Finward BancorpFNWD
Finward Bancorp Income Taxes Disclosure
Income Taxes
Pre-tax income is entirely related to domestic activities, the Company did not have any foreign operations.
At year-end, components of income tax expense (benefit) consist of the following:
| (Dollars in thousands) | 2025 | 2024 | |||||||||
| Current income tax expense: | |||||||||||
Federal | $ | 225 | $ | 309 | |||||||
State | 345 | 371 | |||||||||
Total current expense | 570 | 680 | |||||||||
| Deferred income tax (benefit) expense: | |||||||||||
Federal | (418) | 622 | |||||||||
State | (138) | 22 | |||||||||
Total deferred (benefit) expense | (556) | 644 | |||||||||
| Change in valuation allowance | 9 | 1 | |||||||||
| Total income tax expense (benefit) | $ | 23 | $ | 1,325 | |||||||
The Company did not have any income tax expense (benefit) in foreign jurisdictions.
Effective tax rates differ from the federal statutory rate of 21% for 2025 and 2024 applied to income before income taxes due to the following:
| 2025 | 2024 | ||||||||||||||||||||||
| (Dollars in thousands) | Amount | % of Pre-tax Income | Amount | % of Pre-tax Income | |||||||||||||||||||
| U.S. federal statutory income tax | $ | 1,703 | 21.0 | % | $ | 2,826 | 21.0 | % | |||||||||||||||
State and local income tax, net of federal income tax benefit(1) | 170 | 2.1 | 311 | 2.3 | |||||||||||||||||||
| Tax credits: | |||||||||||||||||||||||
Low income housing tax credits(2) | (23) | (0.3) | (12) | (0.1) | |||||||||||||||||||
New markets tax credits(3) | (479) | (5.9) | (474) | (3.5) | |||||||||||||||||||
| Changes in valuation allowances | 9 | 0.1 | 1 | — | |||||||||||||||||||
| Nontaxable or nondeductible items: | |||||||||||||||||||||||
Tax-exempt income, net | (1,181) | (14.6) | (1,249) | (9.3) | |||||||||||||||||||
Bank owned life insurance | (290) | (3.6) | (171) | (1.3) | |||||||||||||||||||
Other nondeductible items | 14 | 0.2 | 45 | 0.3 | |||||||||||||||||||
Share-based compensation(4) | 111 | 1.4 | 48 | 0.4 | |||||||||||||||||||
| Other, net | (11) | (0.1) | - | — | |||||||||||||||||||
| Income tax expense (benefit) at effective tax rate | $ | 23 | 0.3 | % | $ | 1,325 | 9.8 | % | |||||||||||||||
(1) State taxes in Illinois make up the majority (greater than 50%) of the tax effect in this category.
(2) Net of amortization and tax losses.
(3) Net of basis reduction.
(4) Share-based compensation includes any excess benefits or shortfalls from vestings and exercises.
Income taxes paid were as follows:
| (Dollars in thousands) | 2025 | 2024 | |||||||||
| Federal | $ | - | $ | - | |||||||
| State and local: | |||||||||||
Illinois | 150 | 405 | |||||||||
Indiana | - | 10 | |||||||||
| Total income taxes paid | $ | 150 | $ | 415 | |||||||
At December 31, the components of the net deferred tax asset recorded in other assets in the consolidated balance sheets are as follows:
| (Dollars in thousands) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
Allowance for credit losses | $ | 5,024 | $ | 5,128 | |||||||
Deferred compensation | 331 | 374 | |||||||||
Unrealized depreciation on securities available-for-sale | 13,139 | 18,319 | |||||||||
Net operating loss | 5,748 | 6,120 | |||||||||
Tax credits | 926 | 673 | |||||||||
Nonaccrual loan interest income | 214 | 173 | |||||||||
Share-based compensation | 131 | 267 | |||||||||
Unqualified deferred compensation plan | 50 | 60 | |||||||||
Accrued compensation | 301 | 241 | |||||||||
Purchase accounting | 693 | 548 | |||||||||
Deferred loan costs, net of fees | 472 | 432 | |||||||||
Lease liability | 3,791 | 3,916 | |||||||||
Capital loss carryforward | 378 | - | |||||||||
Other | 100 | 213 | |||||||||
| Total deferred tax assets | 31,298 | 36,464 | |||||||||
| Deferred tax liabilities: | |||||||||||
Depreciation | (568) | (874) | |||||||||
Prepaid expenses | (479) | (480) | |||||||||
Mortgage servicing rights | (187) | (217) | |||||||||
Deferred stock dividends | (122) | (122) | |||||||||
Goodwill | (783) | (701) | |||||||||
Partnership | (138) | (254) | |||||||||
Lease right of use | (3,929) | (4,124) | |||||||||
REIT spillover dividends | (134) | (125) | |||||||||
Other | (64) | (49) | |||||||||
| Total deferred tax liabilities | (6,404) | (6,946) | |||||||||
| Valuation allowance | (72) | (63) | |||||||||
| Net deferred tax asset | $ | 24,822 | $ | 29,455 | |||||||
At December 31, 2025, the Company has Indiana net operating loss carry forwards of approximately $5.6 million which will begin to expire in 2038 if not used. The Company also has a state tax credit carry forward of approximately $72 thousand which expire from 2026 to 2034. Management has concluded that the state net operating losses will be fully utilized and therefore no valuation allowance is necessary on the state net operating loss. A valuation allowance is in place on the state tax credit carryforward, as it is not expected to be utilized before expiration. A valuation allowance of $72 thousand and $63 thousand was provided at December 31, 2025 and 2024, respectively for the state tax credits net of federal benefit.
The Company acquired $3.3 million of federal net operating loss carryforwards and $7.2 million of Illinois net operating loss carryforwards with the acquisition of First Personal Financial Corp during 2018 of which $2.2 million of the federal losses expire in years ranging from 2029 to 2035, $1.1 million of the federal losses do not expire, and the Illinois losses expire in years ranging from 2028 to 2036. Under Section 382 of the Internal Revenue Code, the annual limitation on the use of the federal losses is $362 thousand for First Personal while there is no limitation on the use of the Illinois losses. Management has determined that all of the losses are more likely than not to be utilized before expiration.
The Company acquired $7.2 million of federal net operating loss carryforwards and $11.4 million of Illinois net operating loss carryforwards with the acquisition of AJS Bancorp Inc. during 2019 of which $3.6 million of the federal losses expire in years ranging from 2030 to 2037, $3.6 million of the federal losses do not expire, and the Illinois losses
expire in years ranging from 2029 to 2037. Under Section 382 of the Internal Revenue Code, the annual limitation on the use of the federal losses is $834 thousand for AJS, while there is no limitation on the use of the Illinois losses. Management has determined that all of the losses are more likely than not to be utilized before expiration.
The Company acquired $3.3 million of federal net operating loss carryforwards and $57.4 million of Illinois net operating loss carryforwards with the acquisition of Royal Financial, Inc. during 2022 of which $2.7 million of the federal losses expire in years ranging from 2030 to 2036, $623 thousand of the federal losses do not expire, and the Illinois losses expire in years ranging from 2026 to 2032. Under Section 382 of the Internal Revenue Code, the annual limitation on the use of the federal losses is $755 thousand for Royal, while there is no limitation on the use of the Illinois losses. Management has determined that all of the losses are more likely than not to be utilized before expiration.
At December 31, 2025 $2.4 million of the federal loss carryforwards, $67.1 million of the Illinois loss carryforward remain and $5.6 million of Indiana loss carryforwards remain; the benefit of which is reflected in deferred tax assets.
The Company qualified under provisions of the Internal Revenue Code, to deduct from taxable income a provision for bad debts in excess of both the provision for such losses charged to income in the financial statements, if any. Accordingly, retained earnings at December 31, 2025 and 2024 includes, approximately $14.5 million, for which no provision for federal income taxes has been made. If, in the future this portion of retained earnings is used for any purpose other than to absorb bad debt losses, federal income taxes would be imposed at the then applicable rate. The unrecorded deferred income tax liability on the above amounts was approximately $3.8 million at December 31, 2025 and 2024.
The Company had no unrecognized tax benefits at any time during 2025 or 2024 and does not anticipate any significant increase or decrease in unrecognized tax benefits during 2026. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Company's policy to record such accruals through income tax accounts; no such accruals existed at any time during 2025 or 2024.
The Company and its subsidiaries are subject to US Federal income tax as well as income tax of the states of Indiana and Illinois. The Company is no longer subject to examination by taxing authorities for the years before 2022.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 25, 2026 | Showing above |
| 2024 | Mar 31, 2025 | |
| 2023 | Mar 28, 2024 | |
| 2022 | Mar 30, 2023 | |
| 2021 | Mar 30, 2022 | |
| 2020 | Mar 22, 2021 | |
| 2019 | Mar 16, 2020 | |
| 2018 | Mar 5, 2019 | |
| 2017 | Feb 20, 2018 | |
| 2016 | Feb 27, 2017 | |
| 2015 | Feb 22, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.