UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended ~~September 30, 2018~~March 31, 2019 or

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from ______ to ______

Commission File Number: 0-26128

NorthWest Indiana Bancorp

(Exact name of registrant as specified in its charter)

Indiana		35-1927981
(State or other jurisdiction of incorporation		(I.R.S. Employer Identification Number)
or organization)

9204 Columbia Avenue
Munster, Indiana		46321
(Address of principal executive offices)		(ZIP code)

Registrant's telephone number, including area code:(219) 836-4400

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesxNo¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yesx No¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer¨Accelerated filerxNon-accelerated filer¨

Smaller Reporting CompanyxEmerging growth company¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨Nox

There were ~~3,029,157~~3,452,199 shares of the registrant’s Common Stock, without par value, outstanding at ~~November 2, 2018.~~April 19, 2019.

NorthWest Indiana Bancorp

Index

		Page
		Number
PART I. Financial Information

Item 1.	Unaudited Financial Statements and Notes	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3533

Item 4.	Controls and Procedures	3533

PART II. Other Information	3634

SIGNATURES	3735

EXHIBITS
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1 Section 1350 Certifications
101 XBRL Interactive Data File

NorthWest Indiana Bancorp

Consolidated Balance Sheets

	September 30,						March 31,
(Dollars in thousands)	2018			December 31,			2019			December 31,
	(unaudited)			2017			(unaudited)			2018
ASSETS

Cash and non-interest bearing deposits in other financial institutions	$	9,990		$	10,529		$	29,991		$	13,260
Interest bearing deposits in other financial institutions		2,576			139			15,255			3,116
Federal funds sold		1,398			357			15,518			763

Total cash and cash equivalents		13,964			11,025			60,764			17,139

Certificates of deposit in other financial institutions		3,754			1,676			2,215			2,024

Securities available-for-sale		238,071			244,490			251,331			241,768
Loans held-for-sale		4,483			1,592			2,966			2,863
Loans receivable		742,232			620,211			864,995			764,400
Less: allowance for loan losses		(7,749	)		(7,482	)		(8,236	)		(7,962	)
Net loans receivable		734,483			612,729			856,759			756,438
Federal Home Loan Bank stock		3,236			3,000			3,971			3,460
Accrued interest receivable		3,560			3,262			4,062			3,632
Premises and equipment		24,868			19,559			27,933			24,824
Foreclosed real estate		2,125			1,699			1,494			1,627
Cash value of bank owned life insurance		23,007			19,355			29,740			23,142
Goodwill		8,170			2,792			10,744			8,170
Other assets		13,353			6,080			16,374			11,071

Total assets	$	1,073,074		$	927,259		$	1,268,353		$	1,096,158

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Non-interest bearing	$	134,449		$	120,556		$	177,317		$	127,277
Interest bearing		768,307			672,448			924,336			802,509
Total		902,756			793,004			1,101,653			929,786
Repurchase agreements		12,585			11,300			12,691			11,628
Borrowed funds		48,314			20,881			20,000			43,000
Accrued expenses and other liabilities		12,932			10,014			10,762			10,280

Total liabilities		976,587			835,199			1,145,106			994,694

Stockholders' Equity:
Preferred stock, no par or stated value; 10,000,000 shares authorized, none outstanding		-			-			-			-
Common stock, no par or stated value; 10,000,000 shares authorized; shares issued and outstanding: September 30, 2018 - 3,029,157		-			-
December 31, 2017 - 2,864,507
Common stock, no par or stated value; 10,000,000 shares authorized; shares issued and outstanding: March 31, 2019 - 3,452,199								-			-
December 31, 2018 - 3,029,157
Additional paid-in capital		11,877			4,867			29,490			11,927
Accumulated other comprehensive income/(loss)		(5,992	)		684			237			(2,796	)
Retained earnings		90,602			86,509			93,520			92,333

Total stockholders' equity		96,487			92,060			123,247			101,464

Total liabilities and stockholders' equity	$	1,073,074		$	927,259		$	1,268,353		$	1,096,158

See accompanying notes to consolidated financial statements.

NorthWest Indiana Bancorp

Consolidated Statements of Income

(unaudited)

	Three Months Ended				Nine Months Ended				Three Months Ended
(Dollars in thousands)	September 30,				September 30,				March 31,
	2018		2017		2018		2017		2019		2018
Interest income:
Loans receivable
Real estate loans	$	7,189	$	5,773	$	19,240	$	16,800	$	8,748	$	5,917
Commercial loans		1,266		1,050		3,457		3,116		1,684		1,072
Consumer loans		97		5		106		15		111		5
Total loan interest		8,552		6,828		22,803		19,931		10,543		6,994
Securities		1,709		1,585		5,127		4,801		1,801		1,722
Other interest earning assets		74		18		134		49		143		17

Total interest income		10,335		8,431		28,064		24,781		12,487		8,733

Interest expense:
Deposits		1,018		518		2,531		1,475		1,672		675
Repurchase agreements		47		31		124		80		49		32
Borrowed funds		254		110		682		281		166		191

Total interest expense		1,319		659		3,337		1,836		1,887		898

Net interest income		9,016		7,772		24,727		22,945		10,600		7,835
Provision for loan losses		312		165		950		722		317		341

Net interest income after provision for loan losses		8,704		7,607		23,777		22,223		10,283		7,494

Noninterest income:
Fees and service charges	$	991	$	843	$	2,830	$	2,404	$	1,162	$	892
Wealth management operations		414		459		1,253		1,267		500		415
Gain on sale of securities, net		151		213		1,155		758		352		758
Gain on sale of loans held-for-sale, net		451		412		1,021		883		242		211
Increase in cash value of bank owned life insurance		130		119		358		349		163		108
Gain on sale of foreclosed real estate, net		54		2		154		95		27		32
Other		32		27		104		64		124		33
Total noninterest income	$	2,223	$	2,075	$	6,875	$	5,820	$	2,570	$	2,449

Noninterest expense:
Compensation and benefits	$	4,669	$	4,094	$	12,045	$	10,847	$	4,676	$	3,860
Occupancy and equipment		829		845		2,524		2,542		1,123		853
Data processing		1,012		364		2,076		1,092		703		361
Marketing		223		135		523		469		263		134
Federal deposit insurance premiums		91		84		250		242		91		84
Other		2,233		1,403		5,512		4,061		3,435		1,675
Total noninterest expense	$	9,057	$	6,925	$	22,930	$	19,253	$	10,291	$	6,967

Income before income tax expenses		1,870		2,757		7,722		8,790		2,562		2,976
Income tax expenses		245		509		1,025		1,715		340		415

Net income	$	1,625	$	2,248	$	6,697	$	7,075	$	2,222	$	2,561

Earnings per common share:
Basic	$	0.54	$	0.78	$	2.29	$	2.47	$	0.66	$	0.89
Diluted	$	0.54	$	0.78	$	2.29	$	2.47	$	0.66	$	0.89

Dividends declared per common share	$	0.30	$	0.29	$	0.89	$	0.87	$	0.30	$	0.29

See accompanying notes to consolidated financial statements.

NorthWest Indiana Bancorp

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

	Three Months Ended						Nine Months Ended						Three Months Ended
(Dollars in thousands)	September 30,						September 30,						March 31,
	2018			2017		��	2018			2017			2019			2018

Net income	$	1,625		$	2,248		$	6,697		$	7,075		$	2,222		$	2,561

Net change in net unrealized gains and losses on securities available-for-sale:
Unrealized gains/(losses) arising during the period		(2,071	)		747			(7,301	)		4,193			4,183			(4,350	)
Less: reclassification adjustment for gains included in net income		(151	)		(213	)		(1,155	)		(758	)		(352	)		(758	)
Net securities gain/(loss) during the period		(2,222	)		534			(8,456	)		3,435			3,831			(5,108	)
Tax effect		467			(183	)		1,780			(1,169	)		(798	)		1,076
Net of tax amount		(1,755	)		351			(6,676	)		2,266			3,033			(4,032	)

Other comprehensive income/(loss), net of tax														3,033			(4,032	)

Comprehensive income/(loss), net of tax	$	(130	)	$	2,599		$	21		$	9,341		$	5,255		$	(1,471	)

See accompanying notes to consolidated financial statements.

NorthWest Indiana Bancorp

Consolidated Statements of Changes in Stockholders' Equity

(unaudited)

Three Months Ended Nine Months Ended
(Dollars in thousands) September 30, September 30,
2018 2017 2018 2017

Balance at beginning of period $ 90,577 $ 89,308 $ 92,060 $ 84,108

Comprehensive income:
Net income 1,625 2,248 6,697 7,075
Net unrealized gains/(losses) on securities available-for-sale, net of reclassifications and tax effects (1,755 ) 351 (6,676 ) 2,266
Comprehensive income, net of tax (130 ) 2,599 21 9,341

Stock based compensation expense 50 51 154 142
Net surrender value of restricted stock awards (27 ) - (72 ) -
Issuance of 161,875 shares at $42.80 per share, for acquisition of First Personal Financial Corporation 6,928 - 6,928 -
Cash dividends (911 ) (831 ) (2,604 ) (2,464 )

Balance at end of period $ 96,487 $ 91,127 $ 96,487 $ 91,127

	Three Months Ended
(Dollars in thousands)	March 31,
	2019			2018

Balance at beginning of period	$	101,464		$	92,060

Comprehensive income:
Net income		2,222			2,561
Net unrealized gains/(losses) on securities
available-for-sale, net of reclassifications and tax effects		3,033			(4,032	)
Comprehensive income, net of tax		5,255			(1,471	)

Stock based compensation expense		71			52
Issuance of 416,478 shares at $42.00 per share, for acquisition of AJS Bancorp, Inc		17,492			-

Cash dividends		(1,035	)		(833	)

Balance at end of period	$	123,247		$	89,808

See accompanying notes to consolidated financial statements.

NorthWest Indiana Bancorp

Consolidated Statements of Cash Flows

(unaudited)

	Nine Months Ended						Three Months Ended
(Dollars in thousands)	September 30,						March 31,
	2018			2017			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,697		$	7,075		$	2,222		$	2,561
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Origination of loans for sale		(41,823	)		(31,599	)		(9,760	)		(8,250	)
Sale of loans originated for sale		39,953			32,659			9,883			8,145
Depreciation and amortization, net of accretion		1,902			1,906			731			650
Amortization of mortgage servicing rights		48			48			17			16
Stock based compensation expense		154			142			71			52
Net surrender value of restricted stock awards		(72	)		-
Gain on sale of securities, net		(1,155	)		(758	)		(352	)		(758	)
Gain on sale of loans held-for-sale, net		(1,021	)		(883	)		(242	)		(211	)
Gain on sale of foreclosed real estate, net		(154	)		(95	)		(27	)		(32	)
Provision for loan losses		950			722			317			341
Net change in:
Interest receivable		(298	)		65			(430	)		210
Other assets		(345	)		(538	)		(50	)		690
Accrued expenses and other liabilities		(2,544	)		372			(964	)		(443	)
Total adjustments		(4,405	)		2,041			(806	)		410
Net cash - operating activities		2,292			9,116			1,416			2,971

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of certificates of deposits in other financial institutions		1,150			-			(191	)		150
Proceeds from maturities and pay downs of securities available-for-sale		17,747			18,887			5,704			5,313
Proceeds from sales of securities available-for-sale		29,049			48,063			13,518			14,668
Purchase of securities available-for-sale		(48,464	)		(73,503	)		(21,424	)		(21,604	)
Loan participations purchased		-			(362	)
Net change in loans receivable		(28,385	)		(25,260	)		(12,985	)		(5,430	)
Purchase of Federal Home Loan Bank Stock		(17	)		-
Purchase of premises and equipment, net		(624	)		(1,373	)		(44	)		(235	)
Proceeds from sale of foreclosed real estate, net		1,273			902			439			552
Cash and cash equivalents from acquisition activity		26,950			-
Cash paid for acquisition		(8,689	)		-
Cash and cash equivalents from acquisition activity, net								52,560			-
Change in cash value of bank owned life insurance		(358	)		(349	)		(163	)		(108	)
Net cash - investing activities		(10,368	)		(32,995	)		37,414			(6,694	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits		(15,180	)		(22,211	)		27,641			2,369
Proceeds from FHLB advances		62,000			7,000			-			32,000
Repayment of FHLB advances		(44,000	)		(8,000	)		(23,000	)		(19,000	)
Change in other borrowed funds		10,718			18,541			1,063			(1,425	)
Dividends paid		(2,523	)		(2,432	)		(909	)		(831	)
Net cash - financing activities		11,015			(7,102	)		4,795			13,113
Net change in cash and cash equivalents		2,939			(30,981	)		43,625			9,390
Cash and cash equivalents at beginning of period		11,025			45,109			17,139			11,025
Cash and cash equivalents at end of period	$	13,964		$	14,128		$	60,764		$	20,415

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	3,258		$	1,832		$	1,907		$	873
Income taxes		1,080			1,355			-			-
Acquisition activity:
Fair value of assets acquired, including cash and cash equivalents	$	137,449		$	-		$	172,925		$	-
Value of goodwill and other intangible assets		8,481			-			5,491			-
Fair value of liabilities assumed		130,313			-			145,546			-
Cash paid for acquisition		8,689			-			15,378			-
Issuance of common stock for acquisition		6,928			-			17,492			-
Noncash activities:
Transfers from loans to foreclosed real estate	$	253		$	51		$	193		$	253

See accompanying notes to consolidated financial statements.

NorthWest Indiana Bancorp

Notes to Consolidated Financial Statements

(unaudited)

Note 1 - Basis of Presentation

The consolidated financial statements include the accounts of NorthWest Indiana Bancorp (the “Bancorp” or “NWIN”), its wholly-owned subsidiaries NWIN Risk Management, Inc. (a captive insurance subsidiary) and Peoples Bank SB (the “Bank”), and the Bank’s wholly-owned subsidiaries, Peoples Service Corporation, NWIN, LLC, NWIN Funding, Incorporated, and Columbia Development Company, LLC. The Bancorp’s business activities include being a holding company for the Bank as well as a holding company for NWIN Risk Management, Inc. The Bancorp’s earnings are primarily dependent upon the earnings of the Bank. The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by U.S. generally accepted accounting principles for complete presentation of consolidated financial statements. In the opinion of management, the consolidated financial statements contain all adjustments necessary to present fairly the consolidated balance sheets of the Bancorp as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, and the consolidated statements of income, comprehensive income, and changes in stockholders’ equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ and consolidated statements of cash flows for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018. The income reported for the ~~nine~~three month period ended ~~September 30, 2018~~March 31, 2019 is not necessarily indicative of the results to be expected for the full year.

Note 2 - Use of Estimates

Preparing financial statements in conformity with U.S. generally accepted accounting principles 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period, as well as the disclosures provided. Actual results could differ from those estimates. Estimates associated with the allowance for loan losses, fair values of foreclosed real estate, loan servicing rights, investment securities, deferred tax assets, goodwill, and the status of contingencies are particularly susceptible to material change in the near term.

Note 3 - Acquisition Activity

On July 26, 2018, the Bancorp completed its ~~previously announced~~ acquisition of First Personal Financial Corp., a Delaware corporation (“First Personal”), pursuant to an Agreement and Plan of Merger dated February 20, 2018 ~~(the “First Personal Merger Agreement”)~~ between ~~NWIN~~the Bancorp and First Personal. Pursuant to the terms of the First Personal Merger Agreement, First Personal merged with and into ~~NWIN,~~the Bancorp, with ~~NWIN~~the Bancorp as the surviving ~~corporation (the “First Personal Merger”).~~corporation. Simultaneous with the First Personal Merger, First Personal Bank, an Illinois state chartered commercial bank and wholly-owned subsidiary of First Personal, merged with and into ~~Peoples~~the Bank, ~~SB (“Peoples Bank”),~~ with ~~Peoples~~the Bank as the surviving ~~bank.~~institution.

In connection with the First Personal Merger, each First Personal stockholder holding 100 or more shares of First Personal common stock received fixed consideration of (i) 0.1246 shares of ~~NWIN~~Bancorp common stock, and (ii) $6.67 per share in cash for each outstanding share of First ~~Personal’s~~Personal common stock. Stockholders holding less than 100 shares of First Personal common stock received $12.12 in cash and no stock consideration for each outstanding share of First Personal common stock. Any fractional shares of ~~NWIN~~Bancorp common stock that a First Personal stockholder would have otherwise received in the First Personal Merger were cashed out in the amount of such fraction multiplied by $42.95.

~~NWIN~~The Bancorp issued a total of approximately 161,875 shares of ~~NWIN~~Bancorp common stock to the former First Personal stockholders, and paid cash consideration of approximately $8.7 million. Based upon the closing price of ~~NWIN~~Bancorp’s common stock on July 25, 2018, the transaction had an implied valuation of approximately $15.6 million.

As of ~~the closing date of~~March 31, 2019, acquisition costs related to the First Personal Merger ~~First Personal reported total assets of $138.9 million, total loans of $98.0 million,~~equaled approximately $1.8 million. The acquisition represented the Bank’s first expansion into the South Suburban Chicagoland market, and ~~total deposits of $125.1 million.~~expanded the Bank’s full-service retail banking network to 19 banking centers. Additionally, upon the closing of the merger the three former First Personal Bank branches in Cook County, Illinois became branches of Peoples Bank, thereby expanding the Peoples Bank branch network into Illinois.

~~Consideration paid for~~Under the ~~First Personal~~ acquisition ~~included $8.7 million~~method of ~~cash~~accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the ~~issuance~~date of ~~$6.9 million of NWIN stock in exchange for First Personal common stock.~~the acquisition. Based on preliminary valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the final purchase price for the First Personal acquisition added assets with fair values of approximately $140.5 million, including loans with a fair market value of approximately 94.6 million, and liabilities with a fair market value of approximately $130.3 million, including deposits with a fair market value of approximately $124.9 million. The amount of consideration paid, less the net fair value of assets and liabilities, resulted in goodwill of $5.4 million.

is allocated as follows:

ASSETS
Cash and due from banks	$	30,178
Investment securities, available for sale		2

Commercial		53,026
Residential mortgage		32,542
Consumer		9,004
Total Loans		94,572

Premises and equipment, net		5,799
FHLB stock		219
Goodwill		5,437
Core deposit intangible		3,044
Interest receivable		274
Other assets		6,405
Total assets purchased	$	145,930
Common shares issued		6,928
Cash paid		8,689
Total purchase price	$	15,617

LIABILITIES
Deposits
Non-interest bearing	$	14,517
NOW accounts		22,177
Savings and money market		41,852
Certificates of deposits		46,355
Total Deposits		124,901


Borrowings		4,124
Interest payable		32
Other liabilities		1,256






Total liabilities assumed	$	130,313

As part of the First Personal merger, the Bancorp acquired First Personal Statutory Trust I. NWIN guaranteed the payment of distributions on the trust preferred securities issued by First Personal Statutory Trust I. First Personal Statutory Trust I issued $4.124 million in trust preferred securities in May 2004. The trust preferred securities carried a variable rate of interest priced at the three-month LIBOR plus 275 basis points, payable quarterly and due to mature on June 17, 2034. Management of the Bancorp determined that the continued maintenance of the trust preferred securities issued by First Personal Statutory Trust I and the corresponding junior subordinated debentures was unnecessary to the Bancorp’s ongoing operations. As a result, the Bancorp’s board of directors approved the redemption of the junior subordinated debentures, which resulted in the trustee of the First Personal Statutory Trust I redeeming all $4.124 million of the trust preferred securities as of December 17, 2018.

Final estimates of fair value on the date of acquisition have not been finalized yet. Prior to the end of the one year measurement period for finalizing the purchase price allocation, if information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be included in the purchase price allocation prospectively. If any adjustments are made to the preliminary assumptions (provisional amounts), disclosures will be made in the notes to the financial statements of the amounts recorded in the current period earnings by line item that have been recorded in previous reporting periods if the adjustments to the provisional amounts had been recognized as of the acquisition date.

On ~~July 30, 2018, NorthWest Indiana~~January 24, 2019, the Bancorp ~~entered into an Agreement and Plan~~completed its previously announced acquisition of ~~Merger (the “AJSB Merger Agreement”) with~~ AJS Bancorp, Inc., a Maryland corporation (“AJSB”)., pursuant to an Agreement and Plan of Merger dated July 30, 2018 between the Bancorp and AJSB. Pursuant to the terms of the AJSB Merger Agreement, AJSB ~~will merge~~merged with and into NWIN, with NWIN as the surviving ~~corporation (the “AJSB Merger”).~~corporation. Simultaneously with the AJSB Merger, A.J. Smith Federal Savings Bank, a federally chartered savings bank and wholly-owned subsidiary of AJSB, ~~(“ AJS Bank”), will merge~~merged with and into Peoples Bank SB, with Peoples Bank as the surviving bank.

The boards of directors of each of NWIN and AJSB have approved the AJSB Merger and the AJSB Merger Agreement. Subject to the approval of the AJSB Merger by AJSB’s stockholders, regulatory approvals, and other customary closing conditions, the parties anticipate completing the AJSB Merger early in the first quarter of 2019.

~~Upon completion of~~In connection with the AJSB Merger, each AJSB stockholder ~~who holds~~holding 100 or more shares of AJSB common stock ~~will have the right to receive~~received fixed consideration of (i) 0.2030 shares of NWIN common stock, and (ii) $7.20 per share in cash for each outstanding share of AJSB’s common ~~stock, subject to adjustment as provided in the AJSB Merger Agreement.~~stock. Stockholders holding less than 100 shares of AJSB common stock ~~will have the right to receive~~received $16.00 in cash and no stock consideration for each outstanding share of AJSB common stock. Any fractional shares of NWIN common stock that an AJSB stockholder would have otherwise received in the AJSB Merger were cashed out in the amount of such fraction multiplied by $43.01.

The Bancorp issued 416,478 shares of Bancorp common stock to the former AJSB ~~has a home office~~stockholders, and ~~two branch offices~~paid cash consideration of approximately $15.4 million. Based upon the closing price of NWIN’s common stock on January 23, 2019, the transaction had an implied valuation of approximately $32.9 million, which includes unallocated shares held by the AJSB Employee Stock Ownership Plan (“ESOP”), some of which were cancelled in ~~Cook County, Illinois.~~connection with the closing to satisfy the ESOP’s outstanding loan balance. As of ~~September 30, 2018, AJS Bank reported total assets of $182.9 million, total loans of $96.8 million, and total deposits of $153.5~~March 31, 2019, acquisition costs related to the AJSB Merger equaled approximately $2.1 million. The ~~combined bank is expected to have approximately $1.3 billion in total assets, $839.0 million in total loans, and $1.1 billion in deposits. The~~ acquisition ~~will~~ further ~~expand~~expanded the Bank’s banking center network in Cook County, ~~Illinois.~~Illinois, expanding the Bank’s full-service retail banking network to 22 banking centers.

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on preliminary valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the final purchase price for the AJSB acquisition is allocated as follows:

ASSETS
Cash and due from banks	$	67,938
Investment securities, available for sale		3,432

Commercial		712
Residential mortgage		85,635
Multifamily		1,442
Consumer		57
Total Loans		87,846

Premises and equipment, net		3,542
FHLB stock		512
Goodwill		2,574
Core deposit intangible		2,917
Interest receivable		351
Other assets		9,304
Total assets purchased	$	178,416
Common shares issued		17,492
Cash paid		15,378
Total purchase price	$	32,870

LIABILITIES
Deposits
Non-interest bearing	$	24,502
NOW accounts		10,712
Savings and money market		68,875
Certificates of deposits		40,137
Total Deposits		144,226


Interest payable		50
Other liabilities		1,270








Total liabilities assumed	$	145,546

Note 4 – Securities

The estimated fair value of available-for-sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:

(Dollars in thousands)
Gross Gross Estimated
Cost Unrealized Unrealized Fair
September 30, 2018 Basis Gains Losses Value
Money market fund $ 2,018 $ - $ - $ 2,018
U.S. government sponsored entities 9,997 - (229 ) 9,768
Collateralized mortgage obligations and residential mortgage-backed securities 137,628 7 (4,965 ) 132,670
Municipal securities 92,519 446 (1,549 ) 91,416
Collateralized debt obligations 3,494 - (1,295 ) 2,199
Total securities available-for-sale $ 245,656 $ 453 $ (8,038 ) $ 238,071

	(Dollars in thousands)
			Gross		Gross			Estimated
	Cost		Unrealized		Unrealized			Fair
March 31, 2019	Basis		Gains		Losses			Value

Money market fund	$	4,254	$	-	$	-		$	4,254
U.S. treasury securities		594		-		-			594
U.S. government sponsored entities		14,989		40		(76	)		14,953
Collateralized mortgage obligations and residential mortgage-backed securities		143,327		443		(1,164	)		142,606
Municipal securities		84,407		2,478		(40	)		86,845
Collateralized debt obligations		3,469		-		(1,390	)		2,079
Total securities available-for-sale	$	251,040	$	2,961	$	(2,670	)	$	251,331

	(Dollars in thousands)									(Dollars in thousands)
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Cost		Unrealized		Unrealized			Fair		Cost		Unrealized		Unrealized			Fair
December 31, 2017	Basis		Gains		Losses			Value
December 31, 2018										Basis		Gains		Losses			Value

Money market fund	$	476	$	-	$	-		$	476	$	2,480	$	-	$	-		$	2,480
U.S. treasury securities
U.S. government sponsored entities		3,996		-		(106	)		3,890		7,997		28		(131	)		7,894
Collateralized mortgage obligations and residential mortgage-backed securities		134,224		170		(1,456	)		132,938		137,834		135		(2,688	)		135,281
Municipal securities		100,088		3,709		(50	)		103,747		93,516		1,072		(524	)		94,064
Collateralized debt obligations		4,835		-		(1,396	)		3,439		3,481		-		(1,432	)		2,049
Total securities available-for-sale	$	243,619	$	3,879	$	(3,008	)	$	244,490	$	245,308	$	1,235	$	(4,775	)	$	241,768

The estimated fair value of available-for-sale debt securities at ~~September 30, 2018,~~March 31, 2019, by contractual maturity, were as follows. Securities not due at a single maturity date, primarily collateralized mortgage obligations and residential mortgage-backed securities, are shown separately.

	(Dollars in thousands)				(Dollars in thousands)
	Available-for-sale				Available-for-sale
	Estimated				Estimated
	Fair		Tax-Equivalent		Fair		Tax-Equivalent
September 30, 2018	Value		Yield (%)
March 31, 2019					Value		Yield (%)
Due in one year or less	$	2,689		5.48	$	4,913		6.30
Due from one to five years		8,580		3.18		7,233		3.21

Due from five to ten years		16,972		4.03		16,593		3.86
Due over ten years		77,160		4.09		79,986		4.10

Collateralized mortgage obligations and residential mortgage-backed securities		132,670		2.76		142,606		2.80
Total	$	238,071		3.32	$	251,331		3.37

Sales of available-for-sale securities were as follows for the ~~nine~~three months ended:

	(Dollars in thousands)						(Dollars in thousands)
	September 30,			September 30,			March 31,			March 31,
	2018			2017			2019			2018

Proceeds	$	29,049		$	48,063		$	13,518		$	14,668
Gross gains		1,159			848			356			758
Gross losses		(4	)		(90	)		(4	)		-

Accumulated other comprehensive income/(loss) balances, net of tax, related to available-for-sale securities, were as follows:

(Dollars in thousands)
Unrealized
gain/(loss)
Ending balance, December 31, 2017 $ 684
Current period change (6,676 )
Ending balance, September 30, 2018 $ (5,992 )

	(Dollars in thousands)
	Unrealized gain/(loss)
Ending balance, December 31, 2018	$	(2,796	)
Current period change		3,033
Ending balance, March 31, 2019	$	237

Securities with carrying values of approximately ~~$13.4~~$83.3 million and ~~$21.2~~$16.3 million were pledged as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively, as collateral for repurchase agreements, public funds, and for other purposes as permitted or required by law. The increase in pledged securities for March 31, 2019, was the result of new pledging requirements for Indiana public funds deposits.

Securities with gross unrealized losses at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 not recognized in income are as follows:

	(Dollars in thousands)															(Dollars in thousands)
	Less than 12 months					12 months or longer					Total					Less than 12 months				12 months or longer					Total
	Estimated					Estimated					Estimated					Estimated				Estimated					Estimated
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized		Fair		Unrealized			Fair		Unrealized
September 30, 2018	Value		Losses			Value		Losses			Value		Losses
March 31, 2019																Value		Losses		Value		Losses			Value		Losses

U.S. government sponsored entities	$	3,812	$	(185	)	$	5,956	$	(44	)	$	9,768	$	(229	)	$	-	$	-	$	6,920	$	(76	)	$	6,920	$	(76	)
Collateralized mortgage obligations and residential mortgage-backed securities		61,506		(3,133	)		70,448		(1,832	)		131,954		(4,965	)		-		-		97,654		(1,164	)		97,654		(1,164	)
Municipal securities		1,683		(177	)		51,144		(1,372	)		52,827		(1,549	)		-		-		3,102		(40	)		3,102		(40	)
Collateralized debt obligations		-		-			2,199		(1,295	)		2,199		(1,295	)		-		-		2,079		(1,390	)		2,079		(1,390	)
Total temporarily impaired	$	67,001	$	(3,495	)	$	129,747	$	(4,543	)	$	196,748	$	(8,038	)	$	-	$	-	$	109,755	$	(2,670	)	$	109,755	$	(2,670	)
Number of securities				52					128					180					0				84					84

	(Dollars in thousands)															(Dollars in thousands)
	Less than 12 months					12 months or longer					Total					Less than 12 months					12 months or longer					Total
	Estimated					Estimated					Estimated					Estimated					Estimated					Estimated
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
December 31, 2017	Value		Losses			Value		Losses			Value		Losses
December 31, 2018																Value		Losses			Value		Losses			Value		Losses

U.S. government sponsored entities	$	-	$	-		$	3,890	$	(106	)	$	3,890	$	(106	)	$	-	$	-		$	3,866	$	(131	)	$	3,866	$	(131	)
Collateralized mortgage obligations and residential mortgage-backed securities		66,917		(511	)		37,003		(945	)		103,920		(1,456	)		28,388		(304	)		89,234		(2,384	)		117,622		(2,688	)
Municipal securities		1,790		(3	)		1,815		(47	)		3,605		(50	)		22,678		(367	)		3,495		(157	)		26,173		(524	)
Collateralized debt obligations		-		-			3,439		(1,396	)		3,439		(1,396	)		-		-			2,049		(1,432	)		2,049		(1,432	)
Total temporarily impaired	$	68,707	$	(514	)	$	46,147	$	(2,494	)	$	114,854	$	(3,008	)	$	51,066	$	(671	)	$	98,644	$	(4,104	)	$	149,710	$	(4,775	)
Number of securities				40					37					77					52					75					127

Unrealized losses on securities have not been recognized into income because the securities are of high credit quality or have undisrupted cash flows. Management has the intent and ability to hold those securities for the foreseeable future, and the decline in fair value is largely due to changes in interest rates and volatility in securities markets. The fair values are expected to recover as the securities approach maturity.

Note 5 - Loans Receivable

Loans receivable are summarized below:

~~(Dollars in thousands)~~

(Dollars in thousands)
	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Loans secured by real estate:
Residential real estate		221,054			172,780		$	303,111		$	224,082
Home equity		43,175			36,718			49,658			45,423
Commercial real estate		243,304			211,090			265,013			253,104
Construction and land development		54,755			50,746			66,920			64,433
Multifamily								49,316			47,234
Farmland		242			-			236			240
Multifamily		45,752			43,369
Total loans secured by real estate		608,282			514,703			734,254			634,516
Commercial business								103,734			103,628
Consumer		5,633			460			6,713			5,293
Commercial business		102,820			77,122
Government		25,763			28,785			19,591			21,101
Subtotal		742,498			621,070			864,292			764,538
Less:
Net deferred loan origination fees		(188	)		(130	)		844			530
Undisbursed loan funds		(78	)		(729	)		(141	)		(668	)
Loans receivable	$	742,232		$	620,211		$	864,995		$	764,400

(Dollars in thousands)	Beginning Balance		Charge-offs			Recoveries		Provisions			Ending Balance			Beginning Balance		Charge-offs			Recoveries		Provisions			Ending Balance

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended September 30, 2018:
The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended March 31, 2019:													The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended March 31, 2019:

Allowance for loan losses:
Residential real estate	$	1,523	$	(30	)		-	$	82		$	1,575		$	1,715	$	(48	)	$	14	$	(1	)	$	1,680
Home equity		183		-			-		10			193			202		-			-		(8	)		194
Commercial real estate		3,170		-			22		48			3,240			3,335		-			-		150			3,485
Construction and land development		611		-			-		(32	)		579			756		-			-		21			777
Multifamily		607		-			-		(150	)		457			472		-			-		(38	)		434
Farmland		4		-			-		(1	)		3			-		-			-		-			-
Commercial business															1,362		-			6		23			1,391
Consumer		36		(19	)		8		298			323			82		(18	)		3		187			254
Commercial business		1,264		-			8		61			1,333
Government		50		-			-		(4	)		46			38		-			-		(17	)		21
Total	$	7,448	$	(49	)	$	38	$	312		$	7,749		$	7,962	$	(66	)	$	23	$	317		$	8,236

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended September 30, 2017:
The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended March 31, 2018:													The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended March 31, 2018:

Allowance for loan losses:
Residential real estate	$	1,561	$	(10	)	$	3	$	17		$	1,571		$	1,568	$	(68	)	$	-	$	(7	)	$	1,493
Home equity		76		(35	)		-		41			82			166		(19	)		-		12			159
Commercial real estate		2,890		-			-		28			2,918			3,125		(119	)		-		(10	)		2,996
Construction and land development		600		-			-		(30	)		570			618		-			-		43			661
Multifamily		501		-			-		40			541			622		-			-		(7	)		615
Farmland		-		-			-		-			-			-		-			-		4			4
Commercial business															1,298		(526	)		10		295			1,077
Consumer		30		(29	)		7		22			30			31		(8	)		4		8			35
Commercial business		1,357		(120	)		5		49			1,291
Government		58		-			-		(2	)		56			54		-			-		3			57
Total	$	7,073	$	(194	)	$	15	$	165		$	7,059		$	7,482	$	(740	)	$	14	$	341		$	7,097

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the nine months ended September 30, 2018:

Allowance for loan losses:
Residential real estate	$	1,568	$	(136	)	$	-	$	143		$	1,575
Home equity		166		(24	)		-		51			193
Commercial real estate		3,125		(119	)		24		210			3,240
Construction and land development		618		-			-		(39	)		579
Multifamily		622		-			-		(165	)		457
Farmland		-		-			-		3			3
Consumer		31		(41	)		17		316			323
Commercial business		1,298		(529	)		125		439			1,333
Government		54		-			-		(8	)		46
Total	$	7,482	$	(849	)	$	166	$	950		$	7,749

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the nine months ended September 30, 2017:

Allowance for loan losses:
Residential real estate	$	2,111	$	(913	)	$	3	$	370		$	1,571
Home equity		299		(60	)		-		(157	)		82
Commercial real estate		3,113		-			-		(195	)		2,918
Construction and land development		617		-			-		(47	)		570
Multifamily		572		-			-		(31	)		541
Consumer		34		(59	)		11		44			30
Commercial business		896		(365	)		22		738			1,291
Government		56		-			-		-			56
Total	$	7,698	$	(1,397	)	$	36	$	722		$	7,059

The Bancorp's impairment analysis is summarized below:

	Ending Balances													Ending Balances
(Dollars in thousands)	Individually evaluated for impairment reserves		Collectively evaluated for impairment reserves		Loan receivables		Individually evaluated for impairment		Purchased credit impaired individually evaluated for impairment		Collectively evaluated for impairment			ALLL Individually evaluated for impairment reserves		ALLL Collectively evaluated for impairment reserves		Total Loans receivable		Loans receivable Individually evaluated for impairment		Loans receivable Purchased credit impaired individually evaluated for impairment		Loans receivable Collectively evaluated for impairment

The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at September 30, 2018:
The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at March 31, 2019:													The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at March 31, 2019:

Residential real estate	$	20	$	1,555	$	220,862	$	536	$	1,095	$	219,231		$	23		1,657		302,918	$	559	$	1,366	$	300,993
Home equity		9		184		43,234		147		123		42,964			8		186		49,716		136		370		49,210
Commercial real estate		278		2,962		243,304		1,804		1,605		239,895			202		3,283		265,013		1,673		483		262,857
Construction and land development		-		579		54,755		-		-		54,755			-		777		66,920		-		-		66,920
Multifamily		-		457		45,752		-		-		45,752			-		434		49,316		-		716		48,600
Farmland		-		3		242		-		-		242			-		-		236		-		-		236
Commercial business															32		1,359		103,507		416		1,152		101,939
Consumer		-		323		5,633		-		-		5,633			-		254		7,778		-		-		7,778
Commercial business		69		1,264		102,687		473		1,436		100,778
Government		-		46		25,763		-		-		25,763			-		21		19,591		-		-		19,591
Total	$	376	$	7,373	$	742,232	$	2,960	$	4,259	$	735,013		$	265	$	7,971	$	864,995	$	2,784	$	4,087	$	858,124

The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2017:
The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2018:													The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2018:

Residential real estate	$	21	$	1,547	$	172,141	$	462	$	690	$	170,989		$	22		1,693		223,323	$	570	$	980	$	221,773
Home equity		-		166		36,769		-		-		36,769			9		193		45,483		141		123		45,219
Commercial real estate		144		2,981		211,090		512		-		210,578			210		3,125		253,104		1,703		402		250,999
Construction and land development		-		618		50,746		134		-		50,612			-		756		64,433		-		-		64,433
Multifamily		-		622		43,368		-		-		43,368			-		472		47,234		-		-		47,234
Farmland		-		-		-		-		-		-			-		-		240		-		-		240
Commercial business															5		1,357		103,439		423		1,440		101,576
Consumer		-		31		461		-		-		461			-		82		6,043		-		-		6,043
Commercial business		539		759		76,851		724		-		76,127
Government		-		54		28,785		-		-		28,785			-		38		21,101		-		-		21,101
Total	$	704	$	6,778	$	620,211	$	1,832	$	690	$	617,689		$	246	$	7,716	$	764,400	$	2,837	$	2,945	$	758,618

The Bancorp's credit quality indicators are summarized below at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:

Credit Exposure - Credit Risk Portfolio By Creditworthiness Category
September 30, 2018
(Dollars in thousands) 2 3 4 5 6 7 8
Loan Segment Moderate Above average
acceptable Acceptable Marginally
acceptable Pass/monitor Special
mention Substandard Total
Residential real estate $ 143 $ 55,619 $ 99,366 $ 8,920 $ 47,779 $ 4,685 $ 4,350 $ 220,862
Home equity 108 4,552 37,472 - 126 544 432 43,234
Commercial real estate - 6,133 80,598 102,712 46,018 5,972 1,871 243,304
Construction and land development - 330 22,127 22,895 9,403 - - 54,755
Multifamily - 574 19,575 23,686 1,763 154 - 45,752
Farmland - - - - 242 - - 242
Commercial business 9,872 22,398 22,229 31,540 12,724 3,144 780 102,687
Consumer 794 3,007 678 221 913 20 - 5,633
Government - 2,111 18,707 4,945 - - - 25,763
Total $ 10,917 $ 94,724 $ 300,752 $ 194,919 $ 118,968 $ 14,519 $ 7,433 $ 742,232

December 31, 2017
2 3 4 5 6 7 8
Loan Segment Moderate Above average
acceptable Acceptable Marginally
acceptable Pass/monitor Special
mention Substandard Total
Residential real estate $ 887 $ 12,317 $ 92,241 $ 8,759 $ 50,075 $ 4,130 $ 3,732 $ 172,141
Home equity - 1,065 34,871 - 250 233 350 36,769
Commercial real estate - 2,372 79,847 81,547 40,054 6,758 512 211,090
Construction and land development - - 20,719 19,583 10,310 - 134 50,746
Multifamily - - 20,159 20,965 2,076 168 - 43,368
Farmland - - - - - - - -
Commercial business 7,169 17,202 16,784 21,087 13,041 394 1,174 76,851
Consumer - 131 330 - - - - 461
Government - 2,318 20,202 6,265 - - - 28,785
Total $ 8,056 $ 35,405 $ 285,153 $ 158,206 $ 115,806 $ 11,683 $ 5,902 $ 620,211

	Credit Exposure - Credit Risk Portfolio By Creditworthiness Category
	March 31, 2019
(Dollars in thousands)	2		3		4		5		6		7		8

Loan Segment	Moderate		Above average acceptable		Acceptable		Marginally acceptable		Pass/monitor		Special mention		Substandard		Total
Residential real estate	$	862	$	116,851	$	103,661	$	13,038	$	58,546		4,466		5,494	$	302,918
Home equity		62		7,486		39,164		345		1,235		866		558		49,716
Commercial real estate		-		5,186		75,157		123,162		55,123		4,556		1,829		265,013
Construction and land development		-		316		22,989		32,640		10,975		-		-		66,920
Multifamily		-		948		19,537		25,117		2,853		178		683		49,316
Farmland.		-		-		-		-		236		-		-		236
Commercial business		9,617		18,669		20,326		34,730		16,896		2,839		430		103,507
Consumer		1,153		2,810		2,716		194		905		-		-		7,778
Government		-		2,001		13,680		3,910		-		-		-		19,591
Total	$	11,694	$	154,267	$	297,230	$	233,136	$	146,769	$	12,905	$	8,994	$	864,995

	December 31, 2018
(Dollars in thousands)	2		3		4		5		6		7		8

Loan Segment	Moderate		Above average acceptable		Acceptable		Marginally acceptable		Pass/monitor		Special mention		Substandard		Total
Residential real estate	$	261	$	58,276	$	100,374	$	10,404	$	44,734	$	3,908	$	5,366	$	223,323
Home equity		192		3,736		40,165		37		323		657		373		45,483
Commercial real estate		-		5,042		78,611		110,984		51,982		4,715		1,770		253,104
Construction and land development		-		322		24,271		29,383		10,457		-		-		64,433
Multifamily		-		569		19,255		23,417		3,844		149		-		47,234
Farmland		-		-		-		-		240		-		-		240
Commercial business		10,655		19,127		20,941		34,996		14,034		2,958		728		103,439
Consumer		925		2,953		1,040		196		909		20		-		6,043
Government		-		2,111		14,795		4,195		-		-		-		21,101
Total	$	12,033	$	92,136	$	299,452	$	213,612	$	126,523	$	12,407	$	8,237	$	764,400

The Bancorp has established a standard loan grading system to assist management, lenders and review personnel in their analysis and supervision of the loan portfolio. The use and application of these grades by the Bancorp is uniform and conforms to regulatory definitions. The loan grading system is as follows:

1 – Minimal Risk

Borrower demonstrates exceptional credit fundamentals, including stable and predictable profit margins, strong liquidity and a conservative balance sheet with superior asset quality. Excellent cash flow coverage of existing and projected debt service. Historic and projected performance indicates borrower is able to meet obligations under almost any economic circumstances.

2 – Moderate risk

Borrower consistently internally generates sufficient cash flow to fund debt service, working assets, and some capital expenditures. Risk of default considered low.

3 – Above average acceptable risk

Borrower generates sufficient cash flow to fund debt service and some working assets and/or capital expansion needs. Profitability and key balance sheet ratios are at or slightly above peers. Current trends are positive or stable. Earnings may be level or trending down slightly or be erratic; however, positive strengths are offsetting. Risk of default is reasonable but may warrant collateral protection.

4 – Acceptable risk

Borrower generates sufficient cash flow to fund debt service, but most working asset and all capital expansion needs are provided from external sources. Profitability ratios and key balance sheet ratios are usually close to peers but one or more ratios (e.g. leverage) may be higher than peer. Earnings may be trending down over the last three years. Borrower may be able to obtain similar financing from other banks with comparable or less favorable terms. Risk of default is acceptable but requires collateral protection.

5 – Marginally acceptable risk

Borrower may exhibit excessive growth, declining earnings, strained cash flow, increasing leverage and/or weakening market position that indicate above average risk. Limited additional debt capacity, modest coverage, and average or below average asset quality, margins and market share. Interim losses and/or adverse trends may occur, but not to the level that would affect the Bank’s position. The potential for default is higher than normal but considered marginally acceptable based on prospects for improving financial performance and the strength of the collateral.

6 – Pass/monitor

The borrower has significant weaknesses resulting from performance trends or management concerns. The financial condition of the company has taken a negative turn and may be temporarily strained. Cash flow may be weak but cash reserves remain adequate to meet debt service. Management weaknesses are evident. Borrowers in this category will warrant more than the normal level of supervision and more frequent reporting.

7 – Special mention (watch)

Special mention credits are considered bankable assets with no apparent loss of principal or interest envisioned but requiring a high level of management attention. Assets in this category are currently protected but are potentially weak. These borrowers are subject to economic, industry, or management factors having an adverse impact upon their prospects for orderly service of debt. The perceived risk in continued lending is considered to have increased beyond the level where such loans would normally be granted. These assets constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of Substandard.

8 – Substandard

This classification consists of loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Financial statements normally reveal some or all of the following: poor trends, lack of earnings and cash flow, excessive debt, lack of liquidity, and the absence of creditor protection. Loans are still considered collectible, but due to increased risks and defined weaknesses of the credit, some loss could be incurred in collection if the deficiencies are not corrected.

Performing loans are loans that are paying as agreed and are approximately less than ninety days past due on payments of interest and principal.

During the first ~~nine~~three months of ~~2018, three~~2019, one commercial business ~~loans~~loan totaling ~~$355~~$47 thousand ~~three commercial real estate loans totaling $935 thousand, two residential real estate loans totaling $114 thousand and five home equity loans totaling $149 thousand were modified~~was renewed as a troubled debt restructuring. No troubled debt restructurings have subsequently defaulted during the periods presented. All of the loans classified as troubled debt restructurings are also considered impaired. The valuation basis for the Bancorp’s troubled debt restructurings is based on the present value of cash flows, unless consistent cash flows are not present, then the fair value of the collateral securing the loan is the basis for valuation.

The Bancorp's individually evaluated impaired loans are summarized below:

							For the nine months ended										For the three months ended
	As of September 30, 2018						September 30, 2018				As of March 31, 2019						March 31, 2019
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	1,518	$	3,922	$	-	$	1,208	$	61	$	1,766	$	3,900	$	-	$	1,578	$	14
Home equity		212		219		-		87		1		450		482		-		328		2
Commercial real estate		2,772		3,471		-		1,114		46		1,675		2,276		-		1,650		19
Construction and land development		-		-		-		67		-		-		-		-		-		-
Multifamily		-		-		-		-		-		716		798		-		-		-
Farmland		-		-		-		-		-		-		-		-		-		-
Commercial business		1,831		2,091		-		651		20		1,536		1,685		-		1,668		21
Consumer		-		-		-		-		-		-		-		-		-		-
Government		-		-		-		-		-		-		-		-		-		-

With an allowance recorded:
Residential real estate		113		113		20		114		4		159		159		23		160		2
Home equity		58		58		9		29		-		56		56		8		57		1
Commercial real estate		637		637		278		280		3		481		481		202		481		-
Construction and land development		-		-		-		-		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-		-		-		-		-
Farmland		-		-		-		-		-		-		-		-		-		-
Commercial business		78		78		69		159		1		32		32		32		48		-
Consumer		-		-		-		-		-		-		-		-		-		-
Government		-		-		-		-		-		-		-		-		-		-

Total:
Residential real estate	$	1,631	$	4,035	$	20	$	1,322	$	65	$	1,925	$	4,059	$	23	$	1,738	$	16
Home equity	$	270	$	277	$	9	$	116	$	1	$	506	$	538	$	8	$	385	$	3
Commercial real estate	$	3,409	$	4,108	$	278	$	1,394	$	49	$	2,156	$	2,757	$	202	$	2,131	$	19
Construction & land development	$	-	$	-	$	-	$	67	$	-	$	-	$	-	$	-	$	-	$	-
Multifamily	$	-	$	-	$	-	$	-	$	-	$	716	$	798	$	-	$	-	$	-
Farmland	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial business	$	1,909	$	2,169	$	69	$	810	$	21	$	1,568	$	1,717	$	32	$	1,716	$	21
Consumer	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Government	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

For the nine months ended
As of December 31, 2017 September 30, 2017
(Dollars in thousands) Recorded
Investment
Unpaid Principal
Balance
Related Allowance Average Recorded
Investment Interest Income
Recognized
With no related allowance recorded:
Residential real estate $ 1,072 $ 3,351 $ - $ 1,302 $ 48
Home equity - - - - -
Commercial real estate 253 253 - 361 4
Construction and land development 134 134 - 134 -
Multifamily - - - - -
Commercial business 184 184 - 201 3

With an allowance recorded:
Residential real estate 80 270 21 300 1
Home equity - - - - -
Commercial real estate 259 259 144 139 -
Construction & land development - - - - -
Multifamily - - - - -
Commercial business 540 540 539 481 4

Total:
Residential real estate $ 1,152 $ 3,621 $ 21 $ 1,602 $ 49
Home equity $ - $ - $ - $ - $ -
Commercial real estate $ 512 $ 512 $ 144 $ 500 $ 4
Construction & land development $ 134 $ 134 $ - $ 134 $ -
Commercial business $ 724 $ 724 $ 539 $ 682 $ 7

							For the three months ended
	As of December 31, 2018						March 31, 2018
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	1,389	$	3,628	$	-	$	1,103	$	6
Home equity		207		214		-		35		-
Commercial real estate		1,624		2,222		-		252		-
Construction & land development		-		-		-		134		-
Multifamily		-		-		-		-		-
Farmland		-		-		-		-		-
Commercial business		1,799		2,038		-		184		1
Consumer		-		-		-		-		-
Government		-		-		-		-		-

With an allowance recorded:
Residential real estate		161		161		22		106		5
Home equity		57		57		9		-		-
Commercial real estate		481		481		210		186		4
Construction & land development		-		-		-		-		-
Multifamily		-		-		-		-		-
Farmland		-		-		-		-		-
Commercial business		64		64		5		275		-
Consumer		-		-		-		-		-
Government		-		-		-		-		-

Total:
Residential real estate	$	1,550	$	3,789	$	22	$	1,209	$	11
Home equity	$	264	$	271	$	9	$	35	$	-
Commercial real estate	$	2,105	$	2,703	$	210	$	438	$	4
Construction & land development	$	-	$	-	$	-	$	134	$	-
Multifamily	$	-	$	-	$	-	$	-	$	-
Farmland	$	-	$	-	$	-	$	-	$	-
Commercial business	$	1,863	$	2,102	$	5	$	459	$	1
Consumer	$	-	$	-	$	-	$	-	$	-
Government	$	-	$	-	$	-	$	-	$	-

As a result of acquisition activity, the Bancorp acquired loans for which there was evidence of credit quality deterioration since origination and it was determined that it was probable that the Bancorp would be unable to collect all contractually required principal and interest payments. At ~~September 30, 2018,~~March 31, 2019, total purchased credit impaired loans with unpaid principal balances totaled ~~$7.6~~$7.1 million with a recorded investment of ~~$4.3~~$4.1 million. At December 31, ~~2017,~~2018, purchased credit impaired loans with unpaid principal balances totaled ~~$2.6~~$6.0 million with a recorded investment of ~~$690 thousand.~~$2.9 million.

1213

The Bancorp's age analysis of past due loans is summarized below:

(Dollars in thousands) 30-59 Days Past
Due 60-89 Days Past
Due Greater Than 90
Days Past Due Total Past Due Current Total Loans Recorded
Investments
Greater than 90
Days Past Due
and Accruing
September 30, 2018
Residential real estate $ 2,329 $ 1,518 $ 3,942 $ 7,789 $ 213,073 $ 220,862 $ 885
Home equity 225 183 164 572 42,662 43,234 50
Commercial real estate - 352 680 1,032 242,272 243,304 -
Construction and land development - - - - 54,755 54,755 -
Multifamily - 154 - 154 45,598 45,752 -
Farmland - - - - 242 242 -
Commercial business 1,397 184 207 1,788 100,899 102,687 -
Consumer 52 20 - 72 5,561 5,633 -
Government - - - - 25,763 25,763 -
Total $ 4,003 $ 2,411 $ 4,993 $ 11,407 $ 730,825 $ 742,232 $ 935

December 31, 2017
Residential real estate $ 4,921 $ 1,751 $ 3,092 $ 9,764 $ 162,377 $ 172,141 $ 225
Home equity 295 18 234 547 36,222 36,769 2
Commercial real estate 951 96 332 1,379 209,711 211,090 -
Construction and land development - - 133 133 50,613 50,746 -
Multifamily 319 - - 319 43,049 43,368 -
Farmland - - - - - - -
Commercial business 285 162 539 986 75,865 76,851 -
Consumer 1 - - 1 460 461 -
Government - - - - 28,785 28,785 -
Total $ 6,772 $ 2,027 $ 4,330 $ 13,129 $ 607,082 $ 620,211 $ 227

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investments Greater than 90 Days Past Due and Accruing
March 31, 2019
Residential real estate	$	2,384	$	1,490	$	4,132	$	8,006	$	294,912	$	302,918	$	379
Home equity		141		98		427		666		49,050		49,716		-
Commercial real estate		6,057		93		912		7,062		257,951		265,013		303
Construction and land development		125		-		-		125		66,795		66,920		-
Multifamily		33		270		145		448		48,868		49,316		145
Farmland		-		-		-		-		236		236		-
Commercial business		956		538		353		1,847		101,660		103,507		322
Consumer		96		18		-		114		7,664		7,778		-
Government		-		-		-		-		19,591		19,591		-
Total	$	9,792	$	2,507	$	5,969	$	18,268	$	846,727	$	864,995	$	1,149

December 31, 2018
Residential real estate	$	3,659	$	909	$	4,362	$	8,930	$	214,393	$	223,323	$	122
Home equity		143		5		304		452		45,031		45,483		50
Commercial real estate		842		18		611		1,471		251,633		253,104		-
Construction and land development		491		533		-		1,024		63,409		64,433		-
Multifamily		-		149		-		149		47,085		47,234		-
Farmland		-		-		-		-		240		240		-
Commercial business		733		260		436		1,429		102,010		103,439		149
Consumer		1		72		-		73		5,970		6,043		-
Government		-		-		-		-		21,101		21,101		-
Total	$	5,869	$	1,946	$	5,713	$	13,528	$	750,872	$	764,400	$	321

The Bancorp's loans on nonaccrual status are summarized below:

(Dollars in thousands)

September 30,
2018 December 31,
2017
Residential real estate $ 3,861 $ 3,509
Home equity 328 350
Commercial real estate 768 332
Construction and land development - 133
Multifamily - -
Farmland - -
Commercial business 514 672
Consumer - -
Government - -
Total $ 5,471 $ 4,996

	March 31, 2019		December 31, 2018
Residential real estate	$	5,546	$	5,135
Home equity		537		270
Commercial real estate		691		695
Construction and land development		-		-
Multifamily		270		-
Farmland		-		-
Commercial business		168		495
Consumer		-		-
Government		-		-
Total	$	7,212	$	6,595

For the acquisitions of First Federal Savings & Loan (“First Federal”), Liberty Savings Bank (“Liberty Savings”), ~~and~~ First Personal Bank (“First Personal”), and A.J. Smith Federal Savings Bank (“AJ Smith”), as part of the fair value of loans receivable, a net fair value discount was established for loans as summarized below:

(dollars in thousands)	First Federal				Liberty Savings				First Personal				First Federal				Liberty Savings				First Personal				AJ Smith
	Net fair value discount		Accretable period in months		Net fair value discount		Accretable period in months		Net fair value discount		Accretable period in months		Net fair value discount		Accretable period in months		Net fair value discount		Accretable period in months		Net fair value discount		Accretable period in months		Net fair value discount		Accretable period in months
Residential real estate	$	1,100		55	$	1,200		44	$	948		56	$	1,062		59	$	1,203		44	$	948		56	$	3,734		52
Home equity		-		-		-		-		51		50		44		29		5		29		51		50		141		32
Commercial real estate		-		-		-		-		208		56		-		-		-		-		208		56		8		9
Construction and land development		-		-		-		-		1		30		-		-		-		-		1		30		-		-
Multifamily		-		-		-		-		11		48		-		-		-		-		11		48		2		48
Consumer		-		-		-		-		146		50		-		-		-		-		146		50		1		5
Commercial business		-		-		-		-		348		24		-		-		-		-		348		24		-		-
Purchased credit impaired loans		-		-		-		-		424		32		-		-		-		-		424		32		-		-
Total	$	1,100			$	1,200			$	2,137			$	1,106			$	1,208			$	2,137			$	3,886

Accretable yield, or income ~~collected~~recorded for the ~~nine~~three months ended ~~September 30,~~March 31, is as follows:

(dollars in thousands) First Federal Liberty Savings First Personal Total
2017 $ 112 $ 239 $ - $ 351
2018 105 200 114 419

(dollars in thousands)	First Federal		Liberty Savings		First Personal		AJ Smith		Total
2018	$	36	$	68	$	-	$	-	$	104
2019		22		42		203		155	$	422
Total	$	58	$	110	$	203	$	155	$	526

Accretable yield, or income expected to be ~~collected~~recorded in the future is as follows:

(dollars in thousands) First Federal Liberty Savings First Personal Total
Remainder 2018 $ 33 $ 65 $ 157 $ 255
2019 22 43 627 692
2020 - - 554 554
2021 - - 335 335
2022 - - 283 283
2023 - - 67 67
Total $ 55 $ 108 $ 2,023 $ 2,186

(dollars in thousands)	First Federal		Liberty Savings		First Personal		AJ Smith		Total
2019	$	-	$	-	$	389	$	695	$	1,084
2020		-		-		491		895		1,386
2021		-		-		290		888		1,178
2022		-		-		278		888		1,166
2023		-		-		61		365		426
Total	$	-	$	-	$	1,509	$	3,731	$	5,240

Note 6 - Foreclosed Real Estate

Foreclosed real estate at period-end is summarized below:

	(Dollars in thousands)				(Dollars in thousands)
	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Residential real estate	$	1,311	$	914	$	1,148	$	1,132
Commercial real estate		126		97		126		126
Construction and land development		468		468		-		149
Commercial business		220		220		220		220
Total	$	2,125	$	1,699	$	1,494	$	1,627

Note 7 – Intangibles and Acquisition Related Accounting

The Bancorp established a goodwill balance totaling ~~$8.2~~$10.7 million with the acquisitions of AJSB, First Personal, First Federal and Liberty Savings. Goodwill of $2.6 million, $5.4 million, $2.0 million, and $804 thousand were established with the acquisition of AJSB, First Personal, First Federal, and Liberty Savings, respectively. Goodwill is tested annually for impairment. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. The Bancorp’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of the Bancorp to provide quality, cost effective banking services in a competitive marketplace. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. There has not been any impairment of goodwill identified or recorded. Goodwill totaled ~~$8.2~~$10.7 million and ~~$2.8~~$8.2 million as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively.

In addition to goodwill, a core deposit intangible of $93 thousand for the acquisition of First Federal was established and is being amortized over an initial period of 7.9 years on a straight line basis. A core deposit intangible of $471 thousand for the acquisition of Liberty Savings was established and is being amortized over an initial period of 8.2 years on a straight line basis. A core deposit intangible of $3.0 million for the acquisition of First Personal was established and is being amortized over an initial period of 6.4 years on a straight line basis. A core deposit intangible of $2.9 million for the acquisition of AJSB was established and is being amortized over an initial period of 6.5 years on a straight line basis. The table below summarizes the annual amortization:

(dollars in thousands)	First Federal		Liberty Savings		First Personal		Total		First Federal		Liberty Savings		First Personal		AJ Smith		Total
Current period	$	8	$	38	$	79	$	125	$	3	$	14	$	119	$	75	$	211
Remainder 2018		4		20		119		143
2019		12		58		475		545
Remainder 2019										9		44		356		336		745
2020		12		58		475		545		12		58		475		449		994
2021		12		58		475		545		12		58		475		449		994
2022		1		58		475		534		1		58		475		449		983
2023		-		38		475		513		-		38		475		449		962
2024		-		-		470		470		-		-		470		449		919
2025										-		-		-		261		261
Total	$	49	$	328	$	3,043	$	3,420	$	37	$	270	$	2,845	$	2,917	$	6,069

For the First Personal acquisition, as part of the fair value of certificates of deposit, a fair value premium was established of $133 thousand that is being amortized over 8 months on a straight line basis. Approximately ~~$32~~$48 thousand of amortization was taken as ~~expense~~income during the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. It is estimated that an additional ~~$48~~$5 thousand of amortization will occur during ~~2018 and~~2019. For the AJSB acquisition, as part of the fair value of certificates of deposit, a fair value premium was established of $174 thousand that is being amortized over 14 months on a straight line basis. Approximately $25 thousand of amortization was taken as income during the three months ended March 31, 2019. It is estimated that an additional ~~$53~~$114 thousand of amortization will occur during ~~2019.~~

~~As part~~2019 and an additional $34 thousand of the First Personal acquisition, the Bancorp acquired First Personal Statutory Trust I. NWIN guarantees the payment of distributions on the trust preferred securities issued by First Personal Statutory Trust I. First Personal Statutory Trust I issued $4.124 million in trust preferred securities in May 2004. The trust preferred securities carry a variable rate of interest priced at the three-month LIBOR plus 275 basis points, payable quarterly and maturing on June 17, 2034. Proceeds from the issuance of these securities were used to purchase junior subordinated debentures with the same financial terms as the trust preferred securities issued by First Personal Statutory Trust I. Management of the Bancorp has determined that the continued maintenance of the trust preferred securities issued by First Personal Statutory Trust I and the corresponding junior subordinated debentures are unnecessary to the Bancorp’s ongoing operations. As a result, the Bancorp’s board of directors has approved the redemption of the junior subordinated debentures, which alsoamortization will result in the trustee of the First Personal Statutory Trust I redeeming all $4.124 million of the trust preferred securities. The junior subordinated debentures and trust preferred securities will be redeemed on or before December 31, 2018, and therefore, the fair value of the trust preferred securities approximated their carrying value.occur during 2020.

Note 8 - Concentrations of Credit Risk

The primary lending area of the Bancorp encompasses Lake County in northwest Indiana and Cook County in northeast Illinois, where collectively a majority of loan activity is concentrated. The Bancorp is also an active lender in Porter County, and to a lesser extent, LaPorte, Newton and Jasper counties in Indiana; and Lake and Will counties in Illinois. Substantially all loans are secured by specific items of collateral including residences, commercial real estate, land development, business assets and consumer assets.

1415

Note 9 - Earnings per Share

Earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding. A reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ are as follows:

Three Months Ended Nine Months Ended
(Dollars in thousands, except per share data) September 30, September 30,
2018 2017 2018 2017
Basic earnings per common share:
Net income as reported $ 1,625 $ 2,248 $ 6,697 $ 7,075
Weighted average common shares outstanding 3,029,369 2,864,007 2,922,271 2,863,806
Basic earnings per common share $ 0.54 $ 0.78 $ 2.29 $ 2.47
Diluted earnings per common share:
Net income as reported $ 1,625 $ 2,248 $ 6,697 $ 7,075
Weighted average common shares outstanding 3,029,369 2,864,007 2,922,271 2,863,806
Add: Dilutive effect of assumed stock option exercises - 155 - 147
Weighted average common and dilutive potential common shares outstanding 3,029,369 2,864,162 2,922,271 2,863,953
Diluted earnings per common share $ 0.54 $ 0.78 $ 2.29 $ 2.47

	Three Months Ended
	March 31,
(Dollars in thousands, except per share data)	2019		2018
Basic earnings per common share:
Net income available to common stockholders	$	2,222	$	2,561
Weighted average common shares outstanding		3,343,183		2,867,413
Basic earnings per common share	$	0.66	$	0.89
Diluted earnings per common share:
Net income available to common stockholders	$	2,222	$	2,561
Weighted average common shares outstanding		3,343,183		2,867,413
Weighted average common and dilutive
potential common shares outstanding		3,343,183		2,867,413
Diluted earnings per common share	$	0.66	$	0.89

Note 10 - Stock Based Compensation

The Bancorp’s 2015 Stock Option and Incentive Plan (the ~~Plan)~~“Plan”), which was adopted by the Bancorp’s Board of Directors on February 27, 2015 and approved by the Bancorp’s shareholders on April 24, 2015, permits the grant of equity awards for up to 250,000 shares of common stock. Awards granted under the Plan may be in the form of incentive stock options, non-qualified stock options, restricted stock, unrestricted stock, performance shares, or performance units.

As required by the Stock Compensation Topic, companies are required to record compensation cost for stock options and awards provided to employees in return for employment service. For the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, stock based compensation expense of ~~$154~~$71 thousand was recorded, compared to ~~$142~~$52 thousand for the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2018. It is anticipated that current outstanding unvested awards will result in additional compensation expense of approximately ~~$441~~$639 thousand through 2022 with an additional ~~$50 thousand in 2018, $184~~$213 thousand in 2019, ~~$150~~$251 thousand in 2020, ~~$54~~$155 thousand in 2021, and $3$20 thousand in 2022.

There were no incentive stock options granted during the first ~~nine~~three months of ~~2018~~2019 or ~~2017.~~2018. When options are granted, the cost is measured at the fair value of the options when granted, and this cost is expensed over the employment service period, which is normally the vesting period of the options or awards. At ~~September 30, 2018,~~March 31, 2019, there were no outstanding incentive stock options.

There were ~~4,433~~7,407 shares of restricted stock granted during the first ~~nine~~three months of ~~2018~~2019 compared to ~~4,575~~4,433 shares granted during the first ~~nine~~three months of ~~2017.~~2018. Restricted stock awards are issued with an award price equal to the market price of the Bancorp’s common stock on the award date and vest between three and five years after the grant date. Forfeiture provisions exist for personnel that separate employment before the vesting period expires. A summary of restricted stock activity under the Bancorp’s ~~incentive stock option and incentive plans~~Plan described above for the year ended December 31, ~~2017~~2018 and ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 follows:

				Weighted
				Average
				Grant
				Date
Non-vested Shares	Shares			Fair Value		Shares			Weighted Average Grant Date Fair Value
Non-vested at January 1, 2017		28,465		$	26.67
Granted		4,575			39.00
Vested		(1,625	)		25.81
Forfeited		(725	)		28.62
Non-vested at December 31, 2017		30,690		$	28.51

Non-vested at January 1, 2018		30,690		$	28.51		30,690		$	28.51
Granted		4,433			43.50		4,433			43.50
Vested		(7,700	)		22.64		(7,700	)		22.64
Forfeited		-			-		-			-
Non-vested at September 30, 2018		27,423		$	32.58
Non-vested at December 31, 2018							27,423		$	32.58

Non-vested at January 1, 2019							27,423		$	32.58
Granted							7,407			43.00
Vested							(3,302	)		27.26
Forfeited							-			-
Non-vested at March 31, 2019							31,528		$	35.58

1516

Note 11 – Change in Accounting Principles

In May 2014, ~~FASB~~Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 and ASU 2015-14,Revenue from Contracts with Customers (Topic 606), superseding the current revenue recognition requirements in Topic 605, Revenue Recognition. The ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new guidance iswas effective for the Bancorp's year ending December 31, 2018 and has been adopted as of January 1, 2018. The use of the modified retrospective approach has been used for implementing this standard. Interest income is outside of the scope of the new standard and was not impacted by the adoption of the standard. Management mapped noninterest income accounts to their associated income streams and applied the five step model to identify the contract, identify the performance obligations in the contract, determine the total transaction price, allocate the transaction price to each performance obligation, and ensure revenue is recognized when the performance obligation is satisfied. A review of the Bancorp’s noninterest income has not resulted in a change in revenue recognition since adoption.

In January 2016, FASB issued ~~Accounting Standards Update (ASU)~~ASU No. 2016-01,Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU covers various changes to the accounting, measurement, and disclosures related to certain financial instruments, including requiring equity investments to be accounted for at fair value with changes recorded through earnings, the use of the exit price when measuring fair value, and disaggregation of financial assets and liabilities by category for disclosure purposes. The new guidance iswas effective for the Bancorp's year ending December 31, 2018 and was adopted on January 1, 2018. The adoption of this ASU has not had a material impact on the consolidated financial statements, as the Bancorp does not hold any equity securities with unrealized gains or losses. The new reporting requirements have been incorporated into the fair value of financial instruments table and disclosures.

In ~~March~~February 2016, FASB issued ASU No. ~~2016-09:~~2016-02,~~Compensation—Stock Compensation (Topic 718)—Improvements~~Leases, which superseded the lease requirements in ASC 840. The ASU requires lessees to ~~Employee Share-Based Payment Accounting. This ASU seeks to reduce complexity~~recognize a right-of-use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases are classified as either finance or operating, with the classification affecting the pattern of expense recognition in accounting standards. The areas for simplification in ASU No. 2016-09, identified through outreach for the Simplification Initiative, pre-agenda research for the Private Company Council, and the August 2014 Post-Implementation Review Report on FASB Statement No. 123(R), Share-Based Payment, involve several aspects of the accounting for share-based payment transactions, including (1) accounting for income taxes, (2) classification of excess tax benefits on the statement of ~~cash flow, (3) forfeitures; (4) minimum statutory tax withholding requirements, (5) classification of employee taxes paid~~operations. Prior to this ASU, leases were classified as either capital or operating, with only capital leases recognized on the ~~statement~~balance sheet. The reporting of lease-related expenses in the statements of operations and cash flows ~~when an employer withholds shares~~under the new guidance is generally consistent with the prior guidance. The new guidance is effective for ~~tax withholding purposes, (6)~~ the ~~practical expedient for estimating the expected term,~~Bancorp's year ending December 31, 2019 and ~~(7) intrinsic value.~~was adopted on January 1, 2019. The ~~Bancorp adopted this ASU during 2017, and the~~ adoption of this ASU has not had a material impact on the consolidated financial ~~statements.~~statements, as the Bancorp does not engage in the leasing of property or in leasing of any significant furniture, fixtures, equipment, or software.

Note 12 - Upcoming Accounting Standards

~~In February 2016, FASB issued ASU No. 2016-02,~~~~Lease~~s, which will supersede the current lease requirements in ASC 840. The ASU requires lessees to recognize a right-of-use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of operations. Currently, leases are classified as either capital or operating, with only capital leases recognized on the balance sheet. The reporting of lease-related expenses in the statements of operations and cash flows will be generally consistent with the current guidance. The new lease guidance will be effective for the Bancorp's year ending December 31, 2019 and will be applied using a modified retrospective transition method to the beginning of the earliest period presented. Management does not believe the adoption of this update will have a material effect on the Bancorp’s consolidated financial statements, as the Bancorp does not engage in the leasing of property or in leasing of any significant furniture, fixtures, equipment, or software.

In June 2016, FASB issued ASU No. 2016-13,Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU includes increased disclosures and various changes to the accounting and measurement of financial assets including the Bancorp’s loans and available-for-sale and held-to-maturity debt securities. Each financial asset presented on the balance sheet would have a unique allowance for credit losses valuation account that is deducted from the amortized cost basis to present the net carrying value at the amount expected to be collected on the financial asset. The amendments in this ASU also eliminate the probable initial recognition threshold in current GAAP and instead, reflect an entity’s current estimate of all expected credit losses using reasonable and supportable forecasts. The new credit loss guidance will be effective for the Bancorp's year ending December 31, 2020. Upon adoption, the ASU will be applied using a modified retrospective transition method to the beginning of the first reporting period in which the guidance is effective. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. Early adoption for all institutions is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management is in the process of evaluating the impact adoption of this update will have on the Bancorp’s consolidated financial statements. This process of evaluation has engaged multiple areas of the Bancorp’s management in discussing loss estimation methods and the application of these methods to specific segments of the loans receivable portfolio. ~~Given~~Management has been actively monitoring developments and evaluating the ~~amount~~use of ~~time left~~different methods allowed. Due to ~~adoption, the appropriateness of the loss estimation methods chosen, and the~~ continuing development of understanding of application, additional time is ~~needed~~required to ~~fully~~ understand how this ASU will ~~impact~~affect the Bancorp’s financial statements. Management plans on running parallel calculations during the year and finalizing a method or methods of adoption in time for the effective date.

In January 2017, the FASB issued ASU 2017-04,Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This Standard simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill under Step 2, an entity, prior to the amendments in ASU No. 2017-04, had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, in accordance with the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. However, under the amendments in this ASU, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, ASU No. 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. Finally, this ASU amends the Overview and Background sections of the Accounting Standards Codification as part of the FASB’s initiative to unify and improve such sections across Topics and Subtopics. The new guidance will be effective for the Company’s year ending December 31, 2020.

In March 2017, the FASB issued ASU 2017-08,Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. This Standard amends the amortization period for certain purchased callable debt securities held at a premium. In particular, the amendments in this ASU require the premium to be amortized to the earliest call date. The amendments do not, however, require an accounting change for securities held at a discount; instead, the discount continues to be amortized to maturity. The amendments in this ASU more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. In fact, in most cases, market participants price securities to the call date that produces the worst yield when the coupon is above current market rates (i.e., the security is trading at a premium), and price securities to maturity when the coupon is below market rates (i.e., the security is trading at a discount), in anticipation that the borrower will act in its economic best interest. The new guidance will be effective for the Company’s year ending December 31, 2020. Management will recognize amortization expense as dictated by the amount of premiums and the differences between maturity and call dates at the time of adoption.

Note 13 - Fair Value

The Fair Value Measurements Topic establishes a hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Topic describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values of securities available-for-sale are determined on a recurring basis by obtaining quoted prices on nationally recognized securities exchanges or pricing models utilizing significant observable inputs such as matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Different judgments and assumptions used in pricing could result in different estimates of value. In certain cases where market data is not readily available because of a lack of market activity or little public disclosure, values may be based on unobservable inputs and classified in Level 3 of the fair value hierarchy.

At the end of each reporting period, securities held in the investment portfolio are evaluated on an individual security level for other-than-temporary impairment in accordance with ~~the~~~~Investments – Debt and Equity Securities~~~~Topic.~~GAAP. Impairment is other-than-temporary if the decline in the fair value is below its amortized cost and it is probable that all amounts due according to the contractual terms of a debt security will not be received. Significant judgments are required in determining impairment, which include making assumptions regarding the estimated prepayments, loss assumptions and the change in interest rates. The Bancorp considers the following factors when determining an other-than-temporary impairment for a security: the length of time and the extent to which the market value has been less than amortized cost; the financial condition and near-term prospects of the issuer; the underlying fundamentals of the relevant market and the outlook for such market for the near future; an assessment of whether the Bancorp (1) has the intent to sell the debt securities or (2) more likely than not will be required to sell the debt securities before their anticipated market recovery. If either of these conditions is met, management will recognize other-than-temporary impairment. If, in management’s judgment, an other-than-temporary impairment exists, the cost basis of the security will be written down for the credit loss, and the unrealized loss will be transferred from accumulated other comprehensive loss as an immediate reduction of current earnings.

The Bancorp’s management utilizes a specialist to perform an other-than-temporary impairment analysis for each of its pooled trust preferred securities. The analysis is performed annually during December and utilizes analytical models used to project future cash flows for the pooled trust preferred securities based on current assumptions for prepayments, default and deferral rates, and recoveries. The projected cash flows are then tested for impairment consistent with ~~the~~~~Investments – Other~~~~Topic and the~~~~Investments – Debt and Equity Securities~~~~Topic.~~GAAP. The other-than-temporary impairment testing compares the present value of the cash flows from quarter to quarter to determine if there is a “favorable” or “adverse” change. Other-than-temporary impairment is recorded if the projected present value of cash flows is lower than the book value of the security. To perform the annual other-than-temporary impairment analysis, management utilizes current reports issued by the trustee, which contain principal and interest tests, waterfall distributions, note valuations, collection detail and credit ratings for each pooled trust preferred security. In addition, a detailed review of the performing collateral was performed. Based on current market conditions and a review of the trustee reports, management performed an analysis of the pooled trust preferred securities and no additional impairment was taken at December 31, ~~2017. During the second quarter of 2018, upon management review, the Bancorp decided to review for trust preferred security impairment annually, a change from semi-annual review previously disclosed.~~2018. A specialist will be used to review all pooled trust preferred securities again at December 31, ~~2018.~~2019.

The table below shows the credit loss roll forward on a year-to-date basis for the Bancorp’s pooled trust preferred securities that have been classified with other-than-temporary impairment:

	Collateralized
	debt obligations
	other-than-temporary		Collateralized debt obligations
(Dollars in thousands)	impairment		other-than-temporary impairment
Ending balance, December 31, 2017	$	271
Ending balance, December 31, 2018			$	235
Additions not previously recognized		-		-
Ending balance, September 30, 2018	$	271
Ending balance, March 31, 2019			$	235

At ~~September 30, 2018,~~March 31, 2019, trust preferred securities with a cost basis of $3.5 million continue to be in “payment in kind” status. These trust preferred securities classified as “payment in kind” are a result of not receiving the scheduled quarterly interest payments. For these trust preferred securities in “payment in kind” status, management anticipates to receive the unpaid contractual interest payments from the issuer, because of the self-correcting cash flow waterfall provisions within the structure of the securities. When a tranche senior to the Bancorp’s position fails the coverage test, the Bancorp’s interest cash flows are paid to the senior tranche and recorded as a reduction of principal. The coverage test represents an over collateralization target by stating the balance of the performing collateral as a percentage of the balance of the Bancorp’s tranche, plus the balance of all senior tranches. The principal reduction in the senior tranche continues until the appropriate coverage test is passed. As a result of the principal reduction in the senior tranche, more cash is available for future payments to the Bancorp’s tranche. Consistent with ~~the~~~~Investments – Debt and Equity Securities Topic~~,GAAP, management considered the failure of the issuer of the security to make scheduled interest payments in determining whether a credit loss existed. Management will not capitalize the “payment in kind” interest payments to the book value of the securities and will keep these securities in non-accrual status until the quarterly interest payments resume on a consistent basis.

1819

Assets and Liabilities Measured at Fair Value on a Recurring Basis

There were no transfers to or from Levels 1 and 2 during the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. Assets measured at fair value on a recurring basis are summarized below:

Fair Value Measurements at September 30, 2018 Using
(Dollars in thousands) Estimated
Fair
Value Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) Significant Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Available-for-sale debt securities:
Money market fund $ 2,018 $ 2,018 $ - $ -
U.S. government sponsored entities 9,768 - 9,768 -
Collateralized mortgage obligations and residential mortgage-backed securities 132,670 - 132,670 -
Municipal securities 91,416 - 91,416 -
Collateralized debt obligations 2,199 - - 2,199
Total securities available-for-sale $ 238,071 $ 2,018 $ 233,854 $ 2,199

			Fair Value Measurements at December 31, 2017 Using								Fair Value Measurements at March 31, 2019 Using
(Dollars in thousands)	Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale debt securities:
Money market fund	$	476	$	476	$	-	$	-	$	4,254	$	4,254	$	-	$	-
U.S. treasury securities										594		-		594		-
U.S. government sponsored entities		3,890		-		3,890		-		14,953		-		14,953		-
Collateralized mortgage obligations and residential mortgage-backed securities		132,938		-		132,938		-		142,606		-		142,606		-
Municipal securities		103,747		-		103,747		-		86,845		-		86,845		-
Collateralized debt obligations		3,439		-		-		3,439		2,079		-		-		2,079
Total securities available-for-sale	$	244,490	$	476	$	240,575	$	3,439	$	251,331	$	4,254	$	244,998	$	2,079

											Fair Value Measurements at December 31, 2018 Using
(Dollars in thousands)									Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale debt securities:
Money market fund									$	2,480	$	2,480	$	-	$	-
U.S. treasury securities										-		-		-		-
U.S. government sponsored entities										7,894		-		7,894		-
Collateralized mortgage obligations and residential mortgage-backed securities										135,281		-		135,281		-
Municipal securities										94,064		-		94,064		-
Collateralized debt obligations										2,049		-		-		2,049
Total securities available-for-sale									$	241,768	$	2,480	$	237,239	$	2,049

A roll forward of available-for-sale securities, which require significant adjustment based on unobservable data, are presented in the following table:

(Dollars in thousands) Estimated Fair Value
Measurements Using
Significant Unobservable
Inputs (Level 3)
Available-for-
sale securities
Beginning balance, January 1, 2017 $ 2,409
Principal payments (154 )
Total unrealized gains, included in other comprehensive income 1,184
Transfers in and/or (out) of Level 3 -
Ending balance, December 31, 2017 $ 3,439

Beginning balance, January 1, 2018 $ 3,439
Principal payments (38 )
Total unrealized gains, included in other comprehensive income 101
Sale out of Level 3 (1,303 )
Ending balance, September 30, 2018 $ 2,199

(Dollars in thousands)	Estimated Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Available-for- sale securities
Beginning balance, January 1, 2018	$	3,439
Principal payments		(51	)
Total unrealized gains, included in other comprehensive income		(36	)
Transfers in and/or (out) of Level 3		(1,303	)
Ending balance, December 31, 2018	$	2,049

Beginning balance, January 1, 2019	$	2,049
Principal payments		(12	)
Total unrealized gains, included in other comprehensive income		42
Sale out of Level 3		-
Ending balance, March 31, 2019	$	2,079

Assets measured at fair value on a non-recurring basis are summarized below:

			(Dollars in thousands)								(Dollars in thousands)
			Fair Value Measurements at September 30, 2018 Using								Fair Value Measurements at March 31, 2019 Using
(Dollars in thousands)	Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	6,843	$	-	$	-	$	6,843	$	6,606	$	-	$	-	$	6,606
Foreclosed real estate		2,125		-		-		2,125		1,494		-		-		1,494

											(Dollars in thousands)
											Fair Value Measurements at December 31, 2018 Using
(Dollars in thousands)									Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans									$	5,536	$	-	$	-	$	5,536
Foreclosed real estate										1,627		-		-		1,627

(Dollars in thousands)
Fair Value Measurements at December 31, 2017 Using
(Dollars in thousands) Estimated
Fair
Value Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) Significant Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Impaired loans $ 1,818 $ - $ - $ 1,818
Foreclosed real estate 1,699 - - 1,699

The fair value of impaired loans with specific allocations of the allowance for loan losses or loans for which charge-offs have been taken is generally based on a present value of cash flows or, for collateral dependent loans, based on recent real estate appraisals. Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. The recorded investment in impaired loans was approximately ~~$7.2~~$6.9 million and the related specific reserves totaled approximately ~~$376~~$265 thousand, resulting in a fair value of impaired loans totaling approximately ~~$6.8~~$6.6 million, at ~~September 30, 2018.~~March 31, 2019. The recorded investment of impaired loans was approximately ~~$2.5~~$5.8 million and the related specific reserves totaled approximately ~~$704~~$246 thousand, resulting in a fair value of impaired loans totaling approximately ~~$1.8~~$5.5 million, at December 31, ~~2017.~~2018. Fair value is determined, where possible, using market prices derived from an appraisal or evaluation, which are considered to be Level 2 inputs. However, certain assumptions and unobservable inputs are often used by the appraiser, therefore, qualifying the assets as Level 3 in the fair value hierarchy. The fair value of foreclosed real estate is similarly determined by using the results of recent real estate appraisals. The numerical range of unobservable inputs for these valuation assumptions is not meaningful to this presentation.

The following table shows carrying values and related estimated fair values of financial instruments as of the dates indicated. Estimated fair values are further categorized by the inputs used to measure fair value. Items that are not financial instruments are not included.

September 30, 2018 Estimated Fair Value Measurements at September 30, 2018 Using
(Dollars in thousands) Carrying
Value Estimated
Fair Value Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant
Other Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Financial assets:
Cash and cash equivalents $ 13,964 $ 13,964 $ 13,964 $ - $ -
Certificates of deposit in other financial institutions 3,754 3,673 - 3,673 -
Securities available-for-sale 238,071 238,071 2,018 233,854 2,199
Loans held-for-sale 4,483 4,566 4,566 - -
Loans receivable, net 734,483 717,640 - - 717,640
Federal Home Loan Bank stock 3,236 3,236 - 3,236 -
Accrued interest receivable 3,560 3,560 - 3,560 -

Financial liabilities:
Non-interest bearing deposits 134,449 134,449 134,449 - -
Interest bearing deposits 768,307 765,232 514,311 250,921 -
Repurchase agreements 12,585 12,580 10,823 1,757 -
Borrowed funds 48,314 48,698 13,766 34,932 -
Interest rate swap agreements 111 111 - 111 -
Accrued interest payable 110 110 - 110 -

December 31, 2017 Estimated Fair Value Measurements at December 31, 2017 Using
(Dollars in thousands) Carrying
Value Estimated
Fair Value Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant
Other Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Financial assets:
Cash and cash equivalents $ 11,025 $ 11,025 $ 11,025 $ - $ -
Certificates of deposit in other financial institutions 1,676 1,640 - 1,640 -
Securities available-for-sale 244,490 244,490 476 240,575 3,439
Loans held-for-sale 1,592 1,625 1,625 - -
Loans receivable, net 612,729 608,506 - - 608,506
Federal Home Loan Bank stock 3,000 3,000 - 3,000 -
Accrued interest receivable 3,262 3,262 - 3,262 -

Financial liabilities:
Non-interest bearing deposits 120,556 120,556 120,556 - -
Interest bearing deposits 672,448 670,967 488,528 182,439 -
Repurchase agreements 11,300 11,292 9,545 1,747 -
Borrowed funds 20,881 20,818 600 20,218 -
Accrued interest payable 42 42 - 42 -

	March 31, 2019				Estimated Fair Value Measurements at March 31, 2019 Using
(Dollars in thousands)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	60,764	$	60,764	$	60,764	$	-	$	-
Certificates of deposit in other financial institutions		2,215		2,181		-		2,181		-
Securities available-for-sale		251,331		251,331		4,254		244,998		2,079
Loans held-for-sale		2,966		3,023		3,023		-		-
Loans receivable, net		856,759		853,675		-		-		853,675
Federal Home Loan Bank stock		3,971		3,971		-		3,971		-
Accrued interest receivable		4,062		4,062		-		4,062		-

Financial liabilities:
Non-interest bearing deposits		177,317		177,317		177,317		-		-
Interest bearing deposits		924,336		922,383		617,684		304,699		-
Repurchase agreements		12,691		12,689		10,927		1,762		-
Borrowed funds		20,000		19,989		-		19,989		-
Accrued interest payable		166		166		-		166		-

~~The following methods were used to estimate the fair value of financial instruments presented in the preceding table for the period ended September 30, 2018:~~

Cash and cash equivalents carrying amounts approximate fair value. Certificates of deposit in other financial institutions carrying amounts approximate fair value (Level 2).The fair values of securities available-for-sale are obtained from broker pricing (Level 2), with the exception of collateralized debt obligations, which are valued by a third-party specialist (Level 3). Loans held-for-sale comprise residential mortgages and are priced based on values established by the secondary mortgage markets (Level 1). The estimated fair value for net loans receivable is based on an exit price basis incorporating discounts for credit, liquidity, and marketability factors (Level 3). This is not comparable with the fair values disclosed for December 31, 2017, which were based on estimates of the rate the Bancorp would charge for similar such loans, applied for the time period until estimated repayment, in addition to appraisals which may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Federal Home Loan Bank stock is estimated at book value due to restrictions that limit the sale or transfer of the security. Fair value of accrued interest receivable and payable approximates book value, as the carrying values are determined using the observable interest rate, balance, and last payment date.

Non-interest and interest bearing deposits, which include checking, savings, and money market deposits, are estimated to have fair values based on the amount payable as of the reporting date (Level 1). The fair value of fixed-maturity certificates of deposit (included in interest bearing deposits) are based on estimates of the rate the Bancorp would pay on similar deposits, applied for the time period until maturity (Level 2). Estimated fair values for short-term repurchase agreements, which represent sweeps from demand deposits to accounts secured by pledged securities, are estimated based on the amount payable as of the reporting date (Level 1). Longer-term repurchase agreements, with contractual maturity dates of quarter or more, are based on estimates of the rate the Bancorp would pay on similar deposits, applied for the time period until maturity (Level 2). Short-term borrowings are generally only held overnight, therefore, their carrying amount is a reasonable estimate of fair value (Level 1). The fair value of FHLB Advances (included in borrowed funds) are estimated by discounting the future cash flows using quoted rates from the FHLB for similar advances with similar maturities (Level 2). The estimated fair value of other financial instruments, and off-balance sheet loan commitments, approximate cost and are not considered significant to this presentation.

	December 31, 2018				Estimated Fair Value Measurements at December 31, 2018 Using
(Dollars in thousands)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	17,139	$	17,139	$	17,139	$	-	$	-
Certificates of deposit in other financial institutions		2,024		2,001		-		2,001		-
Securities available-for-sale		241,768		241,768		2,480		237,239		2,049
Loans held-for-sale		2,863		2,910		2,910		-		-
Loans receivable, net		756,438		747,553		-		-		747,553
Federal Home Loan Bank stock		3,460		3,460		-		3,460		-
Accrued interest receivable		3,632		3,632		-		3,632		-

Financial liabilities:
Non-interest bearing deposits		127,277		127,277		127,277		-		-
Interest bearing deposits		802,509		800,349		543,617		256,732		-
Repurchase agreements		11,628		11,626		9,867		1,759		-
Borrowed funds		43,000		42,888		-		42,888		-
Accrued interest payable		186		186		-		186		-

The following methods were used to estimate the fair value of financial instruments presented in the preceding table for the ~~period~~periods ended March 31, 2019 and December 31, ~~2017:~~2018:

Cash and cash equivalent carrying amounts approximate fair value. Certificates of ~~deposit~~deposits in other financial institutions carrying amounts approximate fair value (Level 2). The fair values of securities available-for-sale are obtained from broker pricing (Level 2), with the exception of collateralized debt obligations, which are valued by a third-party specialist (Level 3). Loans held-for-sale comprise residential mortgages and are priced based on values established by the secondary mortgage markets (Level 1). The estimated fair value for net loans receivable is based on ~~estimates of~~ the ~~rate~~exit price notion which is the ~~Bancorp~~exchange price that would ~~charge for similar such~~be received to transfer the loans ~~applied for~~at the ~~time period until estimated repayment,~~most advantageous market price in ~~addition to appraisals which may utilize a single valuation approach or a combination of approaches including comparable sales and~~an orderly transaction between market participants on the ~~income approach~~measurement date (Level 3). Federal Home Loan Bank stock is estimated at book value due to restrictions that limit the sale or transfer of the security. Fair values of accrued interest receivable and payable approximate book value, as the carrying values are determined using the observable interest rate, balance, and last payment date.

Non-interest and interest bearing deposits, which include checking, savings, and money market deposits, are estimated to have fair values based on the amount payable as of the reporting date (Level 1). The fair value of fixed-maturity certificates of deposit (included in interest bearing deposits) are based on estimates of the rate the Bancorp would pay on similar deposits, applied for the time period until maturity (Level 2). Estimated fair values for short-term repurchase agreements, which represent sweeps from demand deposits to accounts secured by pledged securities, are estimated based on the amount payable as of the reporting date (Level 1). Longer-term repurchase agreements, with contractual maturity dates of three months or more, are based on estimates of the rate the Bancorp would pay on similar deposits, applied for the time period until maturity (Level 2). Short-term borrowings are generally only held overnight, therefore, their carrying amount is a reasonable estimate of fair value (Level 1). The fair value of FHLB Advances are estimated by discounting the future cash flows using quoted rates from the FHLB for similar advances with similar maturities (Level 2). The estimated fair value of other financial instruments, and off-balance sheet loan commitments, approximate cost and are not considered significant to this presentation.

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

Summary

NorthWest Indiana Bancorp (the “Bancorp”) is a financial holding company registered with the Board of Governors of the Federal Reserve System. Peoples Bank SB (“the Bank”), an Indiana savings bank, and NWIN Risk Management, Inc., a captive insurance company, are wholly-owned subsidiaries of the Bancorp. The Bancorp has no other business activity other than being a holding company for the Bank and NWIN Risk Management, Inc. The following management’s discussion and analysis presents information concerning our financial condition as of ~~September 30, 2018,~~March 31, 2019, as compared to December 31, ~~2017,~~2018, and the results of operations for the quarter ending March 31, 2019, and ~~nine months ending September 30, 2018, and September 30, 2017.~~March 31, 2018. This discussion should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein and with the financial statements and other financial data, as well as the Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

At ~~September 30, 2018,~~March 31, 2019, the Bancorp had total assets of ~~$1.1~~$1.3 billion, total loans receivable of ~~$742.2~~$865.0 million and total deposits of ~~$902.8 million.~~$1.1 billion. Stockholders' equity totaled ~~$96.5~~$123.2 million or ~~8.99%~~9.72% of total assets, with a book value per share of ~~$31.85.~~$35.70. Net income for the quarter ended ~~September 30, 2018,~~March 31, 2019, was ~~$1.6~~$2.2 million, or ~~$0.54~~$0.66 earnings per common share for both basic and diluted calculations. For the quarter ended ~~September 30, 2018,~~March 31, 2019, the return on average assets (ROA) was ~~0.62%~~0.72%, while the return on average stockholders’ equity (ROE) was 6.70%. Net income for the nine months ended September 30, 2018, was $6.7 million, or $2.29 earnings per common share for both basic and diluted calculations. For the nine months ended September 30, 2018, the ROA was 0.92%, while the ROE was 9.56%7.59%.

Recent Developments

Acquisition of AJSB.On January 24, 2019, the Bancorp completed its acquisition of AJSB, pursuant to an Agreement and Plan of Merger dated July 30, 2018 (the “AJSB Merger Agreement”) between the Bancorp and AJSB. Pursuant to the terms of the AJSB Merger Agreement, AJSB merged with and into the Bancorp, with the Bancorp as the surviving corporation (the “AJSB Merger”). Simultaneous with the AJSB Merger, A.J. Smith Federal Savings Bank, a federally chartered savings bank and wholly-owned subsidiary of AJSB, merged with and into the Bank, with the Bank as the surviving institution.

In connection with the AJSB Merger, each AJSB stockholder holding 100 or more shares of AJSB common stock received fixed consideration of (i) 0.2030 shares of the Bancorp common stock, and (ii) $7.20 per share in cash for each outstanding share of AJSB common stock. Stockholders holding less than 100 shares of AJSB common stock received $16.00 in cash and no stock consideration for each outstanding share of AJSB common stock. Any fractional shares of Bancorp common stock that an AJSB stockholder would have otherwise received in the AJSB Merger were cashed out in the amount of such fraction multiplied by $43.01.

The Bancorp issued 416,478 shares of Bancorp common stock to the former AJSB stockholders, and paid cash consideration of approximately $15.4 million. Based upon the closing price of NWIN’s common stock on January 23, 2019, the transaction had an implied valuation of approximately $32.9 million, which includes unallocated shares held by the AJSB Employee Stock Ownership Plan (“ESOP”), some of which were cancelled in connection with the closing to satisfy the ESOP’s outstanding loan balance. As of March 31, 2019, acquisition costs related to the AJSB Merger equaled approximately $2.1 million. The acquisition further expanded the Bank’s banking center network in Cook County, Illinois, expanding the Bank’s full-service retail banking network to 22 banking centers.

Acquisition of First ~~Personal Financial Corp.~~Personal.On July 26, 2018, the Bancorp completed its previously announced acquisition of First Personal, ~~Financial Corp., a Delaware corporation (“First Personal”)~~ pursuant to an Agreement and Plan of Merger dated February 20, 2018 (the “First Personal Merger Agreement”) between the Bancorp and First Personal. Pursuant to the terms of the First Personal Merger Agreement, First Personal merged with and into the Bancorp, with the Bancorp as the surviving corporation (the “First Personal Merger”). Simultaneous with the First Personal Merger, First Personal Bank, an Illinois state chartered commercial bank and wholly-owned subsidiary of First Personal, merged with and into Peoples Bank SB, with Peoples Bank as the surviving ~~bank.~~institution. The acquisition represented the Bank’s first expansion into the South Suburban Chicagoland market, and expanded the Bank’s full-service retail banking network to 19 banking centers.

In connection with the First Personal Merger, each First Personal stockholder holding 100 or more shares of First Personal common stock received fixed consideration of (i) 0.1246 shares of Bancorp common stock, and (ii) $6.67 per share in cash for each outstanding share of First Personal common stock. Stockholders holding less than 100 shares of First Personal common stock received $12.12 in cash and no stock consideration for each outstanding share of First Personal common stock. Any fractional shares of Bancorp common stock that a First Personal stockholder would have otherwise received in the First Personal Merger were cashed out in the amount of such fraction multiplied by $42.95.

The Bancorp issued a total of ~~approximately~~ 161,875 shares of Bancorp common stock to the former First Personal stockholders, and paid cash consideration of approximately $8.7 million. Based upon the closing price of Bancorp’s common stock on July 25, 2018, the transaction had an implied valuation of approximately $15.6 million.

~~Merger Agreement with AJS Bancorp, Inc.~~ On July 30, 2018, the Bancorp entered into an Agreement and Plan of Merger (the “AJSB Merger Agreement”) with AJS Bancorp, Inc., a Maryland corporation (“AJSB”). Pursuant to the AJSB Merger Agreement, AJSB will merge with and into NWIN, with NWIN as the surviving corporation (the “AJSB Merger”). Simultaneously with the AJSB Merger, A.J. Smith Federal Savings Bank, a federally chartered savings bank and wholly-owned subsidiary of AJSB (“ AJS Bank”), will merge with and into Peoples Bank SB, with Peoples Bank as the surviving bank.

Upon completion of the AJSB Merger, each AJSB stockholder who holds 100 or more shares of AJSB common stock will have the right to receive fixed consideration of (i) 0.2030 shares of NWIN common stock, and (ii) $7.20 per share in cash for each outstanding share of AJSB’s common stock, subject to adjustment as provided in the AJSB Merger Agreement. Stockholders holding less than 100 shares of AJSB common stock will have the right to receive $16.00 in cash and no stock consideration for each outstanding share of AJSB common stock. In lieu of any fractional shares of NWIN common stock, NWIN will distribute an amount in cash equal to such fraction multiplied by the volume-weighted average per share closing price of a share of NWIN common stock as quoted on the OTC Pink Marketplace during the fifteen consecutive trading days preceding the second business day prior to the closing of the AJSB Merger. Based upon the closing price of the Bancorp’s common stock of $43.00 on July 30, 2018, the transaction had an implied valuation of approximately $34.6 million.

Financial Condition

During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, total assets increased by ~~$145.8~~$172.2 million (15.7%), with interest-earning assets increasing by ~~$124.3~~$137.9 million ~~(14.3%~~(13.5%). At ~~September 30, 2018,~~March 31, 2019, interest-earning assets totaled ~~$995.8 million~~$1.2 billion compared to ~~$871.5 million~~$1.0 billion at December 31, ~~2017.~~2018. Earning assets represented ~~92.8%~~91.2% of total assets at ~~September 30, 2018~~March 31, 2019 and ~~94.0%~~92.9% of total assets at December 31, ~~2017.~~2018. The increase in total assets and interest earning assets for the ~~nine~~three months was primarily the result of the completion of the acquisition of ~~First Personal~~AJSB as well as internally generated growth.

Net loans receivable totaled ~~$734.5~~$856.8 million at ~~September 30, 2018,~~March 31, 2019, compared to ~~$612.7~~$756.4 million at December 31, ~~2017.~~2018. The loan portfolio, which is the Bancorp’s largest asset, is the primary source of both interest and fee income. The Bancorp’s lending strategy emphasizes quality loan growth, product diversification, and competitive and profitable pricing.

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

September 30,
2018 December 31,
(Dollars in thousands) (unaudited) 2017
Balance % Loans Balance % Loans

Residential real estate $ 220,862 29.8 % $ 172,141 27.8 %
Home equity 43,234 5.8 % 36,769 5.9 %
Commercial real estate 243,304 32.8 % 211,090 34.0 %
Construction and land development 54,755 7.4 % 50,746 8.2 %
Multifamily 45,752 6.2 % 43,368 7.0 %
Farmland 242 0.0 % - 0.0 %
Consumer 5,633 0.8 % 461 0.1 %
Commercial business 102,687 13.8 % 76,851 12.4 %
Government 25,763 3.4 % 28,785 4.6 %
Loans receivable $ 742,232 100.0 % $ 620,211 100.0 %

Adjustable rate loans / loans receivable $ 417,367 56.2 % $ 348,559 56.2 %

	March 31,
	2019					December 31,
(Dollars in thousands)	(unaudited)					2018
	Balance		% Loans			Balance		% Loans

Residential real estate	$	302,918		35.0	%		223,323		29.2	%
Home equity		49,716		5.7	%		45,483		6.0	%
Commercial real estate		265,013		30.6	%		253,104		33.1	%
Construction and land development		66,920		7.7	%		64,433		8.4	%
Multifamily		49,316		5.7	%		47,234		6.2	%
Farmland		236		0.0	%		240		0.0	%
Consumer		7,778		0.9	%		6,043		0.8	%
Commercial business		103,507		12.0	%		103,439		13.5	%
Government		19,591		2.4	%		21,101		2.8	%
Loans receivable	$	864,995		100.0	%	$	764,400		100.0	%

Adjustable rate loans / loans receivable	$	454,844		52.6	%	$	348,559		45.6	%

	September 30,						March 31,
	2018			December 31,			2019			December 31,
	(unaudited)			2017			(unaudited)			2018

Loans receivable to total assets		69.2	%		66.9	%		68.2	%		69.7	%
Loans receivable to earning assets		74.5	%		71.2	%		74.8	%		75.1	%
Loans receivable to total deposits		82.2	%		78.2	%		78.5	%		82.2	%

The Bancorp is primarily a portfolio lender. Mortgage banking activities historically have been limited to the sale of fixed rate mortgage loans with contractual maturities greater than 15 years. These loans are identified as held for sale when originated and sold, on a loan-by-loan basis, in the secondary market. The Bancorp will also retain fixed rate mortgage loans with a contractual maturity greater than 15 years on a limited basis. During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, the Bancorp originated ~~$41.8~~$9.8 million in new fixed rate mortgage loans for sale, compared to ~~$31.6~~$8.3 million during the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2018. Net gains realized from the mortgage loan sales totaled ~~$1.0 million for the nine months ended September 30, 2018, compared to $883~~$242 thousand for the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2019, compared to $211 thousand for the three months ended March 31, 2018. At ~~September 30, 2018,~~March 31, 2019, the Bancorp had ~~$4.5~~$3.0 million in loans that were classified as held for sale, compared to ~~$1.6~~$2.9 million at December 31, ~~2017.~~2018.

Non-performing loans include those loans that are 90 days or more past due and those loans that have been placed on non-accrual status. At ~~September 30, 2018,~~March 31, 2019, all non-performing loans are also accounted for on a non-accrual basis, except for ~~six~~four residential real estate loans totaling ~~$885~~$379 thousand, two commercial business totaling $322 thousand, three commercial real estate loans totaling $303 thousand, and one ~~home equity~~multifamily loan totaling ~~$50~~$145 thousand that remained accruing and more than 90 days past due.

The ~~Bancorp's nonperforming loans are loans that are more than~~Bancorp will at times leave notes accruing, despite being over 90 days past due, ~~and those loans that have been placed on non-accrual status and~~for short periods of time when management has reason to believe payments are ~~summarized below:~~in process of being paid.

(Dollars in thousands) (unaudited)
Loan Segment September 30,
2018 December 31,
2017
Residential real estate $ 4,746 $ 3,734
Home equity 378 352
Commercial real estate 768 332
Construction and land development - 133
Multifamily - -
Farmland - -
Commercial business 514 672
Consumer - -
Government - -
Total $ 6,406 $ 5,223
Nonperforming loans to total loans 0.86 % 0.84 %
Nonperforming loans to total assets 0.60 % 0.56 %

The Bancorp's nonperforming loans are summarized below:

(Dollars in thousands)
Loan Segment	March 31, 2019			December 31, 2018
Residential real estate	$	5,925		$	5,257
Home equity		537			320
Commercial real estate		994			695
Construction and land development		-			-
Multifamily		415			-
Farmland		-			-
Commercial business		490			644
Consumer		-			-
Government		-			-
Total	$	8,361		$	6,916
Nonperforming loans to total loans		0.97	%		0.90	%
Nonperforming loans to total assets		0.66	%		0.63	%

Substandard loans include non-performing loans and 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, 2018~~March 31, 2019 or December 31, ~~2017.~~2018.

~~The Bancorp's substandard loans are summarized below:~~

The Bancorp's substandard loans are summarized below:

(Dollars in thousands)	(unaudited)
Loan Segment	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
Residential real estate	$	4,350	$	3,732	$	5,494	$	5,366
Home equity		432		350		558		373
Commercial real estate		1,871		512		1,829		1,770
Construction and land development		-		134		-		-
Multifamily		-		-		683		-
Farmland		-		-		-		-
Commercial business		780		1,174		430		728
Consumer		-		-		-		-
Government		-		-		-		-
Total	$	7,433	$	5,902	$	8,994	$	8,237

In addition to identifying and monitoring non-performing and other classified loans, management maintains a list of special mention loans. Special mention loans represent loans management is closely monitoring due to one or more factors that may cause the loan to become classified as substandard.

~~The Bancorp's special mention loans are summarized below:~~

The Bancorp's special mention loans are summarized below:

(Dollars in thousands)
Loan Segment	March 31, 2019		December 31, 2018
Residential real estate	$	4,466	$	3,908
Home equity		866		657
Commercial real estate		4,556		4,715
Construction and land development		-		-
Multifamily		178		149
Farmland		-		-
Commercial business		2,839		2,958
Consumer		-		20
Government		-		-
Total	$	12,905	$	12,407

(Dollars in thousands) (unaudited)
Loan Segment September 30,
2018 December 31,
2017
Residential real estate $ 4,685 $ 4,130
Home equity 544 233
Commercial real estate 5,972 6,758
Construction and land development - -
Multifamily 154 168
Farmland - -
Commercial business 3,144 394
Consumer 20 -
Government - -
Total $ 14,519 $ 11,683

A loan is considered impaired when, based on current information and events, it is probable that a borrower will be unable to pay all amounts due according to the contractual terms of the loan agreement. Typically, management does not individually classify smaller-balance homogeneous loans, such as residential mortgages or consumer loans, as impaired, unless they are troubled debt restructurings.

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date. Purchased loans with evidence of credit quality deterioration since origination are considered purchased credit impaired loans. Expected future cash flows at the purchase date in excess of the fair value of loans are recorded as interest income over the life of the loans if the timing and amount of the future cash flows is reasonably estimable (“accretable yield”). The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference and represents probable losses in the portfolio. In determining the acquisition date fair value of purchased credit impaired loans, and in subsequent accounting, the Bancorp aggregates these purchased loans into pools of loans by common risk characteristics, such as credit risk rating and loan type. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses.

~~The Bancorp's impaired loans, including purchased credit impaired loans, are summarized below:~~

The Bancorp's impaired loans, including purchased credit impaired loans, are summarized below:					The Bancorp's impaired loans, including purchased credit impaired loans, are summarized below:

(Dollars in thousands)	(unaudited)
Loan Segment	September 30, 2018		December 31, 2017			March 31, 2019		December 31, 2018
Residential real estate	$	1,631	$	1,152		$	1,925	$	1,550
Home equity		270		-			506		264
Commercial real estate		3,409		512			2,156		2,105
Construction and land development		-		134			-		-
Multifamily		-		-			716		-
Farmland		-		-			-		-
Commercial business		1,909		724			1,568		1,863
Consumer		-		-			-		-
Government		-		-			-		-
Total	$	7,219	$	2,522		$	6,871	$	5,782

At times, the Bancorp will modify the terms of a loan to forego a portion of interest or principal or reduce the interest rate on the loan to a rate materially less than market rates, or materially extend the maturity date of a loan as part of a troubled debt restructuring. The valuation basis for the Bancorp’s troubled debt restructurings is based on the present value of expected future cash flows; unless consistent cash flows are not present, then the fair value of the collateral securing the loan is the basis for valuation.

~~The Bancorp's troubled debt restructured loans are summarized below:~~

The Bancorp's troubled debt restructured loans are summarized below:					The Bancorp's troubled debt restructured loans are summarized below:

(Dollars in thousands)	(unaudited)
Loan Segment	September 30, 2018		December 31, 2017			March 31, 2019		December 31, 2018
Residential real estate	$	412	$	303		$	589	$	598
Home equity		147		-			-		-
Commercial real estate		1,103		181			1,050		1,074
Construction and land development		-		-			-		-
Multifamily		-		-			-		-
Farmland		-		-			-		-
Commercial business		394		51			384		359
Consumer		-		-			-		-
Government		-		-			-		-
Total	$	2,056	$	535		$	2,023	$	2,031

The ~~increase~~decrease in the troubled debt restructure loans reflected in the table above for the ~~nine~~three months ~~ended September 30, 2018~~ending March 31, 2019 was the result of ~~a $1.1 million commercial relationship as well as a $129~~scheduled payments totaling $55 thousand which was offset by the addition of one commercial business loan ~~which were modified as part of a troubled debt restructure or~~totaling $47 thousand that was renewed with cash flow difficulties. ~~These restructurings~~This restructuring along with ~~seven residential real estate~~two commercial business loans and ~~home equity restructurings~~the AJSB purchased credit impaired loans all contributed to the increase in impaired loans. ~~The $1.1 million relationship was classified as substandard and remains in accrual status.~~

The increase in the nonperforming, substandard, special mention, and impaired loans reflected in the tables above for the ~~nine~~three months ending ~~September 30, 2018,~~March 31, 2019, are the result of the completion of the AJSB acquisition ~~of First Personal~~ as well as ~~two large commercial relationships and~~ one commercial ~~customer~~real estate loan which ~~were all~~was not related to the acquisition. AJSB loans totaling $1.1 million contributed to the March 31, 2019 increase in nonperforming loans. AJSB loans totaling $1.6 million contributed to the March 31, 2019 increase in substandard loans which was offset by payments and the movement of various loans out of substandard. One ~~$531 thousand~~ commercial real estate loan totaling $283 thousand and ~~First Personal~~AJSB loans totaling ~~$761 thousand contributed to the September 30, 2018 increase in nonperforming loans. One large~~ $1.1 million commercial relationship, one $531 thousand commercial real estate loan and First Personal loans totaling $761 thousand contributed to the September 30, 2018 increase in substandard loans. One $2.1 million commercial relationship and First Personal loans totaling $4.1 million contributed to the ~~September 30, 2018~~March 31, 2019 increase in watch loans which was offset by payments and the ~~payoff~~movement of ~~one $2.3 million commercial real estate loan. One large $1.1 million commercial relationship, one $531 thousand commercial real estate loan, and First Personal~~various loans out of watch. AJSB purchased credit impaired loans totaling ~~$4.0~~$1.8 million contributed to the ~~September 30, 2018~~March 31, 2019 increase in impaired loans.

At ~~September 30, 2018,~~March 31, 2019, management is of the opinion that there are no loans, except certain of those discussed above, 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, non-accrual or a troubled debt restructure. 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 loan losses (ALL) is a valuation allowance for probable incurred credit losses, increased by the provision for loan 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. The determination of the amounts of the ALL and provisions for loan losses is based on management’s current judgments about the credit quality of the loan portfolio with consideration given to all known relevant internal and external factors that affect loan collectability as of the reporting date. The appropriateness of the current period provision and the overall adequacy of the ALL are determined through a disciplined and consistently applied quarterly process that reviews the Bancorp’s current credit risk within the loan portfolio and identifies the required allowance for loan losses given the current risk estimates.

~~The Bancorp's provision for loan losses for the nine months ended are summarized below:~~

The Bancorp's provision for loan losses for the three months ended are summarized below:

(Dollars in thousands)

Loan Segment	March 31, 2019			March 31, 2018
Residential real estate	$	(1	)	$	(7	)
Home equity		(8	)		12
Commercial real estate		150			(10	)
Construction and land development		21			43
Multifamily		(38	)		(7	)
Farmland		-			4
Commercial business		23			295
Consumer		187			8
Government		(17	)		3
Total	$	317		$	341

~~(Dollars in thousands)~~

(unaudited)
Loan Segment September 30,
2018 September 30,
2017
Residential real estate $ 143 $ 370
Home equity 51 (157 )
Commercial real estate 210 (195 )
Construction and land development (39 ) (47 )
Multifamily (165 ) (31 )
Farmland 3 -
Commercial business 439 44
Consumer 316 738
Government (8 ) -
Total $ 950 $ 722

~~The Bancorp's charge-off and recovery information for the nine months ended is summarized below:~~

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

(Dollars in thousands)	(unaudited)
	As of September 30, 2018									As of March 31, 2019
Loan Segment	Charge-off			Recoveries		Net Charge-offs				Charge-off			Recoveries		Net Charge-offs
Residential real estate	$	(136	)	$	-	$	(136	)		$	(48	)	$	14	$	(34	)
Home equity		(24	)		-		(24	)			-			-		-
Commercial real estate		(119	)		24		(95	)			-			-		-
Construction and land development		-			-		-				-			-		-
Multifamily		-			-		-				-			-		-
Farmland		-			-		-				-			-		-
Commercial business		(529	)		125		(404	)			-			6		6
Consumer		(41	)		17		(24	)			(18	)		3		(15	)
Government		-			-		-				-			-		-
Total	$	(849	)	$	166	$	(683	)		$	(66	)	$	23	$	(43	)

The ALL provisions take into consideration management’s current judgments about the credit quality of the loan portfolio, loan portfolio balances, changes in the portfolio mix and local economic conditions. In determining the provision for loan losses for the current period, management has considered risks associated with the local economy, changes in loan balances and mix, and asset quality.

In addition, management considers additional reserves that have been established from acquisition activity. The Bancorp acquired loans for which there was evidence of credit quality deterioration since origination and it was determined that it was probable that the Bancorp would be unable to collect all contractually required principal and interest payments. At March 31, 2019, total purchased credit impaired loans reserves totaled $3.0 million compared to $3.1 million at Decmber 31, 2018. Additionally, the Bancorp has acquired loans where there was not evidence of credit quality deterioration since origination and has marked these loans to their fair values. As part of the fair value of loans receivable, a net fair value discount was established for loans acquired of $5.2 million at March 31, 2019, compared to $1.8 million at December 31, 2018. Details on these fair value marks and the additional reserves created can be found in Note 5, Loans Receivable.

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

The Bancorp's allowance to total loans and non-performing loans aresummarized below:							The Bancorp's allowance to total loans and non-performing loans aresummarized below:

(Dollars in thousands)	(unaudited)
	September 30, 2018			December 31, 2017				March 31, 2019			December 31, 2018

Allowance for loan losses	$	7,749		$	7,482			$	8,236		$	7,962
Total loans	$	742,232		$	620,211			$	864,995		$	764,400
Non-performing loans	$	6,406		$	5,223			$	8,361		$	6,916
ALL-to-total loans		1.04	%		1.21	%			0.95	%		1.04	%
ALL-to-non-performing loans (coverage ratio)		121.0	%		143.3	%			98.5	%		115.1	%

The ~~September 30, 2018~~March 31, 2019 balance in the ALL account is considered adequate by management after evaluation of the loan portfolio, past experience, ~~and~~ current economic and market ~~conditions.~~conditions, and additional reserves from acquisition accounting. While management may periodically allocate portions of the allowance for specific problem loans, the whole allowance is available for any loan charge offs that occur. The allocation of the ALL reflects performance and growth trends within the various loan categories, as well as consideration of the facts and circumstances that affect the repayment of individual loans, and loans which have been pooled as of the evaluation date, with particular attention given to non-performing loans and loans which have been classified as substandard, doubtful or loss. Management has allocated reserves to both performing and non-performing loans based on current information available.

At ~~September 30, 2018,~~March 31, 2019, foreclosed real estate totaled ~~$2.1~~$1.5 million, which was comprised of ~~twenty-seven~~twenty-four properties, compared to ~~$1.7~~$1.6 million and ~~nineteen~~twenty-four properties at December 31, ~~2017. The increase in foreclosed real estate is the result of the addition of $1.2 million, which was comprised of twenty properties, from the acquisition of First Personal.~~2018. Net gains from the sale of foreclosed real estate totaled ~~$154~~$27 thousand for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. At the end of ~~September 2018~~March 2019 all of the Bancorp’s foreclosed real estate is located within its primary market area, which has been expanded into the Cook County, Illinois and Chicagoland metropolitan area with the acquisition of First ~~Personal.~~Personal and AJSB.

The primary objective of the Bancorp’s investment portfolio is to provide for the liquidity needs of the Bancorp and to contribute to profitability by providing a stable flow of dependable earnings. Funds are generally invested in federal funds, interest bearing balances in other financial institutions, U.S. government securities, federal agency obligations, obligations of state and local municipalities and corporate securities. The securities portfolio, all of which is designated as available-for-sale, totaled ~~$238.1~~$251.3 million at ~~September 30, 2018,~~March 31, 2019, compared to ~~$244.5~~$241.8 million at December 31, ~~2017, a decrease~~2018, an increase of ~~$6.4~~$9.5 million ~~(2.6%~~(4.0%). The ~~decrease~~increase in the securities portfolio during the year is a result of market value adjustments ~~for unrealized losses~~ and the ~~reallocation of $5.0 million of funds to support loan growth.~~AJSB acquisition. At ~~September 30, 2018,~~March 31, 2019, the securities portfolio represented ~~23.9%~~21.7% of interest-earning assets and ~~22.2%~~19.8% of total assets compared to ~~28.1%~~23.7% of interest-earning assets and ~~26.4%~~22.1% of total assets at December 31, ~~2017.~~2018.

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

	September 30,										March 31,
	2018					December 31,					2019					December 31,
(Dollars in thousands)	(unaudited)					2017					(unaudited)					2018
	Balance		% Securities			Balance		% Securities			Balance		% Securities			Balance		% Securities

Money market fund	$	2,018		0.8	%	$	476		0.2	%	$	4,254		1.7	%	$	2,480		1.0	%
U.S. treasury securities												594		0.2	%		-		0.0	%
U.S. government sponsored entities		9,768		4.1	%		3,890		1.6	%		14,953		5.9	%		7,894		3.3	%
Collateralized mortgage obligations and residential mortgage-backed securities		132,670		55.7	%		132,938		54.4	%		142,606		56.7	%		135,281		56.0	%
Municipal securities		91,416		38.4	%		103,747		42.4	%		86,845		34.6	%		94,064		38.9	%
Collateralized debt obligations		2,199		1.0	%		3,439		1.4	%		2,079		0.9	%		2,049		0.8	%
Total securities available-for-sale	$	238,071		100.0	%	$	244,490		100.0	%	$	251,331		100.0	%	$	241,768		100.0	%

	September 30,									March 31,
	2018		December 31,		YTD					2019		December 31,		YTD
(Dollars in thousands)	(unaudited)		2017		Change					(unaudited)		2018		Change
	Balance		Balance		$		%			Balance		Balance		$		%

Interest bearing deposits in other financial institutions	$	2,576	$	139	$	2,437		1753.2	%	$	15,255	$	3,116	$	12,139		389.6	%
Fed funds sold		1,398		357		1,041		291.6	%		15,518		763		14,755		1933.8	%
Certificates of deposit in other financial institutions		3,754		1,676		2,078		124.0	%		2,215		2,024		191		9.4	%
Federal Home Loan Bank stock		3,236		3,000		236		7.9	%		3,971		3,460		511		14.8	%

The net increase in interest bearing deposits in other financial institutions ~~certificates of deposit,~~ and in fed funds sold is primarily the result of the AJSB acquisition and timing of liquidity needs. The increase in Federal Home Loan Bank stock corresponds to stock ownership requirements based ~~on borrowing needs. The increase in certificate of deposits in other financial institutions is~~ the ~~result of First Personal merger.~~AJSB acquisition.

Deposits are a fundamental and cost-effective source of funds for lending and other investment purposes. The Bancorp offers a variety of products designed to attract and retain customers, with the primary focus on building and expanding relationships.

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

September 30,
2018 December 31, YTD
(Dollars in thousands) (unaudited) 2017 Change
Balance Balance $ %

Checking $ 339,176 $ 309,023 $ 30,153 9.8 %
Savings 161,357 129,702 31,655 24.4 %
Money market 148,227 170,359 (22,132 ) -13.0 %
Certificates of deposit 253,996 183,920 70,076 38.1 %
Total deposits $ 902,756 $ 793,004 $ 109,752 13.8 %

	March 31,
	2019		December 31,		YTD
(Dollars in thousands)	(unaudited)		2018		Change
	Balance		Balance		$		%

Checking	$	387,682	$	341,677	$	46,005		13.5	%
Savings		218,760		160,490		58,270		36.3	%
Money market		188,559		168,727		19,832		11.8	%
Certificates of deposit		306,652		258,892		47,760		18.4	%
Total deposits	$	1,101,653	$	929,786	$	171,867		18.5	%

The overall increase in total deposits is primarily a result of the acquisition of ~~First Personal. When adjusted for the First Personal acquisition, overall deposits decreased during the period ended September 30, 2018.~~AJSB, along with internally generated growth. This ~~decrease~~increase also reflects the cyclical nature and timing of municipality ~~money market~~ deposits.

The Bancorp’s borrowed funds are primarily used to fund asset growth not supported by deposit generation. The Bancorp’s end-of-period borrowing balances were as follows:

September 30,
2018 December 31, YTD
(Dollars in thousands) (unaudited) 2017 Change
Balance Balance $ %

Repurchase agreements $ 12,585 $ 11,300 $ 1,285 11.4 %
Borrowed funds 48,314 20,881 27,433 131.4 %
Total borrowed funds $ 60,899 $ 32,181 $ 28,718 89.2 %

	March 31,
	2019		December 31,		YTD
(Dollars in thousands)	(unaudited)		2018		Change
	Balance		Balance		$			%

Repurchase agreements	$	12,691	$	11,628	$	1,063			9.1	%
Borrowed funds		20,000		43,000		(23,000	)		-53.5	%
Total borrowed funds	$	32,691	$	54,628	$	(21,937	)		-40.2	%

Repurchase agreements increased as part of normal account fluctuations within that product line. Borrowed funds ~~increased~~decreased as FHLB advances were ~~utilized for funding purposes.~~paid down and matured during the quarter.

Liquidity and Capital Resources

For the Bancorp, liquidity management refers to the ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, and pay dividends and operating expenses. Because profit and liquidity are often conflicting objectives, management attempts to maximize the Bank’s net interest margin by making adequate, but not excessive, liquidity provisions. Furthermore, funds are managed so that future profits will not be significantly impacted as funding costs increase.

Changes in the liquidity position result from operating, investing and financing activities. Cash flows from operating activities are generally the cash effects of transactions and other events that enter into the determination of net income. The primary investing activities include loan originations, loan repayments, investments in interest bearing balances in other financial institutions, and the purchase, sale, and maturity of investment securities. Financing activities focus almost entirely on the generation of customer deposits. In addition, the Bancorp utilizes borrowings (i.e., repurchase agreements, FHLB advances and federal funds purchased) as a source of funds.

During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, cash and cash equivalents increased by ~~$2.9~~$43.7 million compared to a ~~$31.0~~$9.4 million ~~decrease~~increase for the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2018. The primary sources of cash and cash equivalents were the acquisition of AJSB, growth of deposits, and sales of loans originated for ~~sale, proceeds from maturities, pay downs, calls, and sales of available-for-sale securities, proceeds from FHLB advances, and additional borrowings.~~sale. The primary uses of cash and cash equivalents were loan originations, the purchase of securities, and the repayment of FHLB advances. Cash provided by operating activities totaled ~~$2.3~~$1.4 million for the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, compared to cash provided of ~~$9.1~~$3.0 million for the ~~nine~~three month period ended ~~September 30, 2017. The decrease in cash~~March 31, 2018. Cash provided from operating activities was primarily a result of ~~an increase in~~net income, and loans originated for sale, offset by the sale of loans originated for sale and change in accrued expenses and other liabilities. Cash ~~outflows~~provided from investing activities totaled ~~$10.4~~$37.4 million for the current period, compared to cash outflows of ~~$33.0~~$6.7 million for the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2018. Cash ~~outflows~~provided from investing activities for the current ~~nine~~three months were primarily related to the cash and cash equivalents from acquisition activity offset against origination of loans ~~receivable and purchases of securities, offset by the sale and maturities for securities available-for-sale, and cash used for the acquisition of First Personal.~~receivable. Net cash ~~inflows~~provided from financing activities totaled ~~$11.0~~$4.8 million during the current period compared to net cash ~~outflows~~provided of ~~$7.1~~$13.1 million for the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2018. The net cash inflows from financing activities were primarily a result of ~~proceeds from~~net change in deposits offset against repayment of FHLB ~~advances and increased borrowing.~~advances. On a cash basis, the Bancorp paid dividends on common stock of ~~$2.5 million~~$909 thousand for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~$2.4 million~~$831 thousand for the ~~nine~~three months ended ~~September 30, 2017.~~

March 31, 2018.

At ~~September 30, 2018,~~March 31, 2019, outstanding commitments to fund loans totaled ~~$185.3~~$191.4 million. Approximately ~~51.4%~~54.1% of the commitments were at variable rates. Standby letters of credit, which are conditional commitments issued by the Bancorp to guarantee the performance of a customer to a third party, totaled ~~$10.2~~$10.1 million at ~~September 30, 2018.~~March 31, 2019. Management believes that the Bancorp 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~~three months ended ~~September 30, 2018,~~March 31, 2019, stockholders' equity increased by ~~$4.4~~$21.8 million ~~(4.8%~~(21.5%). During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, stockholders’ equity was primarily increased by net income of ~~$6.7~~$2.2 million, increased unrealized gains on available securities of $3.0 million, and the issuance of ~~161,875~~416,478 shares for ~~$6.9~~$17.5 million as part of the acquisition of ~~First Personal.~~AJSB. Decreasing stockholders’ equity was the declaration of ~~$2.6~~$1.0 million in cash ~~dividends and a decrease to net unrealized gains (losses) on securities available-for-sale of $6.7 million.~~dividends. On April 24, 2014 the Bancorp’s Board of Directors authorized a stock repurchase program to repurchase up to 50,000 shares of the Bancorp’s outstanding common stock, from time to time and subject to market conditions, on the open market or in privately negotiated transactions. The stock repurchase program does not expire and is only limited by the number of shares that can be purchased. The stock repurchase program will be reviewed annually by the Board of Directors. No shares were repurchased under the program during the first ~~nine~~three months of ~~2018~~2019 or ~~2017.~~2018. During ~~2018, 7,700~~2019, 3,302 restricted stock shares vested under the ~~program~~Incentive Plan outlined in Note 10 of the financial statements, of which ~~1,658~~843 of these shares were withheld in the form of a net surrender to cover the withholding tax obligations of the vesting employees. The repurchase of these surrendered shares is considered outside of the scope of the formal stock repurchase program.

The Bancorp is subject to risk-based capital guidelines adopted by the Board of Governors of the Federal Reserve System (the ~~FRB)~~“FRB”), and the Bank is subject to risk-based capital guidelines adopted by the FDIC. As applied to the Bancorp and the Bank, the FRB and FDIC capital requirements are substantially the same. These regulations divide capital into multiple tiers. The first tier (Common Equity Tier 1 Capital) includes common shareholders’ equity, after deductions for various items including goodwill and certain other intangible assets, and after certain other adjustments. Common Equity Tier 1 Capital also includes accumulated other comprehensive income (for organizations that do not make opt-out elections). The next tier (Tier 1 Capital) is comprised of Common Equity Tier 1 Capital plus other qualifying capital instruments such as perpetual noncumulative preferred stock and junior subordinated debt issued to trusts, and other adjustments. The third tier (Tier 2 Capital) includes instruments such as subordinated debt that have a minimum original maturity of at least five years and are subordinated to the claims of depositors and general creditors, total capital minority interest not included in Tier 1 Capital, and limited amounts of the allowance for loan losses, less applicable regulatory adjustments and deductions. The Bancorp and the Bank are required to maintain a Common Equity Tier 1 Capital ratio of 4.5%, a Tier 1 Capital ratio of 6%, and a Total Capital ratio (comprised of Tier 1 Capital plus Tier 2 Capital) of 8%. In addition, the capital regulations provide for a minimum leverage ratio (Tier 1 capital to adjusted average assets) of 4%.

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 Bancorp, are exempt from consolidated regulatory capital requirements, unless the FRB determines otherwise in particular cases.

During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, the Bancorp’s and Bank’s regulatory capital ratios continued to be negatively impacted by regulatory requirements regarding collateralized debt obligations. The regulatory requirements state that for collateralized debt obligations that have been downgraded below investment grade by the rating agencies, increased risk based asset weightings are required. The Bancorp currently holds pooled trust preferred securities with a cost basis of $3.5 million. These investments currently have ratings that are below investment grade. As a result, approximately ~~$18.9~~$17.5 million of risk-based assets are generated by the trust preferred securities in the Bancorp’s and Bank’s total risk based capital calculation.

The following table shows that, at ~~September 30, 2018,~~March 31, 2019, and December 31, ~~2017,~~2018, the Bancorp’s capital exceeded all applicable regulatory capital requirements. The dollar amounts are in millions.

(Dollars in millions)											Minimum Required To Be												Minimum Required To Be
						Minimum Required For					Well Capitalized Under Prompt							Minimum Required For					Well Capitalized Under Prompt
	Actual					Capital Adequacy Purposes					Corrective Action Regulations		Actual					Capital Adequacy Purposes					Corrective Action Regulations
At September 30, 2018	Amount		Ratio			Amount		Ratio			Amount	Ratio
At March 31, 2019													Amount		Ratio			Amount		Ratio			Amount		Ratio
Common equity tier 1 capital to risk-weighted assets	$	89.1		11.3	%	$	35.6		4.5	%	N/A	N/A	$	103.2		11.6	%	$	39.9		4.5	%		N/A		N/A
Tier 1 capital to risk-weighted assets	$	89.1		11.3	%	$	47.5		6.0	%	N/A	N/A	$	103.2		11.6	%	$	53.2		6.0	%		N/A		N/A
Total capital to risk-weighted assets	$	96.8		12.2	%	$	63.3		8.0	%	N/A	N/A	$	111.4		12.6	%	$	71.0		8.0	%		N/A		N/A
Tier 1 capital to adjusted average assets	$	89.1		8.6	%	$	41.3		4.0	%	N/A	N/A	$	103.2		8.5	%	$	48.4		4.0	%		N/A		N/A

(Dollars in millions)											Minimum Required To Be												Minimum Required To Be
						Minimum Required For					Well Capitalized Under Prompt							Minimum Required For					Well Capitalized Under Prompt
	Actual					Capital Adequacy Purposes					Corrective Action Regulations		Actual					Capital Adequacy Purposes					Corrective Action Regulations
At December 31, 2017	Amount		Ratio			Amount		Ratio			Amount	Ratio
At December 31, 2018													Amount		Ratio			Amount		Ratio			Amount		Ratio
Common equity tier 1 capital to risk-weighted assets	$	88.4		12.9	%	$	30.9		4.5	%	N/A	N/A	$	92.8		11.6	%	$	26.1		4.5	%		N/A		N/A
Tier 1 capital to risk-weighted assets	$	88.4		12.9	%	$	41.2		6.0	%	N/A	N/A	$	92.8		11.6	%	$	42.2		6.0	%		N/A		N/A
Total capital to risk-weighted assets	$	96.0		14.0	%	$	55.0		8.0	%	N/A	N/A	$	100.8		12.6	%	$	64.2		8.0	%		N/A		N/A
Tier 1 capital to adjusted average assets	$	88.4		9.6	%	$	36.8		4.0	%	N/A	N/A	$	92.8		8.6	%	$	43.2		4.0	%		N/A		N/A

In addition, the following table shows that, at ~~September 30, 2018,~~March 31, 2019, and December 31, ~~2017,~~2018, the Bank’s capital exceeded all applicable regulatory capital requirements. The dollar amounts are in millions.

(Dollars in millions)											Minimum Required To Be															Minimum Required To Be
						Minimum Required For					Well Capitalized Under Prompt										Minimum Required For					Well Capitalized Under Prompt
	Actual					Capital Adequacy Purposes					Corrective Action Regulations					Actual					Capital Adequacy Purposes					Corrective Action Regulations
At September 30, 2018	Amount		Ratio			Amount		Ratio			Amount		Ratio
At March 31, 2019																Amount		Ratio			Amount		Ratio			Amount		Ratio
Common equity tier 1 capital to risk-weighted assets	$	86.3		10.9	%	$	35.6		4.5	%	$	51.4		6.5	%	$	100.3		11.3	%	$	39.9		4.5	%	$	57.7		6.5	%
Tier 1 capital to risk-weighted assets	$	86.3		10.9	%	$	47.5		6.0	%	$	63.3		8.0	%	$	100.3		11.3	%	$	53.3		6.0	%	$	71.0		8.0	%
Total capital to risk-weighted assets	$	94.1		11.9	%	$	63.3		8.0	%	$	79.1		10.0	%	$	108.5		12.2	%	$	71.0		8.0	%	$	88.8		10.0	%
Tier 1 capital to adjusted average assets	$	86.3		8.4	%	$	41.0		4.0	%	$	51.3		5.0	%	$	100.3		8.3	%	$	48.3		4.0	%	$	60.4		5.0	%

(Dollars in millions)											Minimum Required To Be															Minimum Required To Be
						Minimum Required For					Well Capitalized Under Prompt										Minimum Required For					Well Capitalized Under Prompt
	Actual					Capital Adequacy Purposes					Corrective Action Regulations					Actual					Capital Adequacy Purposes					Corrective Action Regulations
At December 31, 2017	Amount		Ratio			Amount		Ratio			Amount		Ratio
At December 31, 2018																Amount		Ratio			Amount		Ratio			Amount		Ratio
Common equity tier 1 capital to risk-weighted assets	$	86.3		12.6	%	$	30.9		4.5	%	$	44.6		6.5	%	$	89.9		11.2	%	$	36.2		4.5	%	$	52.2		6.5	%
Tier 1 capital to risk-weighted assets	$	86.3		12.6	%	$	41.2		6.0	%	$	54.9		8.0	%	$	89.9		11.2	%	$	48.2		6.0	%	$	64.3		8.0	%
Total capital to risk-weighted assets	$	93.8		13.7	%	$	54.9		8.0	%	$	68.7		10.0	%	$	97.9		12.2	%	$	64.3		8.0	%	$	80.3		10.0	%
Tier 1 capital to adjusted average assets	$	86.3		9.4	%	$	36.7		4.0	%	$	45.8		5.0	%	$	89.9		8.4	%	$	42.9		4.0	%	$	53.6		5.0	%

The Bancorp’s ability to pay dividends to its shareholders is primarily dependent upon the Bank’s ability to pay dividends to the Bancorp. Under Indiana law, the Bank may pay dividends from its undivided profits (generally, earnings less losses, bad debts, taxes and other operating expenses) as is considered expedient by the Bank’s Board of Directors. However, the Bank must obtain the approval of the Indiana Department of Financial Institutions (DFI) if the total of all dividends declared by the Bank during the current year, including the proposed dividend, would exceed the sum of retained net income for the year to date plus its retained net income for the previous two years. For this purpose, “retained net income,” means net income as calculated for call report purposes, less all dividends declared for the applicable period. An exemption from DFI approval would require that the Bank have been assigned a composite uniform financial institutions rating of 1 or 2 as a result of the most recent federal or state examination; the proposed dividend would not result in a Tier 1 leverage ratio below 7.5%; and that the Bank not be subject to any corrective action, supervisory order, supervisory agreement, or board approved operating agreement. The aggregate amount of dividends that may be declared by the Bank in ~~2018,~~2019, without the need for qualifying for an exemption or prior DFI approval, is ~~$10.2~~$1.5 million plus ~~2018~~2019 net profits. Moreover, the FDIC and the ~~Federal Reserve Board~~FRB 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. On ~~August 31, 2018~~February 22, 2019, the Board of Directors of the Bancorp declared a ~~third~~first quarter dividend of $0.30 per share. The Bancorp’s ~~third~~first quarter dividend was paid to shareholders on ~~October 9, 2018.~~April 5, 2019.

Results of Operations - Comparison of the Quarter Ended ~~September 30, 2018~~March 31, 2019 to the Quarter Ended ~~September 30, 2017~~March 31, 2018

For the ~~three months~~quarter ended ~~September 30, 2018,~~March 31, 2019, the Bancorp reported net income of ~~$1.6~~$2.2 million, compared to net income of ~~$2.2~~$2.6 million for the quarter ended ~~September 30, 2017,~~March 31, 2018, a decrease of ~~$623~~$337 thousand ~~(27.7%~~(13.2%). For the quarter, the ROA was ~~0.62%~~0.72%, compared to ~~0.98%~~1.10% for the quarter ended ~~September 30, 2017.~~March 31, 2018. The ROE was ~~6.70%~~7.59% for the quarter ended ~~September 30, 2018,~~March 31, 2019, compared to ~~9.82%~~11.20% for the quarter ended ~~September 30, 2017.~~March 31, 2018.

Net interest income for the quarter ended ~~September 30, 2018~~March 31, 2019 was ~~$9.0~~$10.6 million, an increase of ~~$1.2~~$2.8 million ~~(16.0%~~(35.3%), compared to $7.8 million for the quarter ended ~~September 30, 2017.~~March 31, 2018. The weighted-average yield on interest-earning assets was ~~4.26%~~4.40% for the quarter ended ~~September 30, 2018,~~March 31, 2019, compared to ~~3.94%~~3.99% for the quarter ended ~~September 30, 2017.~~March 31, 2018. The weighted-average cost of funds for the quarter ended ~~September 30, 2018~~March 31, 2019 was ~~0.56%~~0.70% compared to ~~0.32%~~0.43% for the quarter ended ~~September 30, 2017.~~March 31, 2018. The impact of the ~~4.26%~~4.40% return on interest earning assets and the ~~0.56%~~0.70% cost of funds resulted in an interest rate spread of ~~3.69%~~3.70% for the current quarter, an increase from the ~~3.61%~~3.56% spread for the quarter ended ~~September 30, 2017.~~March 31, 2018. The net interest margin on earning assets was ~~3.72%~~3.74% for the ~~three months~~quarter ended ~~September 30, 2018~~March 31, 2019 and ~~3.63%~~3.58% for the ~~three months~~quarter ended ~~September 30, 2017.~~March 31, 2018. On a tax equivalent basis, the Bancorp’s net interest margin was ~~3.92%~~3.81% for the ~~three months~~quarter ended ~~September 30, 2018,~~March 31, 2019, compared to ~~3.86%~~3.80% for the ~~three months~~quarter ended ~~September 30, 2017.~~March 31, 2018. Comparing the net interest margin on a tax equivalent basis more accurately compares the returns on tax-exempt loans and securities to those on taxable interest-earning assets.

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-to-Date
(Dollars in thousands) Average Balances, Interest, and Rates
September 30, 2018 September 30, 2017
Average
Balance Interest Rate (%) Average
Balance Interest Rate (%)
ASSETS
Interest bearing deposits in other financial institutions $ 6,502 $ 38 2.34 $ 1,696 $ 9 2.12
Federal funds sold 1,104 11 3.99 1,480 3 0.81
Certificates of deposit in other financial institutions 3,570 25 2.80 1,657 6 1.45
Securities available-for-sale 236,629 1,674 2.83 241,697 1,553 2.57
Loans receivable 719,654 8,552 4.75 606,709 6,828 4.50
Federal Home Loan Bank stock 3,177 35 4.41 3,000 32 4.27
Total interest earning assets 970,636 $ 10,335 4.26 856,239 $ 8,431 3.94
Cash and non-interest bearing deposits in other financial institutions 10,348 12,869
Allowance for loan losses (7,542 ) (7,062 )
Other noninterest bearing assets 68,849 53,385
Total assets $ 1,042,291 $ 915,431

LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits $ 883,405 $ 1,018 0.46 $ 770,938 $ 518 0.27
Repurchase agreements 12,615 47 1.49 13,379 31 0.93
Borrowed funds 38,624 254 2.63 30,162 110 1.46
Total interest bearing liabilities 934,644 $ 1,319 0.56 814,479 $ 659 0.32
Other noninterest bearing liabilities 10,626 9,369
Total liabilities 945,270 823,848
Total stockholders' equity 97,021 91,583
Total liabilities and stockholders' equity $ 1,042,291 $ 915,431

Return on average assets 0.62 % 0.98 %
Return on average equity 6.70 % 9.82 %
Net interest margin (average earning assets) 3.72 % $ 9,016 3.63 % $ 7,772

Quarter-to-Date
(Dollars in thousands)	Average Balances, Interest, and Rates
(unaudited)	March 31, 2019							March 31, 2018
	Average Balance			Interest		Rate (%)		Average Balance			Interest		Rate (%)
ASSETS
Interest bearing deposits in other financial institutions	$	39,838		$	85		0.85	$	2,396		$	10		1.67
Federal funds sold		5,478			41		2.99		467			1		0.86
Certificates of deposit in other financial institutions		2,201			17		3.09		1,636			6		1.47
Securities available-for-sale		246,525			1,758		2.85		241,081			1,671		2.77
Loans receivable		836,958			10,543		5.04		626,894			6,994		4.46
Federal Home Loan Bank stock		3,840			43		4.48		3,000			51		6.80
Total interest earning assets		1,134,840		$	12,487		4.40		875,474		$	8,733		3.99
Cash and non-interest bearing deposits in other financial institutions		17,612							13,360
Allowance for loan losses		(8,065	)						(7,468	)
Other noninterest bearing assets		86,365							53,643
Total assets	$	1,230,752						$	935,009

LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits	$	1,038,380		$	1,672		0.64	$	782,382		$	675		0.35
Repurchase agreements		10,540			49		1.86		11,162			32		1.15
Borrowed funds		27,579			166		2.41		40,764			191		1.87
Total interest bearing liabilities		1,076,499		$	1,887		0.70		834,308		$	898		0.43
Other noninterest bearing liabilities		37,088							9,288
Total liabilities		1,113,587							843,596
Total stockholders' equity		117,165							91,413
Total liabilities and stockholders' equity	$	1,230,752						$	935,009

The increase in interest income for interest bearing deposits in other financial institutions was the result of higher average balances ~~and higher average short term rates~~ for the ~~three months~~quarter ended ~~September 30, 2018,~~March 31, 2019, compared to the ~~three months~~quarter ended ~~September 30, 2017.~~March 31, 2018. The increase in interest income for federal funds sold was primarily the result of higher average balances and rates received in short term rates for the ~~three months~~quarter ended ~~September 30, 2018,~~March 31, 2019, compared to the ~~three months~~quarter ended ~~September 30, 2017.~~March 31, 2018. The increase in interest income for certificates of deposit in other financial institutions was the result of higher average balances and higher average rates received in short term rates for the ~~three months~~quarter ended ~~September 30, 2018,~~March 31, 2019, compared to the ~~three months~~quarter ended ~~September 30, 2017.~~March 31, 2018. The increase in interest income for securities available-for-sale was primarily the result of higher average balances and average rates received in rates for the ~~three months~~quarter ended ~~September 30, 2018,~~March 31, 2019, compared to the ~~three months~~quarter ended ~~September 30, 2017.~~March 31, 2018. The increase in interest income for loans receivable was the result of higher average balances and higher weighted average rates for the ~~three months~~quarter ended ~~September 30, 2018,~~March 31, 2019, compared to the ~~three months~~quarter ended ~~September 30, 2017.~~March 31, 2018. The increase in the interest expense of total deposits and borrowed funds was the result of higher average balances and higher weighted average rates for the ~~three months~~quarter ended ~~September 30, 2018~~March 31, 2019, compared to the ~~three months~~quarter ended ~~September 30, 2017.~~March 31, 2018. The increase in the interest expense for repurchase agreements was the result of higher weighted average rates for the ~~three months~~quarter ended ~~September 30, 2018~~March 31, 2019, compared to the ~~three months~~quarter ended ~~September 30, 2017.~~March 31, 2018.

The following table shows the change in noninterest income for the quarter ending ~~September 30, 2018,~~March 31, 2019, and ~~September 30, 2017.~~March 31, 2018.

	Three Months Ended										Three Months Ended
(Dollars in thousands)	September 30,				Three Months Ended						March 31,				Three Months Ended
	2018		2017		$ Change			% Change			2019		2018		$ Change			% Change
Noninterest income:
Fees and service charges	$	991	$	843	$	148			17.6	%	$	1,162	$	892	$	270			30.3	%
Gain on sale of loans held-for-sale, net		451		412		39			9.5	%
Wealth management operations		414		459		(45	)		-9.8	%		500		415		85			20.5	%
Gain on sale of securities, net		151		213		(62	)		-29.1	%		352		758		(406	)		-53.6	%
Gain on sale of loans held-for-sale, net												242		211		31			14.7	%
Increase in cash value of bank owned life insurance		130		119		11			9.2	%		163		108		55			50.9	%
Gain on sale of foreclosed real estate, net		54		2		52			2600.0	%		27		32		(5	)		-15.6	%
Other		32		27		5			18.5	%		124		33		91			275.8	%
Total noninterest income	$	2,223	$	2,075	$	148			7.1	%	$	2,570	$	2,449	$	121			4.9	%

The increase in fees and service charges is the result of the Bancorp’s continued focus on maintaining competitive fees within its market place, as well the acquisition of First ~~Personal.~~Personal and AJSB. The increase in gains on sale of loans is a result of overall increase in loan origination volume. ~~Current market conditions provided opportunities to maintain securities cash flows, while recognizing~~The decrease in gains ~~from the sales of securities. The increase in gain~~ on sale of ~~foreclosed real estate~~securities is ~~the~~a result of ~~normal course of business sales from other real estate owned.~~current market conditions and maintaining current securities cash flows. The increase in other noninterest income is primarily driven by ~~rental income from other real estate owned properties.~~gains made on the sale of fixed assets.

The following table shows the change in noninterest expense for the quarter ending ~~September 30, 2018,~~March 31, 2019, and ~~September 30, 2017.~~March 31, 2018.

	Three Months Ended										Three Months Ended
(Dollars in thousands)	September 30,				Three Months Ended						March 31,				Three Months Ended
	2018		2017		$ Change			% Change			2019		2018		$ Change		% Change
Noninterest expense:
Compensation and benefits	$	4,669	$	4,094	$	575			14.0	%	$	4,676	$	3,860	$	816		21.1	%
Occupancy and equipment												1,123		853		270		31.7	%
Data processing		1,012		364		648			178.0	%		703		361		342		94.7	%
Occupancy and equipment		829		845		(16	)		-1.9	%
Marketing		223		135		88			65.2	%		263		134		129		96.3	%
Federal deposit insurance premiums		91		84		7			8.3	%		91		84		7		8.3	%
Other		2,233		1,403		830			59.2	%		3,435		1,675		1,760		105.1	%
Total noninterest expense	$	9,057	$	6,925	$	2,132			30.8	%	$	10,291	$	6,967	$	3,324		47.7	%

The increase in compensation and benefits is primarily the result of increased compensation ~~in the amount of approximately $200 thousand that resulted from~~due to the acquisition of AJSB and First Personal. Additional increases to compensation and benefits can be attributed to management’s continued focus on talent management and retention. The increase in occupancy and equipment is primarily related to the First Personal and AJSB acquisitions and related assets brought over. The increase in data processing expense is primarily the result of data conversion expenses ~~of approximately $600 thousand~~ related to the acquisition of ~~First Personal~~AJSB as well as increased utilization of systems. The increase in marketing expenses is primarily related to the acquisition of ~~First Personal~~AJSB as well as regular advertising initiatives. The increase in other operating expenses is primarily related to the increase of approximately ~~$520 thousand~~$1.5 million that resulted from the acquisition of ~~First Personal,~~AJSB, as well as generally higher third party costs. The Bancorp’s efficiency ratio was ~~80.6%~~78.1% for the quarter ended ~~September 30, 2018,~~March 31, 2019, compared to ~~70.3%~~67.8% for the quarter ended ~~September 30, 2017.~~March 31, 2018. The increased ratio is related primarily to the increase in noninterest expense. The efficiency ratio is determined by dividing total noninterest expense by the sum of net interest income and total noninterest income for the period. The acquisition of AJSB and First Personal isacquisitions are discussed in Note 3 of the financial statements.

Income tax expenses for the quarter ended ~~September 30, 2018~~March 31, 2019, totaled ~~$245~~$340 thousand, compared to income tax expense of ~~$509~~$415 thousand for the quarter ended ~~September 30, 2017,~~March 31, 2018, a decrease of ~~$264~~$75 thousand (51.9%). The combined effective federal and state tax rates for the Bancorp was 13.1% for the quarter ended September 30, 2018, compared to 18.5% for the quarter ended September 30, 2017. The Bancorp’s lower current quarter effective tax rate is primarily a result of the Tax Cuts and Jobs Act that, among other changes, reduces the corporate federal income tax rate from 34% to 21% and was effective January 1, 2018.

~~Results of Operations - Comparison of the Nine Months Ended September 30, 2018 to the Nine Months Ended September 30, 2017~~

For the nine months ended September 30, 2018, the Bancorp reported net income of $6.7 million, compared to net income of $7.1 million for the nine months ended September 30, 2017, a decrease of $378 thousand (5.3%). For the nine months ended September 30, 2018, the ROA was 0.92%, compared to 1.04% for the nine months ended September 30, 2017. The ROE was 9.56% for the nine months ended September 30, 2018, compared to 10.54% for the nine months ended September 30, 2017.

Net interest income for the nine months ended September 30, 2018 was $24.7 million, an increase of $1.8 million (7.8%), compared to $22.9 million for the nine months ended September 30, 2017. The weighted-average yield on interest-earning assets was 4.11% for the nine months ended September 30, 2018, compared to 3.89% for the nine months ended September 30, 2017. The weighted-average cost of funds for the nine months ended September 30, 2018 was 0.51% compared to 0.30% for the nine months ended September 30, 2017. The impact of the 4.11% return on interest earning assets and the 0.51% cost of funds resulted in an interest rate spread of 3.60% for the current nine months, which is a decrease from the spread of 3.59% as of September 30, 2017. The net interest margin on earning assets was 3.62% for the nine months ended September 30, 2018 and 3.60% for the nine months ended September 30, 2017. On a tax equivalent basis, the Bancorp’s net interest margin was 3.81% for the nine months ended September 30, 2018, compared to 3.79% for the nine months ended September 30, 2017. Comparing the net interest margin on a tax equivalent basis more accurately compares the returns on tax-exempt loans and securities to those on taxable interest-earning assets.

Year-to-Date
(Dollars in thousands) Average Balances, Interest, and Rates
September 30, 2018 September 30, 2017
Average
Balance Interest Rate (%) Average
Balance Interest Rate (%)
ASSETS
Interest bearing deposits in other financial institutions $ 4,203 $ 66 2.09 $ 4,733 $ 32 0.90
Federal funds sold 1,055 30 3.79 1,101 5 0.61
Certificates of deposit in other financial institutions 2,251 38 2.25 1,194 12 1.34
Securities available-for-sale 239,020 5,010 2.79 238,442 4,706 2.63
Loans receivable 661,300 22,803 4.60 600,650 19,931 4.42
Federal Home Loan Bank stock 3,063 117 5.09 3,000 95 4.22
Total interest earning assets 910,892 $ 28,064 4.11 852,120 $ 24,781 3.89
Cash and non-interest bearing deposits in other financial institutions 10,354 11,888
Allowance for loan losses (7,415 ) (7,273 )
Other noninterest bearing assets 58,732 53,642
Total assets $ 972,563 $ 907,377

LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits $ 816,880 $ 2,531 0.41 $ 770,090 $ 1,475 0.26
Repurchase agreements 12,374 124 1.34 13,385 80 0.80
Borrowed funds 40,225 682 2.26 26,221 281 1.43
Total interest bearing liabilities 869,479 $ 3,337 0.51 809,696 $ 1,836 0.30
Other noninterest bearing liabilities 9,676 8,211
Total liabilities 879,155 817,907
Total stockholders' equity 93,408 89,470
Total liabilities and stockholders' equity $ 972,563 $ 907,377

Return on average assets 0.92 % 1.04 %
Return on average equity 9.56 % 10.54 %
Net interest margin (average earning assets) 3.62 % $ 24,727 3.60 % $ 22,945

The increase in interest income for interest bearing deposits in other financial institutions and federal funds sold was primarily the result of higher average rates received from increases in short term rates for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017. The increase in interest income for certificates of deposit in other financial institutions was the result of higher average balances and higher average rates received from increases in short term rates for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017. The increase in interest income for securities available-for-sale and loans receivable was the result of higher average balances and higher weighted average rates for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017. The increase in interest expense for total deposits and borrowed funds was the result of higher average balances and higher weighted average rates for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase in interest expense for repurchase agreements was the result of higher weighted average rates for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017.

~~The following table shows the change in noninterest income for the nine months ending September 30, 2018, and September 30, 2017.~~

Nine Months Ended
(Dollars in thousands) September 30, Nine Months Ended
2018 2017 $ Change % Change
Noninterest income:
Fees and service charges 2,830 2,404 $ 426 17.7 %
Wealth management operations 1,253 1,267 (14 ) -1.1 %
Gain on sale of securities, net 1,155 758 397 52.4 %
Gain on sale of loans held-for-sale, net 1,021 883 138 15.6 %
Increase in cash value of bank owned life insurance 358 349 9 2.6 %
Gain on sale of foreclosed real estate, net 154 95 59 62.1 %
Other 104 64 40 62.5 %
Total noninterest income $ 6,875 $ 5,820 $ 1,055 18.1 %

The increase in fees and service charges is the result of the Bancorp’s continued focus on maintaining competitive fees within its market place, as well as the acquisition of First Personal. Current market conditions provided opportunities to maintain securities cash flows, while recognizing gains from the sales of securities. The increase in gain on sale of loans held for sale is the result of continued efforts on loan growth and normal course of business sales. The increase in other noninterest income is primarily driven by rental income from other real estate owned properties.

~~The following table shows the change in noninterest expense for the nine ending September 30, 2018, and September 30, 2017.~~

Nine Months Ended
(Dollars in thousands) September 30, Nine Months Ended
2018 2017 $ Change % Change
Noninterest expense:
Compensation and benefits 12,045 10,847 $ 1,198 11.0 %
Occupancy and equipment 2,524 2,542 (18 ) -0.7 %
Data processing 2,076 1,092 984 90.1 %
Marketing 523 469 54 11.5 %
Federal deposit insurance premiums 250 242 8 3.3 %
Other 5,512 4,061 1,451 35.7 %
Total noninterest expense $ 22,930 $ 19,253 $ 3,677 19.1 %

The increase in compensation and benefits is the result of a continued focus on talent management and retention, as well as the acquisition of First Personal. The increase in data processing expense is primarily the result of data conversion expenses related to the acquisition of First Personal and accounts for approximately $960 thousand of the increase shown. The remainder of the increase in data processing is due to increased system utilization. The increase in marketing expense is a result of the acquisition of First Personal. The increase in other operating expenses is primarily related to the acquisition of First Personal and accounts for approximately $700 thousand of the increase shown. The remainder of the increase in other noninterest expense is primarily related to a shared loss of $125 thousand from the operation of the wholly-owned subsidiary NWIN Risk Management, Inc. (a captive insurance subsidiary), as well as generally higher third party costs. The Bancorp’s efficiency ratio was 72.6% for the nine months ended September 30, 2018, compared to 66.9% for the nine months ended September 30, 2017. The increased ratio is related primarily to the increase in noninterest expense. The efficiency ratio is determined by dividing total noninterest expense by the sum of net interest income and total noninterest income for the period. The acquisition of First Personal is discussed in Note 3 of the financial statements.

Income tax expenses for the nine months ended September 30, 2018 totaled $1.0 million, compared to income tax expense of $1.7 million for the nine months ended September 30, 2017, a decrease of $690 thousand (40.2%(18.1%). The combined effective federal and state tax rates for the Bancorp was 13.3% for the ~~nine~~quarter ended ~~September 30, 2018,~~March 31, 2019, compared to ~~19.5%~~13.9% for the quarter ended September 30, 2017. The Bancorp’s lower current quarter effective tax rate is primarily a result of the Tax Cuts and Jobs Act that, among other changes, reduces the corporate federal income tax rate from 34% to 21% and was effective January 1,March 31, 2018.

Critical Accounting Policies

Critical accounting policies are those accounting policies that management believes are most important to the portrayal of the Bancorp’s financial condition and that require management’s most difficult, subjective or complex judgments. The Bancorp’s critical accounting policies from December 31, ~~2017~~2018 remain unchanged.

Forward-Looking Statements

Statements contained in this report that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions are also intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act. The Bancorp cautions readers that forward-looking statements, including without limitation those relating to the Bancorp’s future business prospects, merger and acquisition activities, interest income and expense, net income, liquidity, and capital needs are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements, due to, among other things, factors identified in this report, including those identified in the Bancorp’s ~~2017~~2018 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures.

The Bancorp maintains disclosure controls and procedures (as defined in Sections 13a – 15(e) and 15d – 15(e)) of regulations promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”) that are designed to ensure that information required to be disclosed by the Bancorp in the reports that it files or submits under the "Exchange Act" is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Bancorp in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Bancorp's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. The Bancorp's Chief Executive Officer and Chief Financial Officer evaluate the effectiveness of the Bancorp's disclosure controls and procedures as of the end of each quarter. Based on that evaluation as of ~~September 30, 2018,~~March 31, 2019, the Bancorp’s Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures were effective as of that ~~dat~~edate in ensuring that information required to be disclosed by the Bancorp under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

~~(b)~~

~~Changes in Internal Control Over Financial Reporting~~.

(b) Changes in Internal Control Over Financial Reporting.

There was no change in the Bancorp's internal control over financial ~~reportin~~greporting identified in connection with the Bancorp’s evaluation of controls that occurred during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Bancorp's internal control over financial reporting.

3533

PART II - Other Information

Item 1.

Legal Proceedings

The Bancorp and its subsidiaries, from time to time, are involved in legal proceedings in the ordinary course of business against its debtors and are defendants in legal actions arising from normal business activities. Management, after consultation with legal counsel believes that the ultimate liabilities, if any, resulting from these actions will not have a material adverse effect on the financial position of the Bank or on the consolidated financial position of the Bancorp.

Item 1A.

Risk Factors

Not Applicable.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

On April 24, 2014 the Bancorp’s Board of Directors authorized a stock repurchase program to repurchase up to 50,000 shares of the Bancorp’s outstanding common stock, from time to time and subject to market conditions, on the open market or in privately negotiated transactions. The stock repurchase program does not expire and is only limited by the number of shares that can be purchased. The stock repurchase program will be reviewed annually by the Board of Directors. No shares were repurchased during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 under the stock repurchase program.

~~Period~~

Total Number
of Shares

Maximum Number of

Purchased as Part of

Shares That May Yet

Total Number

Average Price

Publicly Announced

Be Purchased Under

Period

of Shares Purchased

~~Average Price~~
Paid per Share

~~Total Number of Shares~~
~~Purchased as Part of~~
~~Publicly Announced~~
Plans or Programs

~~Maximum Number of~~
~~Shares That May Yet~~
~~Be Purchased Under~~
the Program(1)

January 1, ~~2018~~2019 – January 31, ~~2018~~

~~N/A~~

~~48,828~~

~~February 1, 2018 – February 28, 2018~~

~~N/A~~

~~48,828~~

~~March 1, 2018 – March 31, 2018~~

~~N/A~~

~~48,828~~

~~April 1, 2018 – April 30, 2018~~

~~N/A~~

~~48,828~~

~~May 1, 2018 – May 31, 2018~~

~~N/A~~

~~48,828~~

~~June 1, 2018 – June 30, 2018~~

~~N/A~~

~~48,828~~

~~July 1, 2018 – July 31, 2018~~

~~N/A~~

~~48,828~~

~~August 1, 2018 – August 31, 2018~~

~~N/A~~

~~48,828~~

~~September 1, 2018 – September 30, 2018~~2019

N/A

48,828

February 1, 2019 – February 28, 2019

N/A

48,828

March 1, 2019 – March 31, 2019

N/A

48,828

(1)

The stock repurchase program was announced on April 24, 2014, whereby the Bancorp is authorized to repurchase up to 50,000 shares of the Bancorp’s common stock outstanding. There is no express expiration date for this program.

Item 3.

Defaults Upon Senior Securities

There are no matters reportable under this item.

Item 4.

Mine Safety Disclosures

Not Applicable

Item 5.

Other Information

None

Item 6.

Exhibits

Exhibit	~~Exhibit~~
Number	~~Number~~	Description
	2.1		Agreement and Plan of Merger by and among NorthWest Indiana Bancorp and AJS Bancorp, Inc. dated July 30, 2018 (incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K filed with the SEC on July 31, 2018).
	10.1		First Amendment to Employment Agreement dated July 27, 2018 by and among NorthWest Indiana Bancorp, Peoples Bank SB, and Benjamin J. Bochnowski (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on July 30, 2018).
	10.2		Voting Agreement dated July 30, 2018 (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on July 31, 2018).
	31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
	31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
	32.1		Section 1350 Certifications.
	101		The following materials from the Bancorp’s Form 10-Q for the quarterly period ended ~~September 30, 2018,~~March 31, 2019, formatted in an XBRL Interactive Data File: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Changes in Stockholders’ Equity; (iv) Consolidated Statement of Comprehensive Income; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements, with detailed tagging of notes and financial statement schedules.

3634

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NORTHWEST INDIANA BANCORP

Date: ~~November 5, 2018~~April 23, 2019	/s/ Benjamin J. Bochnowski
	Benjamin J. Bochnowski
	President and Chief Executive Officer

Date: ~~November 5, 2018~~April 23, 2019	/s/ Robert T. Lowry
	Robert T. Lowry
	Executive Vice President, Chief Financial
	Officer and Treasurer

3735

							For the nine months ended
	As of December 31, 2017						September 30, 2017
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	1,072	$	3,351	$	-	$	1,302	$	48
Home equity		-		-		-		-		-
Commercial real estate		253		253		-		361		4
Construction and land development		134		134		-		134		-
Multifamily		-		-		-		-		-
Commercial business		184		184		-		201		3

With an allowance recorded:
Residential real estate		80		270		21		300		1
Home equity		-		-		-		-		-
Commercial real estate		259		259		144		139		-
Construction & land development		-		-		-		-		-
Multifamily		-		-		-		-		-
Commercial business		540		540		539		481		4

Total:
Residential real estate	$	1,152	$	3,621	$	21	$	1,602	$	49
Home equity	$	-	$	-	$	-	$	-	$	-
Commercial real estate	$	512	$	512	$	144	$	500	$	4
Construction & land development	$	134	$	134	$	-	$	134	$	-
Commercial business	$	724	$	724	$	539	$	682	$	7

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investments Greater than 90 Days Past Due and Accruing
September 30, 2018
Residential real estate	$	2,329	$	1,518	$	3,942	$	7,789	$	213,073	$	220,862	$	885
Home equity		225		183		164		572		42,662		43,234		50
Commercial real estate		-		352		680		1,032		242,272		243,304		-
Construction and land development		-		-		-		-		54,755		54,755		-
Multifamily		-		154		-		154		45,598		45,752		-
Farmland		-		-		-		-		242		242		-
Commercial business		1,397		184		207		1,788		100,899		102,687		-
Consumer		52		20		-		72		5,561		5,633		-
Government		-		-		-		-		25,763		25,763		-
Total	$	4,003	$	2,411	$	4,993	$	11,407	$	730,825	$	742,232	$	935

December 31, 2017
Residential real estate	$	4,921	$	1,751	$	3,092	$	9,764	$	162,377	$	172,141	$	225
Home equity		295		18		234		547		36,222		36,769		2
Commercial real estate		951		96		332		1,379		209,711		211,090		-
Construction and land development		-		-		133		133		50,613		50,746		-
Multifamily		319		-		-		319		43,049		43,368		-
Farmland		-		-		-		-		-		-		-
Commercial business		285		162		539		986		75,865		76,851		-
Consumer		1		-		-		1		460		461		-
Government		-		-		-		-		28,785		28,785		-
Total	$	6,772	$	2,027	$	4,330	$	13,129	$	607,082	$	620,211	$	227

	September 30, 2018				Estimated Fair Value Measurements at September 30, 2018 Using
(Dollars in thousands)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	13,964	$	13,964	$	13,964	$	-	$	-
Certificates of deposit in other financial institutions		3,754		3,673		-		3,673		-
Securities available-for-sale		238,071		238,071		2,018		233,854		2,199
Loans held-for-sale		4,483		4,566		4,566		-		-
Loans receivable, net		734,483		717,640		-		-		717,640
Federal Home Loan Bank stock		3,236		3,236		-		3,236		-
Accrued interest receivable		3,560		3,560		-		3,560		-

Financial liabilities:
Non-interest bearing deposits		134,449		134,449		134,449		-		-
Interest bearing deposits		768,307		765,232		514,311		250,921		-
Repurchase agreements		12,585		12,580		10,823		1,757		-
Borrowed funds		48,314		48,698		13,766		34,932		-
Interest rate swap agreements		111		111		-		111		-
Accrued interest payable		110		110		-		110		-

Year-to-Date
(Dollars in thousands)	Average Balances, Interest, and Rates
	September 30, 2018							September 30, 2017
	Average Balance			Interest		Rate (%)		Average Balance			Interest		Rate (%)
ASSETS
Interest bearing deposits in other financial institutions	$	4,203		$	66		2.09	$	4,733		$	32		0.90
Federal funds sold		1,055			30		3.79		1,101			5		0.61
Certificates of deposit in other financial institutions		2,251			38		2.25		1,194			12		1.34
Securities available-for-sale		239,020			5,010		2.79		238,442			4,706		2.63
Loans receivable		661,300			22,803		4.60		600,650			19,931		4.42
Federal Home Loan Bank stock		3,063			117		5.09		3,000			95		4.22
Total interest earning assets		910,892		$	28,064		4.11		852,120		$	24,781		3.89
Cash and non-interest bearing deposits in other financial institutions		10,354							11,888
Allowance for loan losses		(7,415	)						(7,273	)
Other noninterest bearing assets		58,732							53,642
Total assets	$	972,563						$	907,377

LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits	$	816,880		$	2,531		0.41	$	770,090		$	1,475		0.26
Repurchase agreements		12,374			124		1.34		13,385			80		0.80
Borrowed funds		40,225			682		2.26		26,221			281		1.43
Total interest bearing liabilities		869,479		$	3,337		0.51		809,696		$	1,836		0.30
Other noninterest bearing liabilities		9,676							8,211
Total liabilities		879,155							817,907
Total stockholders' equity		93,408							89,470
Total liabilities and stockholders' equity	$	972,563						$	907,377


Return on average assets		0.92	%						1.04	%
Return on average equity		9.56	%						10.54	%
Net interest margin (average earning assets)		3.62	%	$	24,727				3.60	%	$	22,945