482)

Other non-interest bearing assets 152,135 155,997

Total assets $ 2,058,840 $ 2,070,724

LIABILITIES AND STOCKHOLDERS' EQUITY

Interest-bearing deposits $ 1,478,543 $ 7,996 2.16 % $ 1,451,414 $ 8,946 2.47 %

Repurchase agreements 46,498 392 3.37 % 43,074 435 4.04 %

Borrowed funds 55,904 509 3.64 % 95,224 1,085 4.56 %

Total interest bearing liabilities 1,580,945 $ 8,897 2.25 % 1,589,712 $ 10,466 2.63 %

Non-interest bearing deposits 285,347 287,507

Other non-interest bearing liabilities 36,397 41,696

Total liabilities 1,902,689 1,918,915

Total stockholders' equity 156,151 151,809

Total liabilities and stockholders' equity $ 2,058,840 $ 2,070,724

Net interest income $ 14,443 $ 12,006

Return on average assets 0.68 % 0.12 %

Return on average equity 8.96 % 1.60 %

Net interest margin (average earning assets) 3.04 % 2.51 %

Net interest margin (average earning assets) - tax equivalent 3.18 % 2.66 %

Net interest spread 2.66 % 2.07 %

Ratio of interest-earning assets to interest-bearing liabilities 1.20x 1.20x

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.

(Dollars in thousands) Quarter Ended,

(unaudited) September 30, 2025 September 30, 2024

Calculation of net interest margin, tax-equivalent basis

Net interest income $ 14,443 $ 12,006

Tax-equivalent adjustment on securities and loans 663 678

Net interest income (tax-equivalent basis) $ 15,106 $ 12,684

Total average earning assets $ 1,900,066 $ 1,910,731

Net interest margin (tax-equivalent basis) 3.18 % 2.66 %

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

The following table shows the change in non-interest income for the quarter ending September 30, 2025, and September 30, 2024.

(Dollars in thousands) Three Months Ended September 30, 9/30/2025 vs.

2025 2024 $ Change % Change

Non-interest income:

Fees and service charges $ 1,463 $ 1,463 $ - - %

Wealth management operations 759 731 28 3.8 %

Gain (loss) on tax credit investment 23 - 23 NM

Gain (loss) on sale of loans held-for-sale, net 265 338 (73) (21.6) %

Increase in cash value of bank owned life insurance 210 205 5 2.4 %

Gain (loss) on sale of real estate (56) - (56) NM

Other 249 130 119 91.5 %

Total non-interest income $ 2,913 $ 2,867 $ 46 1.6 %

The increase in non-interest income during the quarter ended September 30, 2025 compared to the same period in 2024 was primarily the result of higher other income related to an individual BOLI claim benefit partially offset by decreased gains on sale of loans.

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

(Dollars in thousands) Three Months Ended September 30, 9/30/2025 vs.

2025 2024 $ Change % Change

Non-interest expense:

Compensation and benefits $ 7,330 $ 6,963 $ 367 5.3 %

Occupancy and equipment 2,004 2,181 (177) (8.1) %

Data processing 1,116 1,165 (49) (4.2) %

Marketing 257 209 48 23.0 %

Federal deposit insurance premiums 399 435 (36) (8.3) %

Professional and outside services 945 1,251 (306) (24.5) %

Technology 549 602 (53) (8.8) %

Other 1,497 1,668 (171) (10.3) %

Total non-interest expense $ 14,097 $ 14,474 $ (377) (2.6) %

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.

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.

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

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.

On March 2, 2026, 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 March 31, 2026 to shareholders of record on March 16, 2026.

Results of Operations - Comparison of the Three Months Ended March 31, 2026 to March 31, 2025

For the three months ended March 31, 2026, the Company reported net income of $2.2 million, an increase of $1.8 million (392.7%) compared to $455 thousand for the quarter ended March 31, 2025.

For the three months ended March 31, 2026, the ROA was 0.44%, compared to 0.09% for the quarter ended March 31, 2025.

The ROE was 5.00% for the three months ended March 31, 2026, compared to 1.17% for the quarter ended March 31, 2025.

Information relating to the average consolidated balance sheet and the yield on average earning assets and cost of average liabilities for the periods indicated are in the following table.

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(Dollars in thousands) Average Balances, Interest, and Rates

(unaudited) September 30, 2025 September 30, 2024

(unaudited) March 31, 2026 March 31, 2025

Balance Interest Rate (%) Average

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Interest-bearing deposits $ 1,447,994 6,959 1.92 % $ 1,481,377 $ 8,045 2.17 %

Repurchase agreements 44,194 1,110 3.35 % 40,879 1,204 3.93 %

Federal funds purchased and repurchase agreements 38,113 272 2.85 % 41,631 348 3.34 %

Borrowed funds 45,334 419 3.70 % 61,613 635 4.12 %

12 unchanged sentences

Ratio of interest-earning assets to interest-bearing liabilities 1.22x 1.20x

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.

Net interest income for the three months ended March 31, 2026, was $15.1 million, an increase of $1.8 million (13.2%), compared to $13.3 million for the quarter ended March 31, 2025.

The weighted-average yield on interest-earning assets was 4.86% for the three months ended March 31, 2026 compared to 4.71% for the quarter ended March 31, 2025.

The weighted-average cost of interest-bearing liabilities for the three months ended March 31, 2026, was 2.00% compared to 2.28% for the quarter ended March 31, 2025.

The impact of the 4.86% return on interest-earning assets and the 2.00% cost of interest-bearing liabilities resulted in an interest rate spread of 2.86% for the three months ended March 31, 2026,

an increase from the 2.43% spread for the quarter ended March 31, 2025.

The Company’s net interest margin on a tax-equivalent basis was 3.35% for the three months ended March 31, 2026, compared to 2.95% for the quarter ended March 31, 2025.

1 unchanged sentence

See the non-GAAP reconciliation table immediately below and the section captioned “Non-GAAP Financial Measures” for further disclosure regarding non-GAAP financial measures.

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in thousands) 2026 2025

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Net interest margin (tax-equivalent basis) 3.35 % 2.95 %

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.

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

(Dollars in thousands) Nine Months Ended

September 30, 9/30/2025 vs.

The increased net interest income and net interest margin for the three months ended March 31, 2026, was primarily the result of reduced deposit and borrowing costs.

The following table shows the change in non-interest income for the three months ended March 31, 2026, and March 31, 2025.

(Dollars in thousands) Three Months Ended

March 31, 3/31/2026 vs.

2026 2025 $ Change % Change

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Gain (loss) on sale of loans held-for-sale, net 257 230 27 11.7 %

Increase in cash value of bank owned life insurance 628 610 18 3.0 %

Gain (loss) on sale of real estate (56) 11,873 (11,929) (100.5) %

Gain (loss) on sale of securities, net - (531) 531 (100.0) %

Bank owned life insurance 201 198 3 1.5 %

Other 3 6 (3) (50.0) %

Total non-interest income $ 2,417 $ 2,229 $ 188 8.4 %

The decrease in non-interest income was primarily caused by two special first quarter 2024 strategic initiatives involving the pre-tax non-interest income gain of approximately $11.8 million from a sale-leaseback transaction completed on February 22, 2024.

The 2024 non-interest income real estate gain was also partially offset by a $531 thousand loss from the sale of $15.1 million in securities, a transaction also completed during the first quarter of 2024 to improve future profitability, deleverage the balance sheet through a reduction in borrowings outstanding, and further benefit regulatory capital ratios in subsequent periods.

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

(Dollars in thousands) Nine Months Ended

September 30, 9/30/2025 vs.

The increase in non-interest income was primarily due to an increase in fees and service charges.

The following table shows the change in non-interest expense for the three months ended March 31, 2026, and March 31, 2025.

(Dollars in thousands) Three Months Ended

March 31, 3/31/2026 vs.

2026 2025 $ Change % Change

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Total non-interest expense $ 14,768 $ 14,472 $ 296 2.0 %

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.

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.

Increases in non-interest expenses during the three months ended March 31, 2026, were primarily attributable to planned increases in marketing expenses, due to seasonal promotion and planned business generation purposes, as well as compensation and benefit expense driven by annual merit-based increases.

The provision for income taxes was $423 thousand for the three months ended March 31, 2026 as compared to the provision of $161 thousand for the quarter ended March 31, 2025.

The effective tax rate was 15.9% for the three months ended March 31, 2026, as compared to 26.1% for the quarter ended March 31, 2025.

The Company’s year-to-date effective tax rate for the three months ended March 31, 2026, decreased primarily due to lower levels of core income experienced during the three months ended March 31, 2025.

Critical Accounting Policies

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The adjusted net interest income and tax-adjusted net interest margin measures recognize the income tax savings when comparing taxable and tax-exempt assets.

Interest income and yields on tax-exempt securities and loans are presented using

the current federal income tax rate of 21%.

Management believes that it is standard practice in the banking industry to present net interest income and net interest margin on a fully tax-equivalent basis and that it may enhance comparability for peer comparison purposes.

Interest income and yields on tax-exempt securities and loans are presented using the current federal income tax rate of 21%.

Management believes that it is standard practice in the banking industry to

present net interest income and net interest margin on a fully tax-equivalent basis and that it may enhance comparability for peer comparison purposes.

Although these non-GAAP financial measures are frequently used by investors to evaluate a financial institution’s business and performance, they have limitations as analytical tools and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis