Finward Bancorp (FNWD)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Summary

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 June 30, 2026 and December 31, 2025, and the results of operations for the three and six months ending June 30, 2026 and June 30, 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 June 30, 2026, the Company had total assets of $2.0 billion, loans receivable, net of deferred fees and costs, of $1.5 billion and total deposits of $1.7 billion. Stockholders' equity totaled $178.3 million or 8.7% of total assets, with a book value per share of $41.15. Net income for the three months ended June 30, 2026, was $2.1 million, or $0.48 earnings per diluted common share. For the three months ended June 30, 2026, the ROA was 0.42%, while the ROE was 4.74%. Net income for the six months ended June 30, 2026, was $4.3 million, or $1.00 earnings per diluted common share. For the six months ended June 30, 2026, the ROA was 0.43%, while the ROE was 4.87%.

As previously disclosed, on August 9, 2024, the Bank entered into an informal administrative agreement known as a memorandum of understanding with the FDIC and DFI. By letter dated June 24, 2026, the FDIC and DFI notified the Bank that the FDIC and DFI terminated the MOU effective immediately.

On July 21, 2026, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with First Financial Bancorp, an Ohio corporation (“First Financial”). Pursuant to the Merger Agreement, the Company will merge with and into First Financial (the “Merger”), with First Financial continuing as the surviving corporation in the Merger. Following the Merger, the Bank will merge with and into First Financial Bank, the wholly-owned Ohio state-chartered banking subsidiary of First Financial (“First Financial Bank”), with First Financial Bank continuing as the surviving bank.

Subject to the terms and conditions of the Merger Agreement, upon the completion of the Merger, each share of common stock, no par value, of the Company issued and outstanding immediately prior to the effective time of the Merger will be converted into the right to receive 1.35 shares of common stock, no par value, of First Financial. The Merger remains subject to regulatory approvals, Company shareholder approval, and other customary closing conditions. Based on First Financial’s July 20, 2026 closing price of $35.48 per share as reported on the Nasdaq Global Select Market, the transaction is valued at approximately $208 million. See Note 15 to the consolidated financial statements of the Company set forth in this Quarterly Report on Form 10-Q.

Financial Condition

General

During the six months ended June 30, 2026, total assets increased by $19.5 million (0.97%), with interest-earning assets increasing by $23.3 million (1.24%). At June 30, 2026 and December 31, 2025, interest-earning assets totaled $1.90 billion and $1.87 billion. Earning assets represented 93.0% of total assets at June 30, 2026 and 92.7% December 31, 2025.

Loan Portfolio

Loans receivable, net of deferred fees and costs totaled $1.50 billion at June 30, 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. The Company’s lending strategy emphasizes quality loan growth, product diversification, and competitive and profitable pricing.

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

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 $597.4 million as of June 30, 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.

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Commercial real estate loans remained our largest loan segment and accounted for 39.7% of the total loan portfolio at June 30, 2026 and 38.3% at December 31, 2025. A further breakdown of the composition of the commercial real estate loan portfolio as of June 30, 2026 and December 31, 2025 is shown in the table below:

The Bank’s Appraisal Policy and Procedures is Board approved annually and reflects current regulatory guidelines and recommendations. As one of the primary factors in commercial loan underwriting is the quality of the asset being pledged as collateral, it is imperative that the appraisal process receive appropriate attention. Appraisals must be prepared in accordance with high professional standards, by appraisers who have the necessary training, experience and knowledge for them to provide an accurate estimate of value. With few exceptions, appraisals are assigned to fee appraisers named in the Board approved appraiser list, which includes the tracking of all required certifications, licenses and insurance. The Bank has engaged with one of the nation’s longest-standing third-party appraisal management companies for ordering, management, fulfillment and review of real estate appraisals and other valuation-related services for the properties securing the Bank’s commercial real estate loans.

Criteria that may require the Bank to obtain a new appraisal or update the existing value for an existing credit include but are not limited to a change in the discount or capitalization rates for a particular location or property type; occupancy or absorption levels; market trends; and/or expense structure. Regarding the necessity of updated valuations for construction financing, factors considered are material changes in construction delays; cost overruns; or reductions in sales prices/rents. 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.

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The following table sets forth certain information at June 30, 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. Contractual principal repayments of loans do not necessarily reflect the actual term of the loan portfolio. The average life of mortgage loans is substantially less than their contractual terms because of loan prepayments and because of enforcement of due-on-sale clauses, which give the Company the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells the property subject to the mortgage. The amounts are stated in thousands (000’s).

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

General

Finward Bancorp is a financial holding company registered with the Board of Governors of the Federal Reserve System. Peoples Bank, an Indiana commercial bank, is a wholly-owned subsidiary of the Company. The Company has no other business activity other than being a holding company for the Bank. The Company's earnings are dependent upon the earnings of the Bank. The Bank's earnings are primarily dependent upon net interest margin. The net interest margin is the difference between interest income earned on loans and investments and interest expense paid on deposits and borrowings stated as a percentage of average interest earning assets. The net interest margin is perhaps the clearest indicator of a financial institution's ability to generate core earnings. Fees and service charges, wealth management operations income, gains and losses from the sale of assets, provisions for credit losses, income taxes and operating expenses also affect the Company's profitability.

A summary of the Company’s significant accounting policies are detailed in Note 1 to the Company’s consolidated financial statements included in this report. Preparing financial statements in conformity with accounting principles generally accepted in the United States of America 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 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.

The following management’s discussion and analysis presents information concerning our financial condition as of December 31, 2025 and December 31, 2024, and the results of operations for the years ended December 31, 2025 and December 31, 2024. At December 31, 2025, the Company had total assets of $2.0 billion, loans receivable, net of deferred fees and costs, of $1.4 billion and total deposits of $1.7 billion. The Company's deposit accounts are insured up to applicable limits by the DIF that is administered by the FDIC, an agency of the federal government. Stockholders' equity totaled $174.7 million or 8.6% of total assets, with a book value per share of $40.37. Net income for the year ended December 31, 2025, was $8.1 million, or $1.88 earnings per diluted common share. For the year ended December 31, 2025, the ROA was 0.39%, while the ROE was 5.10%.

Recent Developments Regarding the Company and the Bank

On July 4, 2025, President Trump signed into law the legislation commonly referred to as the One Big Beautiful Bill Act, which is a sweeping federal reconciliation package that permanently extends and expands key provisions of the 2017 Tax Cuts and Jobs Act, introduces new tax benefits (including elevated standard deductions, higher state-and-local tax (SALT) caps, and no taxation on tips and overtime income for certain workers), and enacts broad reductions in government spending. 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 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. The termination of the Consent Order follows the Bank's successful resolution of the deficiencies in the Bank's BSA compliance and anti-money laundering compliance program which was the subject of the Consent Order.

Memorandum of Understanding

On August 9, 2024, the Bank entered into a memorandum of understanding with the FDIC and DFI. The MOU is an informal administrative agreement pursuant to which the Bank has agreed to take various actions and comply with certain requirements to enhance certain areas of the Bank’s operations. The MOU documents an understanding among the Bank, the FDIC, and DFI that, among other things, the Bank will: refrain from paying cash dividends without prior regulatory approval and develop and implement certain plans regarding the Bank’s operations, capital, and strategy. The Bank will

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submit written quarterly progress reports to the FDIC and DFI detailing compliance with the MOU. 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.

Financial Condition

General

During the year ended December 31, 2025, total assets decreased by $39.5 million (1.9%), with interest-earning assets decreasing by $27.2 million (1.4%). At both December 31, 2025 and December 31, 2024, interest-earning assets totaled $1.9 billion. Earning assets represented 92.7% of total assets at December 31, 2025 and 92.3% December 31, 2024.

Loan Portfolio

Loans receivable, net of deferred fees and costs totaled $1.45 billion at December 31, 2025 and $1.51 billion at December 31, 2024. The loan portfolio, which is the Company’s largest asset, is the primary source of both interest and fee income. The Company’s lending strategy emphasizes quality loan growth, product diversification, and competitive and profitable pricing.

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

Our total commercial real estate portfolio (which includes but is not limited to loans secured by office space, medical office space, and mixed-use retail/office space) totaled $555.6 million as of December 31, 2025, compared to $551.7 million as of December 31, 2024. Given prevailing market conditions such as continued elevated interest rate levels and reduced occupancy as a result of the increase in hybrid work arrangements, we are carefully monitoring these loans for signs of deterioration in credit quality.

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Commercial real estate loans remained our largest loan segment and accounted for 38.3% of the total loan portfolio at December 31, 2025 and 36.6% at December 31, 2024. A further breakdown of the composition of the commercial real estate loan portfolio as of December 31, 2025 and December 31, 2024 is shown in the table below:

The Bank’s Appraisal Policy and Procedures is Board approved annually and reflects current regulatory guidelines and recommendations. As one of the primary factors in commercial loan underwriting is the quality of the asset being pledged as collateral, it is imperative that the appraisal process receive appropriate attention. Appraisals must be prepared in accordance with high professional standards, by appraisers who have the necessary training, experience and knowledge for them to provide an accurate estimate of value. With few exceptions, appraisals are assigned to fee appraisers named in the Board approved appraiser list, which includes the tracking of all required certifications, licenses and insurance. The Bank has engaged with one of the nation’s longest-standing third-party appraisal management companies for ordering, management, fulfillment and review of real estate appraisals and other valuation-related services for the properties securing the Bank’s commercial real estate loans.

Criteria that may require the Bank to obtain a new appraisal or update the existing value for an existing credit include but are not limited to a change in the discount or capitalization rates for a particular location or property type; occupancy or

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