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 June 30, 2021 or

~~For the quarterly period ended June 30, 2020 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

~~For the transition period from~~ Finward Bancorpto

~~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~~836‑4400

	~~N/A~~
	~~(Former name, former address and former fiscal year, if changed since last report)~~

N/A

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

Securities registered pursuant to Section 12(b) of the Act: None.

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
N/A
N/A
N/A

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. Yes ☒ No ☐

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). Yes ☒ 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 filer ☒☐ Non-accelerated filer ☐☒
Smaller Reporting Company ☒ Emerging 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 ☐ No ☒

There were ~~3,463,136~~3,479,139 shares of the registrant’s Common Stock, without par value, outstanding at August ~~6, 2020.~~13, 2021.

~~NorthWest Indiana~~Finward 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	2529

	Item 3. Quantitative and Qualitative Disclosures about Market Risk	4144

	Item 4. Controls and Procedures	4144

PART II. Other Information	~~Other Information~~	4245

SIGNATURES	4346

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~~

Finward Bancorp

Condensed Consolidated Balance Sheets

	June 30,						June 30,
(Dollars in thousands)	2020			December 31,			2021			December 31,
	(unaudited)			2019			(unaudited)			2020
ASSETS

Cash and non-interest bearing deposits in other financial institutions	$	23,989		$	20,964		$	17,570		$	14,014
Interest bearing deposits in other financial institutions		72,993			10,750			50,406			5,908
Federal funds sold		323			15,544			649			0

Total cash and cash equivalents		97,305			47,258			68,625			19,922

Certificates of deposit in other financial institutions		1,639			2,170			1,471			1,897

Securities available-for-sale		294,719			277,219			473,927			410,669
Loans held-for-sale		10,024			6,091			5,878			11,329
Loans receivable		981,902			906,869			969,491			965,146
Less: allowance for loan losses		(9,866	)		(8,999	)		(13,639	)		(12,458	)
Net loans receivable		972,036			897,870			955,852			952,688
Federal Home Loan Bank stock		3,918			3,912			3,247			3,918
Accrued interest receivable		4,284			4,029			4,803			4,713
Premises and equipment		28,905			29,407			30,046			30,785
Foreclosed real estate		634			1,083			368			538
Cash value of bank owned life insurance		30,374			30,017			31,082			30,725
Goodwill		11,109			11,109			11,109			11,109
Other intangible assets								3,622			4,119
Other assets		19,087			18,557			13,483			13,880

Total assets	$	1,474,034		$	1,328,722		$	1,603,513		$	1,496,292

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Non-interest bearing	$	262,001		$	172,094		$	275,819		$	241,620
Interest bearing		1,015,633			982,276			1,119,277			1,060,719
Total		1,277,634			1,154,370			1,395,096			1,302,339
Repurchase agreements		17,159			11,499			24,399			13,711
Borrowed funds		12,000			14,000			0			6,149
Accrued expenses and other liabilities		22,060			14,750			28,449			22,404

Total liabilities		1,328,853			1,194,619			1,447,944			1,344,603

Commitments and contingent liabilties

Stockholders' Equity:
Preferred stock, no par or stated value; 10,000,000 shares authorized, none outstanding		-			-			0			0
Common stock, no par or stated value; 10,000,000 shares authorized; shares issued and outstanding: June 30, 2020 - 3,463,136 December 31, 2019 - 3,451,797		-
Common stock, no par or stated value; 10,000,000 shares authorized; shares issued and outstanding: June 30, 2021 - 3,479,139								0			0
December 31, 2020 - 3,462,916
Additional paid-in capital		29,774			29,657			30,141			29,987
Accumulated other comprehensive income/(loss)		9,114			4,261
Accumulated other comprehensive income								8,209			10,441
Retained earnings		106,293			100,185			117,219			111,261

Total stockholders' equity		145,181			134,103			155,569			151,689

Total liabilities and stockholders' equity	$	1,474,034		$	1,328,722		$	1,603,513		$	1,496,292

See accompanying notes to condensed consolidated financial statements.

~~NorthWest Indiana~~
Finward Bancorp
~~Consolidated Statements of Income~~
~~(unaudited)~~
Condensed Consolidated Statements of Income
(unaudited)

	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
(Dollars in thousands)	June 30,				June 30,				June 30,				June 30,
	2020		2019		2020		2019
(unaudited)									2021		2020		2021		2020
Interest income:
Loans receivable
Real estate loans	$	9,305	$	9,653	$	18,662	$	18,401	$	8,211	$	9,305	$	16,450	$	18,662
Commercial loans		1,834		1,651		3,319		3,335		1,751		1,834		3,991		3,319
Consumer loans		158		181		345		292		313		158		580		345
Total loan interest		11,297		11,485		22,326		22,028		10,275		11,297		21,021		22,326
Securities		1,564		1,777		3,269		3,578		2,144		1,564		4,105		3,269
Other interest earning assets		44		143		179		285		16		44		36		179

Total interest income		12,905		13,405		25,774		25,891		12,435		12,905		25,162		25,774

Interest expense:
Deposits		1,380		2,011		3,444		3,683		549		1,380		1,200		3,444
Repurchase agreements		17		66		57		115		12		17		22		57
Borrowed funds		93		128		187		294		2		93		22		187

Total interest expense		1,490		2,205		3,688		4,092		563		1,490		1,244		3,688

Net interest income		11,415		11,200		22,086		21,799		11,872		11,415		23,918		22,086
Provision for loan losses		508		511		1,022		828		576		508		1,154		1,022

Net interest income after provision for loan losses		10,907		10,689		21,064		20,971		11,296		10,907		22,764		21,064

Noninterest income:
Gain on sale of loans held-for-sale, net	$	2,464	$	400	$	3,617	$	642	$	1,116	$	2,464	$	3,165	$	3,617
Fees and service charges		1,151		1,243		2,200		2,405		1,471		1,151		2,537		2,200
Wealth management operations										576		514		1,183		1,068
Gain on sale of securities, net		667		301		1,177		652		269		667		686		1,177
Wealth management operations		514		479		1,068		979
Increase in cash value of bank owned life insurance		188		179		357		342		188		188		357		357
Gain on sale of foreclosed real estate, net		43		13		103		40		36		43		27		103
Other		19		54		70		178		24		19		38		70
Total noninterest income	$	5,046	$	2,669	$	8,592	$	5,238	$	3,680	$	5,046	$	7,993	$	8,592

Noninterest expense:
Compensation and benefits	$	5,371	$	4,600	$	10,588	$	9,401	$	5,897	$	5,620	$	11,582	$	10,930
Occupancy and equipment		1,295		1,169		2,704		2,291		1,324		1,295		2,696		2,704
Data processing		532		351		1,088		1,947		597		532		1,125		1,088
Marketing		180		176		388		613		195		180		394		388
Federal deposit insurance premiums		159		177		355		268		204		159		384		355
Other		2,227		1,951		4,640		4,193		2,793		2,227		5,322		4,640
Total noninterest expense	$	9,764	$	8,424	$	19,763	$	18,713	$	11,010	$	10,013	$	21,503	$	20,105

Income before income tax expenses		6,189		4,934		9,893		7,496		3,966		5,940		9,254		9,551
Income tax expenses		1,126		911		1,638		1,251		395		1,089		1,140		1,587
Net income	$	5,063	$	4,023	$	8,255	$	6,245	$	3,571	$	4,851	$	8,114	$	7,964

Earnings per common share:
Basic	$	1.46	$	1.17	$	2.39	$	1.84	$	1.03	$	1.40	$	2.33	$	2.30
Diluted	$	1.46	$	1.17	$	2.39	$	1.84	$	1.03	$	1.40	$	2.33	$	2.30

Dividends declared per common share	$	0.31	$	0.31	$	0.62	$	0.61	$	0.31	$	0.31	$	0.62	$	0.62

See accompanying notes to condensed consolidated financial statements.

~~NorthWest Indiana Bancorp~~

Finward Bancorp

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
(Dollars in thousands)	June 30,						June 30,						June 30,						June 30,
	2020			2019			2020			2019			2021			2020			2021			2020

Net income	$	5,063		$	4,023		$	8,255		$	6,245		$	3,571		$	4,851		$	8,114		$	7,964

Net change in net unrealized gains on securities available-for-sale:
Unrealized gains arising during the period		1,207			3,584			7,319			7,766
Net change in net unrealized gains and losses on securities available-for-sale:
Unrealized (losses)/gains arising during the period														5,624			1,207			(2,137	)		7,319
Less: reclassification adjustment for gains included in net income		(667	)		(301	)		(1,177	)		(652	)		(269	)		(667	)		(686	)		(1,177	)
Net securities gain during the period		540			3,283			6,142			7,114
Net securities (loss)/gain during the period														5,355			540			(2,823	)		6,142
Tax effect		(112	)		(690	)		(1,289	)		(1,488	)		(1,126	)		(112	)		591			(1,289	)
Net of tax amount		428			2,593			4,853			5,626			4,229			428			(2,232	)		4,853

Other comprehensive income, net of tax		428			2,593			4,853			5,626

Comprehensive income, net of tax	$	5,491		$	6,616		$	13,108		$	11,871
Comprehensive (loss)/income, net of tax													$	7,800		$	5,279		$	5,882		$	12,817

See accompanying notes to condensed consolidated financial statements.

~~NorthWest Indiana Bancorp~~

Finward Bancorp

Condensed Consolidated Statements of Changes in Stockholders' Equity

(unaudited)

						Accumulated														Accumulated
			Additional			Other											Additional			Other
	Common		Paid-in			Comprehensive			Retained			Total			Common		Paid-in			Comprehensive			Retained			Total
(Dollars in thousands, except per share data)	Stock		Capital			(Loss)/Income			Earnings			Equity			Stock		Capital			Income			Earnings			Equity

Balance at January 1, 2019	$	-	$	11,927		$	(2,796	)	$	92,333		$	101,464

Comprehensive income:
Net income		-		-			-			2,222			2,222
Net unrealized gain on securities available-for-sale, net of reclassification and tax effects		-		-			3,033			-			3,033
Comprehensive income													5,255
Stock-based compensation expense		-		71			-			-			71
Issuance of 416,478 shares at $42.00 per share, for acquisition of AJS Bancorp, Inc				17,492									17,492
Cash dividends, $0.30 per share		-		-			-			(1,035	)		(1,035	)

Balance at March 31, 2019	$	-	$	29,490		$	237		$	93,520		$	123,247

Comprehensive income:
Net income		-		-			-			4,023			4,023
Net unrealized gain on securities available-for-sale, net of reclassification and tax effects		-		-			2,593			-			2,593
Comprehensive income													6,616
Net surrender value of 1,245 restricted stock awards				(63	)								(63	)
Stock-based compensation expense		-		83			-			-			83
Cash dividends, $0.31 per share		-		-			-			(1,071	)		(1,071	)

Balance at June 30, 2019	$	-	$	29,510		$	2,830		$	96,472		$	128,812

Balance at January 1, 2020	$	-	$	29,657		$	4,261		$	100,185		$	134,103		$	0	$	29,657		$	4,261		$	99,624		$	133,542

Comprehensive income:
Net income		-		-			-			3,192			3,192			0		0			0			3,113			3,113
Net unrealized gain on securities available-for-sale, net of reclassification and tax effects		-		-			4,425			-			4,425
Net unrealized gain on securities available-for- sale, net of reclassification and tax effects																0		0			4,425			0			4,425
Comprehensive income													7,617			0		0			0			0			7,538
Net surrender value of 1,904 restricted stock awards				(85	)								(85	)		0		(85	)		0			0			(85	)
Stock-based compensation expense		-		94			-			-			94			0		94			0			0			94
Cash dividends, $0.31 per share		-		-			-			(1,074	)		(1,074	)		0		0			0			(1,074	)		(1,074	)

Balance at March 31, 2020	$	-	$	29,666		$	8,686		$	102,303		$	140,655		$	0	$	29,666		$	8,686		$	101,663		$	140,015

Comprehensive income:
Net income		-		-			-			5,063			5,063			0		0			0			4,851			4,851
Net unrealized gain on securities available-for-sale, net of reclassification and tax effects		-		-			428			-			428
Net unrealized gain on securities available-for- sale, net of reclassification and tax effects																0		0			428			0			428
Comprehensive income													5,491			0		0			0			0			5,279
Stock-based compensation expense		-		108			-			-			108			0		108			0			0			108
Cash dividends, $0.31 per share		-		-			-			(1,073	)		(1,073	)		0		0			0			(1,073	)		(1,073	)

Balance at June 30, 2020	$	-	$	29,774		$	9,114		$	106,293		$	145,181		$	0	$	29,774		$	9,114		$	105,441		$	144,329

Balance at January 1, 2021															$	0	$	29,987		$	10,441		$	111,261		$	151,689

Comprehensive income:
Net income																0		0			0			4,543			4,543
Net unrealized loss on securities available-for- sale, net of reclassification and tax effects																0		0			(6,461	)		0			(6,461	)
Comprehensive income																0		0			0			0			(1,918	)
Net surrender value of 1,711 restricted stock awards																0		(68	)		0			0			(68	)
Stock-based compensation expense																0		146			0			0			146
Cash dividends, $0.31 per share																0		0			0			(1,079	)		(1,079	)

Balance at March 31, 2021															$	0	$	30,065		$	3,980		$	114,725		$	148,770

Comprehensive income:
Net income																0		0			0			3,571			3,571
Net unrealized gain on securities available-for- sale, net of reclassification and tax effects																0		0			4,229			0			4,229
Comprehensive income																0		0			0			0			7,800
Net surrender value of 1,404 restricted stock awards																0		(63	)		0			0			(63	)
Stock-based compensation expense																0		139			0			0			139
Cash dividends, $0.31 per share																0		0			0			(1,077	)		(1,077	)

Balance at June 30, 2021															$	0	$	30,141		$	8,209		$	117,219		$	155,569

See accompanying notes to condensed consolidated financial statements.

~~NorthWest Indiana~~
Finward Bancorp
~~Consolidated Statements of Cash Flows~~
~~(unaudited)~~
Condensed Consolidated Statements of Cash Flows
(unaudited)

	Six Months Ended						Six Months Ended
(Dollars in thousands)	June 30,						June 30,
	2020			2019			2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	8,255		$	6,245		$	8,114		$	7,964
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Origination of loans for sale		(114,170	)		(29,585	)		(85,903	)		(114,170	)
Sale of loans originated for sale		113,362			29,252			94,163			113,362
Depreciation and amortization, net of accretion		2,186			1,516			2,041			2,186
Amortization of mortgage servicing rights		32			33			113			32
Stock based compensation expense		202			154			285			202
Net surrender value of restricted stock awards		(85	)		(63	)		(131	)		(85	)
Gain on sale of securities, net		(1,177	)		(652	)		(686	)		(1,177	)
Gain on sale of loans held-for-sale, net		(3,617	)		(642	)		(3,293	)		(3,021	)
Gain on interest rate lock derivative		298			-
Loss/(gain) on derivatives								128			(298	)
Gain on sale of foreclosed real estate, net		(103	)		(40	)		(27	)		(103	)
Provision for loan losses		1,022			828			1,154			1,022
Net change in:
Interest receivable		(255	)		(499	)		(90	)		(255	)
Other assets		(1,657	)		(3,567	)		1,728			(1,708	)
Cash value of bank owned life insurance								(357	)		(357	)
Accrued expenses and other liabilities		7,303			2,661			(3,723	)		7,303
Total adjustments		3,341			(604	)
Net cash - operating activities		11,596			5,641			13,516			10,897

CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from maturities and (purchases) of certificates of deposits in other financial institutions		531			54
Proceeds from maturities of certificates of deposits in other financial institutions								426			531
Proceeds from maturities and pay downs of securities available-for-sale		31,409			11,747			43,322			31,409
Proceeds from sales of securities available-for-sale		35,098			30,281			19,290			35,098
Purchase of securities available-for-sale		(77,506	)		(48,347	)		(119,075	)		(77,506	)
Net change in loans receivable		(75,211	)		(42,336	)		1,660			(70,211	)
Purchase of Federal Home Loan Bank Stock		(6	)		59
Proceeds (purchase) of Federal Home Loan Bank Stock								671			(6	)
Purchase of loans receivable								(5,978	)		(4,658	)
Purchase of premises and equipment, net		(866	)		(962	)		(470	)		(866	)
Proceeds from sale of foreclosed real estate, net		575			514			197			575
Cash and cash equivalents from acquisition activity, net		-			52,560
Change in cash value of bank owned life insurance		(357	)		(343	)
Net cash - investing activities		(86,333	)		3,227			(59,957	)		(85,634	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits		123,264			53,109			92,757			123,264
Repayment of FHLB advances		(2,000	)		(25,000	)		(6,000	)		(2,000	)
Change in other borrowed funds		5,660			9,000			10,539			5,660
Dividends paid		(2,140	)		(1,944	)		(2,152	)		(2,140	)
Net cash - financing activities		124,784			35,165			95,144			124,784
Net change in cash and cash equivalents		50,047			44,033			48,703			50,047
Cash and cash equivalents at beginning of period		47,258			17,139			19,922			47,258
Cash and cash equivalents at end of period	$	97,305		$	61,172		$	68,625		$	97,305

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	3,802		$	4,112		$	1,262		$	3,802
Income taxes		-			650			2,020			0
Acquisition activity:
Fair value of assets acquired, including cash and cash equivalents	$	-		$	172,925
Value of goodwill and other intangible assets		-			5,856
Fair value of liabilities assumed		-			145,546
Cash paid for acquisition		-			15,743
Issuance of common stock for acquisition		-			17,492
Noncash activities:
Transfers from loans to foreclosed real estate	$	23		$	193		$	0		$	23
Dividends declared not paid								1,077			1,073
Securities purchased not settled								9,764			0

See accompanying notes to condensed consolidated financial statements.

~~NorthWest Indiana~~Finward Bancorp

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 - Basis of Presentation

Organization and Description of Business

The consolidated financial statements include the accounts of ~~NorthWest Indiana~~Finward Bancorp (the “Bancorp” or ~~“NWIN”~~“Finward”), its wholly-owned subsidiaries NWIN Risk Management, Inc. (a captive insurance subsidiary) and Peoples Bank (the “Bank”), and the Bank’s wholly-owned subsidiaries, Peoples Service Corporation, NWIN, LLC, NWIN Funding, Incorporated, and Columbia Development Company, LLC. ~~Peoples Bank (formerly known as “Peoples Bank SB”) was an Indiana-chartered stock savings bank until its conversion to an Indiana-chartered commercial bank effective~~ ~~May 22, 2020.~~ 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 June 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, and the consolidated statements of income, ~~and~~ comprehensive income, and changes in stockholders’ equity for the three and six months ended June 30, ~~2020,~~2021, and ~~2019,~~2020, and consolidated statements of cash flows ~~and changes in stockholders’ equity~~ for the six months ended June 30, ~~2020,~~2021, and ~~2019.~~2020. The income reported for the six month period ended June 30, ~~2020,~~2021, is not necessarily indicative of the results to be expected for the full year.

On May 13, 2021, the Bancorp filed Articles of Amendment to its Articles of Incorporation with the Secretary of State of the State of Indiana to change the name of the company from “NorthWest Indiana Bancorp” to “Finward Bancorp.” The name change was approved by the Bancorp’s shareholders on March 3, 2021 and became effective on May 24, 2021.

The Notes to the Consolidated Financial Statements appearing in Finward Bancorp’s Annual Report on Form 10-K (2020 Annual Report), which include descriptions of significant accounting policies, should be read in conjunction with these interim financial statements. The Consolidated Balance Sheet at December 31, 2020 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current period presentation.

Revision of Previously Issued Financial Statements

We have revised amounts reported in previously issued financial statements for the periods presented in this Quarterly Report on Form 10-Q related to immaterial errors. The errors relate to certain deferred costs booked related to our manufactured home loan product, which resulted in increased assets and understatements of expense in prior periods.

We evaluated the aggregate effects of the errors to our previously issued financial statements in accordance with SEC Staff Accounting Bulletins No.99 and No.108 and, based upon quantitative and qualitative factors, determined that the errors were not material to the previously issued financial statements and disclosures included in our Annual Reports on Form 10-K for the years ended December 31, 2020 and 2019, or for any quarterly periods included therein or through our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021.

The following tables present the revisions to the line items of our previously issued financial statements to reflect the correction of the errors:
Consolidated Balance Sheet

As of December 31, 2020

As Reported

Adjustment

As Revised

Loans receivable
$ 966,578 $ (1,432 ) $ 965,146
Net loans receivable 954,120 (1,432 ) 952,688
Other assets
13,681 199 13,880
Total assets
1,497,525 (1,233 ) 1,496,292
Retained earnings
112,494 (1,233 ) 111,261
Total shareholders' equity
152,922 (1,233 ) 151,689
Total liabilities and Stockholders' equity
1,497,525 (1,233 ) 1,496,292
Consolidated Statement of Operations

Three months ended June 30, 2020

As Reported

Adjustment

As Revised

Compensation and benefits
$ 5,371 $ 249 $ 5,620
Total noninterest expense
9,764 249 10,013
Income before income tax expense
6,189 (249 ) 5,940
Income tax expenses
1,126 (37 ) 1,089
Net income
5,063 (212 ) 4,851
Earnings per common share:

Basic
1.46 (0.06 ) 1.40
Diluted
1.46 (0.06 ) 1.40
Six months ended June 30, 2020

As Reported

Adjustment

As Revised

Compensation and benefits
$ 10,588 $ 342 $ 10,930
Total noninterest expense
19,763 342 20,105
Income before income tax expense
9,893 (342 ) 9,551
Income tax expenses
1,638 (51 ) 1,587
Net income
8,255 (291 ) 7,964
Earnings per common share:

Basic
2.39 (0.09 ) 2.30
Diluted
2.39 (0.09 ) 2.30
Consolidated Statements of Comprehensive Income

Three months ended June 30, 2020

As Reported

Adjustment

As Revised

Net income
$ 5,063 $ (212 ) $ 4,851
Comprehensive income, net of tax
5,491 (212 ) 5,279
Six months ended June 30, 2020

As Reported

Adjustment

As Revised

Net income
$ 8,255 $ (291 ) $ 7,964
Comprehensive income, net of tax
13,108 (291 ) 12,817

7

Consolidated Statements of Changes in Stockholders' Equity

Balance at January 1, 2020

As Reported

Adjustment

As Revised

Retained earnings
$ 100,185 $ (561 ) $ 99,624
Total equity
134,103 (561 ) 133,542

For the quarter ending March 31, 2020

Net income
3,192 (79 ) 3,113
Retained earnings
102,303 (640 ) 101,663
Total equity
140,655 (640 ) 140,015

For the quarter ending June 30, 2020

Net income
5,063 (212 ) 4,851
Retained earnings
106,293 (852 ) 105,441
Total equity
145,181 (852 ) 144,329

Balance at January 1, 2021

Retained earnings
112,494 (1,233 ) 111,261
Total equity
152,922 (1,233 ) 151,689

For the quarter ending March 31, 2021

Net income
4,679 (136 ) 4,543
Retained earnings
116,094 (1,369 ) 114,725
Total equity
150,139 (1,369 ) 148,770
Consolidated Statements of Cash Flows

Six months ended June 30, 2020

As Reported

Adjustment

As Revised

Net income
$ 8,255 $ (291 ) $ 7,964
Net change in other assets
(1,657 ) (51 ) (1,708 )
Net cash - operating activities
11,239 (342 ) 10,897
Net change in loan
(70,553 ) 342 (70,211 )
Net cash - investing activities
(85,976 ) 342 (85,634
)

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.

In ~~December 2019,~~ ~~a novel coronavirus (COVID-~~19~~) was reported in China, and, in~~ ~~March 2020,~~ ~~the World Health Organization declared it a pandemic. The outbreak of COVID-~~19 has adversely impacted a broad range of industries in which the Bancorp’s customers operate and could impair their ability to fulfill their financial obligations to the Bancorp. The spread of the outbreak has caused significant disruptions in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Bancorp operates.
~~Currently, the Bancorp does~~ ~~not~~ ~~expect COVID-~~19 to affect its ability to account for the assets on its balance sheet in a timely manner; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, the Bancorp does ~~not~~ ~~anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.~~
~~The Bancorp is working with customers directly affected by COVID-~~19 in a discliplined manner. The Bancorp is prepared to offer short-term assistance in accordance with regulatory guidelines for those customers specifically facing financial hardships due to the pandemic. As a result of the current economic environment caused by the COVID-19 virus, the Bancorp is engaging in more frequent communication with borrowers to better understand their situation and the challenges faced, allowing it to respond proactively as needs and issues arise. Should economic conditions worsen, the Bancorp could experience further increases in its required allowance for loan loss and record additional provision for loan loss expense. It is possible that the Bancorp’s asset quality measures could worsen at future measurement periods if the effects of COVID-19 ~~are prolonged.~~
~~In addition, COVID-~~19 could cause a further and sustained decline in the Bancorp’s stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform a goodwill and intangible asset impairment tests and result in an impairment charge being recorded for that period. In the event that the Bancorp concludes that all or a portion of its goodwill or intangible assets are impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no ~~impact on tangible capital or regulatory capital. Details on goodwill impairment testing can be found in Note~~ 7, ~~Intangibles and Acquisition Related Accounting.~~
6

~~Note~~ 3 ~~- Acquisition Activity~~
On ~~January 24, 2019,~~ ~~the Bancorp completed its previously announced acquisition of AJS Bancorp, Inc., a Maryland corporation (“AJSB”), pursuant to an Agreement and Plan of Merger dated~~ ~~July 30, 2018~~ between the Bancorp and AJSB (the “AJSB Merger Agreement”). Pursuant to the terms of the AJSB Merger Agreement, AJSB merged with and into NWIN, with NWIN as the surviving corporation. Simultaneously 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 Peoples Bank, with Peoples Bank as the surviving bank.
~~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 NWIN common stock, and (ii) $7.20 per share in cash for each outstanding share of AJSB’s common stock. Stockholders holding less than 100 shares of AJSB common stock received $16.00 in cash and 0 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 stockholders, and paid cash consideration of approximately $15.7 million. Based upon the closing price of NWIN’s common stock on ~~January 23, 2019,~~ the transaction had an implied valuation of approximately $33.2 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. Acquisition costs incurred in ~~2019~~ related to the AJSB Merger were 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.
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 the valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, the final purchase price for the AJSB acquisition is allocated as follows:
ASSETS

Cash and due from banks
$ 68,303
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
2,939
Core deposit intangible
2,917
Interest receivable
351
Other assets
8,939
Total assets purchased
$ 178,781
Common shares issued
17,492
Cash paid
15,743
Total purchase price
$ 33,235

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
78

Note 43 - 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)

(Dollars in thousands)

Gross

Gross

Estimated

Gross

Gross

Estimated

Cost

Unrealized

Unrealized

Fair

Cost

Unrealized

Unrealized

Fair

Basis

Gains

Losses

Value

Basis

Gains

Losses

Value

June 30, 2020

Money market fund
$ 21,457 $ - $ - $ 21,457
June 30, 2021

U.S. government sponsored entities
10,883 5 (92 ) 10,796
U.S. treasury securities
401 0 0 401
Collateralized mortgage obligations and residential mortgage-backed securities
129,789 4,284 - 134,073 194,601 2,009 (1,249 ) 195,361
Municipal securities
129,754 8,622 (2 ) 138,374 255,485 11,111 (197 ) 266,399
Collateralized debt obligations
2,191 - (1,376 ) 815 2,173 0 (1,203 ) 970
Total securities available-for-sale
$ 283,191 $ 12,906 $ (1,378 ) $ 294,719 $ 463,543 $ 13,125 $ (2,741 ) $ 473,927

(Dollars in thousands)

(Dollars in thousands)

Gross

Gross

Estimated

Gross

Gross

Estimated

Cost

Unrealized

Unrealized

Fair

Cost

Unrealized

Unrealized

Fair

Basis

Gains

Losses

Value

Basis

Gains

Losses

Value

December 31, 2019

December 31, 2020

Money market fund
$ 9,670 $ - $ - $ 9,670 $ 52,941 $ 0 $ 0 $ 52,941
U.S. government sponsored entities
12,994 64 - 13,058 7,881 3 (24 ) 7,860
Collateralized mortgage obligations and residential mortgage-backed securities
149,339 1,745 (96 ) 150,988 151,355 3,417 (36 ) 154,736
Municipal securities
97,628 4,844 (45 ) 102,427 183,103 11,102 (2 ) 194,203
Collateralized debt obligations
2,202 - (1,126 ) 1,076 2,182 0 (1,253 ) 929
Total securities available-for-sale
$ 271,833 $ 6,653 $ (1,267 ) $ 277,219 $ 397,462 $ 14,522 $ (1,315 ) $ 410,669

The estimated fair value of available-for-sale debt securities at June 30, ~~2020,~~2021, 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

June 30, 2020

Value

Yield (%)

June 30, 2021

Value

Yield (%)

Due in one year or less
$ 21,457 0.11 $ 202 1.13
Due from one to five years
3,134 4.79 3,228 4.23
Due from five to ten years
9,857 4.00 27,336 2.47
Due over ten years
126,198 3.55 247,800 2.98
Collateralized mortgage obligations and residential mortgage-backed securities
134,073 2.31 195,361 1.69
Total
$ 294,719 2.76 $ 473,927 2.43

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

(Dollars in thousands)

June 30,

June 30,

2021

2020

Proceeds
$ 12,386 $ 17,212
Gross gains
289 724
Gross losses
(20 ) (57 )
9
Sales of available-for-sale securities were as follows for the six months ended:

(Dollars in thousands)

(Dollars in thousands)

June 30,

June 30,

June 30,

June 30,

2020

2019

2021

2020

Proceeds
$ 35,098 $ 30,281 $ 19,290 $ 35,098
Gross gains
1,237 733 706 1,237
Gross losses
(60 ) (81 ) (20 ) (60 )

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, 2019
$ 4,261
Current period change
4,853
Ending balance, June 30, 2020
$ 9,114

(Dollars in thousands)

Unrealized
gain/(loss)

Ending balance, December 31, 2020
$ 10,441
Current period change
(2,232 )
Ending balance, June 30, 2021
$ 8,209

Securities with ~~carrying~~market values of approximately ~~$116.8~~$45.0 million and ~~$65.5~~$52.4 million were pledged as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, as collateral for repurchase agreements, public funds, and for other purposes as permitted or required by law.

8

Securities with gross unrealized losses at June 30, ~~2020,~~2021, and December 31, ~~2019,~~2020 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

Value

Losses

Value

Losses

Value

Losses

Value

Losses

Value

Losses

Value

Losses

June 30, 2020

June 30, 2021

U.S. government sponsored entities
$ 8,791 $ (92 ) $ 0 $ 0 $ 8,791 $ (92 )
Collateralized mortgage obligations and residential mortgage-backed securities
- - - - - - 92,998 (1,249 ) 0 0 92,998 (1,249 )
Municipal securities
1,088 (2 ) - - 1,088 (2 ) 27,532 (197 ) 0 0 27,532 (197 )
Collateralized debt obligations
- - 815 (1,376 ) 815 (1,376 ) 0 0 970 (1,203 ) 970 (1,203 )
Total temporarily impaired
$ 1,088 $ (2 ) $ 815 $ (1,376 ) $ 1,903 $ (1,378 ) $ 129,321 $ (1,538 ) $ 970 $ (1,203 ) $ 130,291 $ (2,741 )
Number of securities
2 2 4 77 2 79

(Dollars in thousands)

Less than 12 months

12 months or longer

Total

Estimated

Estimated

Estimated

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

December 31, 2019

U.S. government sponsored entities
$ - $ - $ - $ - $ - $ -
Collateralized mortgage obligations and residential mortgage-backed securities
8,859 (31 ) 15,065 (65 ) 23,924 (96 )
Municipal securities
4,367 (45 ) - - 4,367 (45 )
Collateralized debt obligations
- - 1,076 (1,126 ) 1,076 (1,126 )
Total temporarily impaired
$ 13,226 $ (76 ) $ 16,141 $ (1,191 ) $ 29,367 $ (1,267 )
Number of securities
11 17 28

(Dollars in thousands)

Less than 12 months

12 months or longer

Total

Estimated

Estimated

Estimated

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

December 31, 2020

U.S. government sponsored entities
$ 4,975 $ (24 ) $ 0 $ 0 $ 4,975 $ (24 )
Collateralized mortgage obligations and residential mortgage-backed securities
11,953 (36 ) 0 0 11,953 (36 )
Municipal securities
1,864 (2 ) 0 0 1,864 (2 )
Collateralized debt obligations
0 0 929 (1,253 ) 929 (1,253 )
Total temporarily impaired
$ 18,792 $ (62 ) $ 929 $ (1,253 ) $ 19,721 $ (1,315 )
Number of securities
8 2 10

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 54 - Loans Receivable

~~Loans receivable~~The Bancorp’s current lending programs are ~~summarized~~described below:

(Dollars in thousands)

June 30, 2020

December 31, 2019

Loans secured by real estate:

Residential real estate
$ 284,703 $ 299,569
Home equity
46,254 49,118
Commercial real estate
286,122 283,108
Construction and land development
92,982 87,710
Multifamily
56,070 51,286
Farmland
221 227
Total loans secured by real estate
766,352 771,018
Commercial business
181,984 103,222
Consumer
522 627
Manufactured homes
17,806 13,285
Government
13,729 15,804
Subtotal
980,393 903,956
Less:

Net deferred loan origination fees
1,411 2,934
Undisbursed loan funds
98 (21 )
Loans receivable
$ 981,902 $ 906,869
Residential Real Estate. The primary lending activity of the Bancorp has been the granting of conventional mortgage loans to enable borrowers to purchase existing homes, refinance existing homes, or construct new homes. Conventional loans are made up to a maximum of 97% of the purchase price or appraised value, whichever is less. For loans made in excess of 80% of value, private mortgage insurance is generally required in an amount sufficient to reduce the Bancorp’s exposure to 80% or less of the appraised value of the property. Loans insured by private mortgage insurance companies can be made for up to 97% of value. Loans closed with over 20% of equity do not require private mortgage insurance because of the borrower’s level of equity investment.

910

(Dollars in thousands)

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 June 30, 2020:

Allowance for loan losses:

Residential real estate
$ 1,828 $ (2 ) $ 4 $ (122 ) $ 1,708
Home equity
246 - - (15 ) 231
Commercial real estate
3,693 (80 ) - 99 3,712
Construction and land development
1,223 (17 ) - (5 ) 1,201
Multifamily
562 - - 47 609
Farmland
- - - - -
Commercial business
1,901 (78 ) 16 536 2,375
Consumer
42 (1 ) 5 (16 ) 30
Manufactured homes
- - - - -
Government
16 - - (16 ) -
Total
$ 9,511 $ (178 ) $ 25 $ 508 $ 9,866
Fixed rate loans currently originated generally conform to Freddie Mac guidelines for loans purchased under the one‑to‑four family program. Loan interest rates are determined based on secondary market yield requirements and local market conditions. Fixed rate mortgage loans with contractual maturities generally exceeding fifteen years and greater may be sold and/or classified as held for sale to control exposure to interest rate risk.

The ~~Bancorp's activity~~15 year mortgage loan program has gained wide acceptance in the ~~allowance~~Bancorp’s primary market area. As a result of the shortened maturity of these loans, this product has been priced below the comparable 20 and 30 year loan offerings. Mortgage applicants for ~~loan losses, by loan segment, is summarized below for~~15 year loans tend to have a larger than normal down payment; this, coupled with the larger principal and interest payment amount, has caused the ~~three~~15 ~~months ended~~year mortgage loan portfolio to consist, to a significant extent, of ~~June 30, 2019:~~second time home buyers whose underwriting qualifications tend to be above average.
Allowance for loan losses:

Residential real estate
$ 1,680 $ (18 ) $ 4 $ (6 ) $ 1,660
Home equity
194 - 2 6 202
Commercial real estate
3,485 - - 44 3,529
Construction and land development
777 - - 29 806
Multifamily
434 - - 19 453
Farmland
- - - - -
Commercial business
1,391 - 10 116 1,517
Consumer
254 (7 ) 6 303 556
Manufactured homes
- - - - -
Government
21 - - - 21
Total
$ 8,236 $ (25 ) $ 22 $ 511 $ 8,744

The ~~Bancorp's activity~~Bancorp’s Adjustable Rate Mortgage Loans (“ARMs”) include offerings that reprice annually or are “Mini-Fixed.” The “Mini‑Fixed” mortgage reprices annually after a one, three, five, seven or ten year period. The ability of the Bancorp to successfully market ARM’s depends upon loan demand, prevailing interest rates, volatility of interest rates, public acceptance of such loans and terms offered by competitors.
Home Equity Line of Credit. The Bancorp offers a fixed and variable rate revolving line of credit secured by the equity in the ~~allowance~~borrower’s home. Both products offer an interest only option where the borrower pays interest only on the outstanding balance each month. Equity lines will typically require a second mortgage appraisal and a second mortgage lender’s title insurance policy. Loans are generally made up to a maximum of 89% of the appraised value of the property less any outstanding liens.
Fixed term home improvement and equity loans are made up to a maximum of 85% of the appraised value of the improved property, less any outstanding liens. These loans are offered on both a fixed and variable rate basis with a maximum term of 240 months. All home equity loans are made on a direct basis to borrowers.
Commercial Real Estate and Multifamily Loans. Commercial real estate loans are typically made to a maximum of 80% of the appraised value. Such loans are generally made on an adjustable rate basis. These loans are typically made for terms of 15 to 20 years. Loans with an amortizing term exceeding 15 years normally have a balloon feature calling for a full repayment within seven to ten years from the date of the loan. The balloon feature affords the Bancorp the opportunity to restructure the loan ~~losses,~~if economic conditions so warrant. Commercial real estate loans include loans secured by ~~loan segment,~~commercial rental units, apartments, condominium developments, small shopping centers, owner occupied commercial/industrial properties, hospitality units and other retail and commercial developments.
While commercial real estate lending is ~~summarized below~~generally considered to involve a higher degree of risk than single‑family residential lending due to the concentration of principal in a limited number of loans and the effects of general economic conditions on real estate developers and managers, the Bancorp has endeavored to reduce this risk in several ways. In originating commercial real estate loans, the Bancorp considers the feasibility of the project, the financial strength of the borrowers and lessees, the managerial ability of the borrowers, the location of the project and the economic environment. Management evaluates the debt coverage ratio and analyzes the reliability of cash flows, as well as the quality of earnings. All such loans are made in accordance with well-defined underwriting standards and are generally supported by personal guarantees, which represent a secondary source of repayment.
Loans for the ~~six~~ ~~months ended~~ ~~June 30, 2020:~~construction of commercial properties are generally located within an area permitting physical inspection and regular review of business records. Projects financed outside of the Bancorp’s primary lending area generally involve borrowers and guarantors who are or were previous customers of the Bancorp or projects that are underwritten according to the Bank’s underwriting standards.

Allowance for loan losses:

Residential real estate
$ 1,812 $ (2 ) $ 10 $ (112 ) $ 1,708
Home equity
223 - - 8 231
Commercial real estate
3,773 (80 ) - 19 3,712
Construction and land development
1,098 (17 ) - 120 1,201
Multifamily
529 - - 80 609
Farmland
- - - - -
Commercial business
1,504 (78 ) 17 932 2,375
Consumer
43 (13 ) 8 (8 ) 30
Manufactured homes
- - - - -
Government
17 - - (17 ) -
Total
$ 8,999 $ (190 ) $ 35 $ 1,022 $ 9,866
Construction and Land Development. Construction loans on residential properties are made primarily to individuals and contractors who are under contract with individual purchasers. These loans are personally guaranteed by the borrower. The maximum loan-to-value ratio is 89% of either the current appraised value or the cost of construction, whichever is less. Residential construction loans are typically made for periods of six months to one year.

~~The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below~~Loans are also made for the construction of commercial properties. All such loans are made in accordance with well-defined underwriting standards. Generally if the loans are ~~six~~not ~~months ended~~owner occupied, these types of loans require proof of intent to lease and a confirmed end-loan takeout. In general, loans made do ~~June 30, 2019:~~not exceed 80% of the appraised value of the property. Commercial construction loans are typically made for periods not to exceed two years or date of occupancy, whichever is less.
Allowance for loan losses:

Residential real estate
$ 1,715 $ (66 ) $ 18 $ (7 ) $ 1,660
Home equity
202 - 2 (2 ) 202
Commercial real estate
3,335 - - 194 3,529
Construction and land development
756 - - 50 806
Multifamily
472 - - (19 ) 453
Farmland
- - - - -
Commercial business
1,362 - 16 139 1,517
Consumer
82 (25 ) 9 490 556
Manufactured homes
- - - - -
Government
38 - - (17 ) 21
Total
$ 7,962 $ (91 ) $ 45 $ 828 $ 8,744

1011
Commercial Business and Farmland Loans. Although the Bancorp’s priority in extending various types of commercial business loans changes from time to time, the basic considerations in determining the makeup of the commercial business loan portfolio are economic factors, regulatory requirements and money market conditions. The Bancorp seeks commercial loan relationships from the local business community and from its present customers. Conservative lending policies based upon sound credit analysis governs the extension of commercial credit. The following loans, although not inclusive, are considered preferable for the Bancorp’s commercial loan portfolio: loans collateralized by liquid assets; loans secured by general use machinery and equipment; secured short‑term working capital loans to established businesses secured by business assets; short‑term loans with established sources of repayment and secured by sufficient equity and real estate; and unsecured loans to customers whose character and capacity to repay are firmly established.
Consumer Loans. The Bancorp offers consumer loans to individuals for personal, household or family purposes. Consumer loans are either secured by adequate collateral, or unsecured. Unsecured loans are based on the strength of the applicant’s financial condition. All borrowers must meet current underwriting standards. The consumer loan program includes both fixed and variable rate products.
Manufactured Homes. The Bancorp purchases fixed rate closed loans from a third party that are subject to Bancorp’s underwriting requirements and secured by manufactured homes. The maturity date on these loans can range up to 25 years. In addition, these loans have partial recourse secured by a reserve account held at the Bancorp.
Government Loans. The Bancorp is permitted to purchase non-rated municipal securities, tax anticipation notes and warrants within the local market area.
(Dollars in thousands)

June 30, 2021

December 31, 2020

Loans secured by real estate:

Residential real estate
$ 268,649 $ 286,048
Home equity
36,684 39,233
Commercial real estate
315,087 298,257
Construction and land development
104,154 93,562
Multifamily
53,639 50,571
Farmland
309 215
Total loans secured by real estate
778,522 767,886
Commercial business
149,414 158,140
Consumer
544 1,025
Manufactured homes
28,135 24,232
Government
8,462 10,142
Subtotal
965,077 961,425
Add (less):

Net deferred loan origination fees and purchase premiums..
4,235 3,871
Undisbursed loan funds and clearings
179 (150 )
Loans receivable
$ 969,491 $ 965,146
12

(Dollars in thousands)

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 June 30, 2021:

Allowance for loan losses:

Residential real estate
$ 2,176 $ 0 $ 15 $ 103 $ 2,294
Home equity
309 0 0 62 371
Commercial real estate
5,726 0 0 213 5,939
Construction and land development
1,587 0 0 211 1,798
Multifamily
680 0 0 60 740
Farmland
0 0 0 0 0
Commercial business
2,552 0 11 (89 ) 2,474
Consumer
17 (11 ) 1 16 23
Manufactured homes
0 0 0 0 0
Government
0 0 0 0 0
Total
$ 13,047 $ (11 ) $ 27 $ 576 $ 13,639
The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended June 30, 2020:

Allowance for loan losses:

Residential real estate
$ 1,828 $ (2 ) $ 4 $ (122 ) $ 1,708
Home equity
246 0 0 (15 ) 231
Commercial real estate
3,693 (80 ) 0 99 3,712
Construction and land development
1,223 (17 ) 0 (5 ) 1,201
Multifamily
562 0 0 47 609
Farmland
0 0 0 0 0
Commercial business
1,901 (78 ) 16 536 2,375
Consumer
42 (1 ) 5 (16 ) 30
Manufactured homes
0 0 0 0 0
Government
16 0 0 (16 ) 0
Total
$ 9,511 $ (178 ) $ 25 $ 508 $ 9,866
The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the six months ended June 30, 2021:

Allowance for loan losses:

Residential real estate
$ 2,211 $ (4 ) $ 25 $ 62 $ 2,294
Home equity
276 (1 ) 0 96 371
Commercial real estate
5,406 0 0 533 5,939
Construction and land development
1,405 0 0 393 1,798
Multifamily
626 0 0 114 740
Farmland
0 0 0 0 0
Commercial business
2,508 0 19 (53 ) 2,474
Consumer
26 (17 ) 5 9 23
Manufactured homes
0 0 0 0 0
Government
0 0 0 0 0
Total
$ 12,458 $ (22 ) $ 49 $ 1,154 $ 13,639
The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the six months ended June 30, 2020:

Allowance for loan losses:

Residential real estate
$ 1,812 $ (2 ) $ 10 $ (112 ) $ 1,708
Home equity
223 0 0 8 231
Commercial real estate
3,773 (80 ) 0 19 3,712
Construction and land development
1,098 (17 ) 0 120 1,201
Multifamily
529 0 0 80 609
Farmland
0 0 0 0 0
Commercial business
1,504 (78 ) 17 932 2,375
Consumer
43 (13 ) 8 (8 ) 30
Manufactured homes
0 0 0 0 0
Government
17 0 0 (17 ) 0
Total
$ 8,999 $ (190 ) $ 35 $ 1,022 $ 9,866
13

A deferred cost reserve is maintained for the portfolio of manufactured home loans that have been purchased. This reserve is available for use for manufactured home loan nonperformance and costs associated with nonperformance. If the segment performs in line with expectation, the deferred cost reserve is paid as ~~an origination cost~~a premium to the third party originator of the loan. The unamortized balance of the deferred cost reserve totaled ~~$2.7~~$4.4 million and ~~$1.9~~$3.8 million as of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and is included in net deferred loan origination ~~costs.~~costs and purchase premiums.

The Bancorp's impairment analysis is summarized below:

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

The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at June 30, 2021:

Residential real estate
$ 85 $ 2,209 $ 268,649 $ 730 $ 1,002 $ 266,917
Home equity
5 366 36,684 164 129 36,391
Commercial real estate
1,204 4,735 315,087 7,260 146 307,681
Construction and land development
0 1,798 104,154 0 0 104,154
Multifamily
0 740 53,639 0 596 53,043
Farmland
0 0 309 0 0 309
Commercial business
476 1,998 149,414 944 1,147 147,323
Consumer
0 23 544 0 0 544
Manufactured homes
0 0 28,135 0 0 28,135
Government
0 0 8,462 0 0 8,462
Total
$ 1,770 $ 11,869 $ 965,077 $ 9,098 $ 3,020 $ 952,959
~~The Bancorp's impairment analysis is summarized below:~~

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

The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at June 30, 2020:

Residential real estate
$ 130 $ 1,578 $ 284,563 $ 794 $ 1,470 $ 282,299
Home equity
- 231 46,312 230 142 45,940
Commercial real estate
15 3,697 286,122 1,110 152 284,860
Construction and land development
- 1,201 92,982 - - 92,982
Multifamily
- 609 56,070 112 656 55,302
Farmland
- - 221 - - 221
Commercial business
337 2,038 178,863 1,103 1,154 176,606
Consumer
- 30 522 - - 522
Manufactured homes
- - 22,518 - - 22,518
Government
- - 13,729 - - 13,729
Total
$ 482 $ 9,384 $ 981,902 $ 3,349 $ 3,574 $ 974,979
~~The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at~~ ~~December 31, 2019:~~
The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2020:
The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2020:

Residential real estate
$ 10 $ 1,802 $ 299,333 $ 642 $ 1,581 $ 297,110 $ 173 $ 2,038 $ 286,048 $ 868 $ 1,297 $ 283,883
Home equity
4 219 49,181 221 216 48,744 1 275 39,233 216 137 38,880
Commercial real estate
- 3,773 283,108 1,078 487 281,543 1,089 4,317 298,257 6,190 151 291,916
Construction and land development
- 1,098 87,710 - - 87,710 0 1,405 93,562 0 0 93,562
Multifamily
- 529 51,286 129 673 50,484 0 626 50,571 95 621 49,855
Farmland
- - 227 - - 227 0 0 215 0 0 215
Commercial business
152 1,352 103,088 1,041 1,150 100,897 512 1,996 158,140 1,086 1,160 155,894
Consumer
- 43 627 - - 627 0 26 1,025 0 0 1,025
Manufactured homes
- - 16,505 - - 16,505 0 0 24,232 0 0 24,232
Government
- 17 15,804 - - 15,804 0 0 10,142 0 0 10,142
Total
$ 166 $ 8,833 $ 906,869 $ 3,111 $ 4,107 $ 899,651 $ 1,775 $ 10,683 $ 961,425 $ 8,455 $ 3,366 $ 949,604

1114

~~The Bancorp's credit quality indicators are summarized below at~~ ~~June 30, 2020,~~ ~~and~~ ~~December 31, 2019:~~
The Bancorp's credit quality indicators are summarized below at June 30, 2021 and December 31, 2020:
The Bancorp's credit quality indicators are summarized below at June 30, 2021 and December 31, 2020:

Credit Exposure - Credit Risk Portfolio By Creditworthiness Category

Credit Exposure - Credit Risk Portfolio By Creditworthiness Category

June 30, 2020

June 30, 2021

(Dollars in thousands)

2

3

4

5

6

7

8
1-5 6 7 8

Loan Segment

Moderate

Above average acceptable

Acceptable

Marginally
acceptable

Pass/monitor

Special mention

Substandard

Total

Pass

Pass/monitor

Special mention

Substandard

Total

Residential real estate
$ 660 $ 113,209 $ 101,700 $ 13,550 $ 47,117 $ 3,164 $ 5,163 $ 284,563 $ 224,121 $ 36,446 $ 3,969 $ 4,113 $ 268,649
Home equity
120 6,371 37,894 121 743 565 498 46,312 34,900 712 560 512 36,684
Commercial real estate
- 2,123 71,620 146,373 56,102 6,731 3,173 286,122 233,022 59,866 13,801 8,398 315,087
Construction and land development
- 1,087 28,609 50,274 13,012 - - 92,982 80,521 19,971 3,662 0 104,154
Multifamily
- 757 17,409 31,844 5,018 501 541 56,070 46,911 4,951 1,377 400 53,639
Farmland
- - - - 221 - - 221 101 208 0 0 309
Commercial business
5,256 99,733 16,920 36,300 17,723 1,851 1,080 178,863 127,244 20,092 1,162 916 149,414
Consumer
55 - 467 - - - - 522 544 0 0 0 544
Manufactured homes
4,712 2,146 14,663 180 817 - - 22,518 27,335 740 60 0 28,135
Government
- 1,775 10,294 1,660 - - - 13,729 8,462 0 0 0 8,462
Total
$ 10,803 $ 227,201 $ 299,576 $ 280,302 $ 140,753 $ 12,812 $ 10,455 $ 981,902 $ 783,161 $ 142,986 $ 24,591 $ 14,339 $ 965,077

December 31, 2019

December 31, 2020

(Dollars in thousands)

2

3

4

5

6

7

8
1-5 6 7 8

Loan Segment

Moderate

Above average acceptable

Acceptable

Marginally
acceptable

Pass/monitor

Special mention

Substandard

Total

Pass

Pass/monitor

Special mention

Substandard

Total

Residential real estate
$ 827 $ 119,138 $ 104,153 $ 13,463 $ 53,058 $ 4,203 $ 4,491 $ 299,333 $ 234,317 $ 41,805 $ 3,539 $ 6,387 $ 286,048
Home equity
100 6,536 40,027 264 934 813 507 49,181 37,044 933 761 495 39,233
Commercial real estate
- 2,030 82,158 135,058 56,917 5,380 1,565 283,108 222,892 55,202 11,983 8,180 298,257
Construction and land development
- 719 26,900 45,751 14,340 - - 87,710 77,855 12,055 3,652 0 93,562
Multifamily
- 903 18,107 26,800 4,674 - 802 51,286 43,594 5,065 1,408 504 50,571
Farmland
- - - - 227 - - 227 0 215 0 0 215
Commercial business
8,312 13,158 19,638 39,016 20,009 2,228 727 103,088 135,671 20,067 1,341 1,061 158,140
Consumer
90 - 537 - - - - 627 1,025 0 0 0 1,025
Manufactured homes
3,221 2,413 9,825 184 862 - - 16,505 23,501 731 0 0 24,232
Government
- 1,889 11,505 2,410 - - - 15,804 10,142 0 0 0 10,142
Total
$ 12,550 $ 146,786 $ 312,850 $ 262,946 $ 151,021 $ 12,624 $ 8,092 $ 906,869 $ 786,041 $ 136,073 $ 22,684 $ 16,627 $ 961,425

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~~ Superior Quality
~~Borrower demonstrates exceptional credit fundamentals, including stable and predictable profit margins, strong liquidity and~~Loans in this category are substantially risk free. Loans fully collateralized by a ~~conservative balance sheet~~Bank certificate of deposit or Bank deposits 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.a hold are substantially risk free.

2 – ~~Moderate risk~~ Excellent Quality
~~Borrower consistently internally~~The borrower generates ~~sufficient~~excellent and consistent cash flow for debt coverage, excellent average credit scores, excellent liquidity and net worth and are reputable operators with over 15 years experience. Current and debt to ~~fund debt service, working assets,~~tangible net worth ratios are excellent. Loan to value is substantially below policy and ~~some capital expenditures. Risk of default considered low.~~collateral condition is excellent.

3 – ~~Above average acceptable risk~~ Great Quality
~~Borrower~~The borrower generates more than sufficient cash flow to fund debt service and ~~some working assets and/or capital expansion needs. Profitability~~cash flow is improving. Average credit scores are very strong. Operators are reputable with significant years of experience. Liquidity, net worth, current and ~~key balance sheet~~debt to tangible net worth ratios are ~~at or slightly~~very strong. Loan to value is significantly below policy and collateral condition is significantly 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.~~average.

4 – ~~Acceptable risk~~ Above Average Quality
~~Borrower~~The borrower generates more than 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)~~cash flow trends may be ~~higher than peer. Earnings~~ ~~may~~ ~~be trending down over the last~~ ~~three~~ ~~years. Borrower~~ ~~may~~ ~~be able~~stable or slightly declining. Average credit scores are strong. The borrower is a reputable operator with many years of experience. Liquidity, net worth, current and debt to ~~obtain similar financing from other banks with comparable or less favorable terms. Risk of default~~tangible net worth ratios are strong. Loan to value is ~~acceptable but requires~~below policy and 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~~condition is 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.average.

1215

65 – ~~Pass/monitor~~ Average Quality
~~The borrower has significant weaknesses resulting from performance~~Borrowers are considered creditworthy and can repay the debt in the normal course of business, however, cash flow trends ~~or management concerns. The financial condition of the company has taken a negative turn and~~ may be ~~temporarily strained.~~inconsistent or fluctuating. Average credit scores are satisfactory and years of experience is acceptable. Liquidity and net worth are satisfactory. Current and debt to tangible net worth ratios are average. Loan to value is slightly below policy and the collateral condition is slightly above average.
6– Pass
Borrowers are considered credit worthy but financial condition may show signs of weakness due to internal or external factors. Cash flow trends may be ~~weak~~declining annually. Average credit scores may be low but ~~cash reserves~~ remain ~~adequate~~acceptable. Borrower has limited years of experience. Liquidity, net worth, current and debt to ~~meet debt service. Management weaknesses~~tangible net worth ratios are ~~evident. Borrowers in this category will warrant more than the normal level of supervision~~below average. Loan to value is nearing policy limits and ~~more frequent reporting.~~collateral condition is average.

7 – Special Mention
A special mention asset has identified weaknesses that deserve Management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention ~~(watch)~~assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. There is still adequate protection by the current sound worth and paying capacity of the obligor or of the collateral pledged. The Special Mention rating is viewed as transitional and will be monitored closely.
~~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~~
Loans in this category ~~are currently protected but are potentially~~may exhibit some of the following risk factors. Cash flow trends may be consistently declining or may be questionable. Debt coverage ratios may be at or near 1:1. Average credit scores may be very weak or the borrower may have minimal years of experience. Liquidity, net worth, current and debt to tangible net worth ratios may be very weak. ~~These borrowers are subject~~Loan to ~~economic, industry,~~value may be at policy limits 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 may exceed policy limits. Collateral condition may be ~~granted. These assets constitute an undue and unwarranted credit risk, but~~ ~~not~~ ~~to the point of justifying a classification of Substandard.~~below average.

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

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~~six months ending June 30, 2021, 2 residential real estate loans to one customer totaling $150 thousand were modified to included deferral of principal resulting in troubled debt restructuring classification. NaN commercial real estate loan totaling $835 thousand was restructured with a reduced interest rate and extended amortization resulting in troubled debt restructuring classification. NaN residential real estate trouble debt restructuring loans totaling $73 thousand had subsequently defaulted during the six months ofending ~~2020,~~June 30, 2021. During the six ~~one~~months ending June, 2020, 1 commercial real estate loan totaling $148 thousand, ~~one~~1 residential loan totaling $52 thousand and 1 home equity loan totaling $24 thousand were renewed as a troubled debt restructuring. ~~One~~NaN commercial business trouble debt restructuring loan totaling $294 thousand has subsequently defaulted during the ~~periods presented.~~ six months ending June 30, 2020. 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.

1316

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

For the six months ended

For the six months ended

For the three months ended

As of June 30, 2020

June 30, 2020

As of June 30, 2021

June 30, 2021

June 30, 2021

(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

Average
Recorded
Investment

Interest Income Recognized

With no related allowance recorded:

Residential real estate
$ 2,077 $ 3,459 $ - $ 2,107 $ 49 $ 1,571 $ 2,904 $ - $ 1,735 $ 42 $ 1,655 $ 20
Home equity
372 392 - 384 9 271 283 - 317 5 300 1
Commercial real estate
1,096 1,682 - 1,379 47 1,538 2,121 - 1,295 26 1,354 14
Construction and land development
- - - - - 0 0 - 0 0 0 0
Multifamily
768 850 - 784 14 596 678 - 670 11 648 6
Farmland
- - - - - 0 0 - 0 0 0 0
Commercial business
1,463 1,517 - 1,588 40 1,408 1,408 - 1,447 36 1,422 18
Consumer
- - - - - 0 0 - 0 0 0 0
Manufactured homes
- - - - - 0 0 - 0 0 0 0
Government
- - - - - 0 0 - 0 0 0 0

With an allowance recorded:

Residential real estate
$ 187 $ 187 $ 130 $ 107 $ 1 $ 161 $ 161 $ 85 $ 198 $ 5 $ 162 $ 0
Home equity
- - - 5 - 22 22 5 15 0 23 0
Commercial real estate
166 166 15 67 1 5,868 5,868 1,204 5,655 113 5,901 63
Construction and land development
- - - - - 0 0 0 0 0 0 0
Multifamily
- - - - - 0 0 0 0 0 0 0
Farmland
- - - - - 0 0 0 0 0 0 0
Commercial business
794 794 337 676 19 683 683 476 719 22 704 11
Consumer
- - - - - 0 0 0 0 0 0 0
Manufactured homes
- - - - - 0 0 0 0 0 0 0
Government
- - - - - 0 0 0 0 0 0 0

Total:

Residential real estate
$ 2,264 $ 3,646 $ 130 $ 2,214 $ 50 $ 1,732 $ 3,065 $ 85 $ 1,933 $ 47 $ 1,817 $ 20
Home equity
$ 372 $ 392 $ - $ 389 $ 9 $ 293 $ 305 $ 5 $ 332 $ 5 $ 323 $ 1
Commercial real estate
$ 1,262 $ 1,848 $ 15 $ 1,446 $ 48 $ 7,406 $ 7,989 $ 1,204 $ 6,950 $ 139 $ 7,255 $ 77
Construction & land development
$ - $ - $ - $ - $ - $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Multifamily
$ 768 $ 850 $ - $ 784 $ 14 $ 596 $ 678 $ 0 $ 670 $ 11 $ 648 $ 6
Farmland
$ - $ - $ - $ - $ - $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Commercial business
$ 2,257 $ 2,311 $ 337 $ 2,264 $ 59 $ 2,091 $ 2,091 $ 476 $ 2,166 $ 58 $ 2,126 $ 29
Consumer
$ - $ - $ - $ - $ - $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Manufactured homes
$ - $ - $ - $ - $ - $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Government
$ - $ - $ - $ - $ - $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0

1417

For the six months ended

For the six months ended

For the three months ended

As of December 31, 2019

June 30, 2019

As of December 31, 2020

June 30, 2020

June 30, 2020

(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

Average
Recorded
Investment

Interest Income Recognized

With no related allowance recorded:

Residential real estate
$ 2,140 $ 3,555 $ - $ 1,813 $ 31 $ 1,895 $ 3,228 $ - $ 2,107 $ 49 $ 2,090 $ 25
Home equity
429 451 - 344 3 352 363 - 384 9 362 4
Commercial real estate
1,547 2,141 - 1,655 33 1,177 1,761 - 1,379 47 1,295 34
Construction & land development
- - - - - 0 0 - 0 0 0 0
Multifamily
802 884 - 472 3 716 798 - 784 14 775 7
Farmland
- - - - - 0 0 - 0 0 0 0
Commercial business
1,814 1,906 - 1,967 43 1,497 1,514 - 1,588 40 1,475 23
Consumer
- - - - - 0 0 - 0 0 0 0
Manufactured homes
- - - - - 0 0 - 0 0 0 0
Government
- - - - - 0 0 - 0 0 0 0

With an allowance recorded:

Residential real estate
$ 83 $ 83 $ 10 $ 159 $ 2 $ 270 $ 314 $ 173 $ 107 $ 1 $ 120 $ 0
Home equity
8 8 4 59 1 1 9 1 5 0 0 0
Commercial real estate
18 18 - 478 - 5,164 5,164 1,089 67 1 92 1
Construction & land development
- - - - - 0 0 0 0 0 0 0
Multifamily
- - - - - 0 0 0 0 0 0 0
Farmland
- - - - - 0 0 0 0 0 0 0
Commercial business
377 377 152 145 - 749 749 512 676 19 826 16
Consumer
- - - - - 0 0 0 0 0 0 0
Manufactured homes
- - - - - 0 0 0 0 0 0 0
Government
- - - - - 0 0 0 0 0 0 0

Total:

Residential real estate
$ 2,223 $ 3,638 $ 10 $ 1,972 $ 33 $ 2,165 $ 3,542 $ 173 $ 2,214 $ 50 $ 2,210 $ 25
Home equity
$ 437 $ 459 $ 4 $ 403 $ 4 $ 353 $ 372 $ 1 $ 389 $ 9 $ 362 $ 4
Commercial real estate
$ 1,565 $ 2,159 $ - $ 2,133 $ 33 $ 6,341 $ 6,925 $ 1,089 $ 1,446 $ 48 $ 1,387 $ 35
Construction & land development
$ - $ - $ - $ - $ - $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Multifamily
$ 802 $ 884 $ - $ 472 $ 3 $ 716 $ 798 $ 0 $ 784 $ 14 $ 775 $ 7
Farmland
$ - $ - $ - $ - $ - $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Commercial business
$ 2,191 $ 2,283 $ 152 $ 2,112 $ 43 $ 2,246 $ 2,263 $ 512 $ 2,264 $ 59 $ 2,301 $ 39
Consumer
$ - $ - $ - $ - $ - $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Manufactured homes
$ - $ - $ - $ - $ - $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Government
$ - $ - $ - $ - $ - $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0

1518

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

June 30, 2021

Residential real estate
$ 1,894 $ 1,191 $ 2,396 $ 5,481 $ 263,168 $ 268,649 $ 79
Home equity
398 47 413 858 35,826 36,684 0
Commercial real estate
619 488 1,421 2,528 312,559 315,087 95
Construction and land development
328 0 42 370 103,784 104,154 41
Multifamily
256 0 120 376 53,263 53,639 0
Farmland
0 0 0 0 309 309 0
Commercial business
1,316 0 215 1,531 147,883 149,414 33
Consumer
1 0 0 1 543 544 0
Manufactured homes
249 109 0 358 27,777 28,135 0
Government
0 0 0 0 8,462 8,462 0
Total
$ 5,061 $ 1,835 $ 4,607 $ 11,503 $ 953,574 $ 965,077 $ 248

December 31, 2020

Residential real estate
$ 2,797 $ 1,119 $ 4,875 $ 8,791 $ 277,257 $ 286,048 $ 80
Home equity
616 323 416 1,355 37,878 39,233 29
Commercial real estate
1,172 237 680 2,089 296,168 298,257 437
Construction and land development
471 0 20 491 93,071 93,562 20
Multifamily
94 266 150 510 50,061 50,571 0
Farmland
0 0 0 0 215 215 0
Commercial business
845 96 269 1,210 156,930 158,140 0
Consumer
2 0 0 2 1,023 1,025 0
Manufactured homes
303 173 0 476 23,756 24,232 0
Government
380 0 0 380 9,762 10,142 0
Total
$ 6,680 $ 2,214 $ 6,410 $ 15,304 $ 946,121 $ 961,425 $ 566

(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

June 30, 2020

Residential real estate
$ 4,741 $ 1,055 $ 3,524 $ 9,320 $ 275,243 $ 284,563 $ 343
Home equity
266 207 389 862 45,450 46,312 49
Commercial real estate
1,693 1,344 1,447 4,484 281,638 286,122 1,194
Construction and land development
672 - - 672 92,310 92,982 -
Multifamily
- 274 170 444 55,626 56,070 -
Farmland
- - - - 221 221 -
Commercial business
426 150 847 1,423 177,440 178,863 318
Consumer
9 - - 9 513 522 -
Manufactured homes
308 293 - 601 21,917 22,518 -
Government
- - - - 13,729 13,729 -
Total
$ 8,115 $ 3,323 $ 6,377 $ 17,815 $ 964,087 $ 981,902 $ 1,904

December 31, 2019

Residential real estate
$ 3,486 $ 1,332 $ 3,724 $ 8,542 $ 290,791 $ 299,333 $ 452
Home equity
90 24 388 502 48,679 49,181 19
Commercial real estate
1,461 170 719 2,350 280,758 283,108 61
Construction and land development
143 289 - 432 87,278 87,710 -
Multifamily
140 - 160 300 50,986 51,286 -
Farmland
- - - - 227 227 -
Commercial business
926 583 870 2,379 100,709 103,088 288
Consumer
- - - - 627 627 -
Manufactured homes
63 36 46 145 16,360 16,505 46
Government
- - - - 15,804 15,804 -
Total
$ 6,309 $ 2,434 $ 5,907 $ 14,650 $ 892,219 $ 906,869 $ 866
~~The Bancorp's loans on nonaccrual status are summarized below:~~
~~(Dollars in thousands)~~
The Bancorp's loans on nonaccrual status are summarized below:
The Bancorp's loans on nonaccrual status are summarized below:

(Dollars in thousands)

June 30,
2020

December 31,
2019

June 30, 2021

December 31,
2020

Residential real estate
$ 5,135 $ 4,374 $ 4,180 $ 6,390
Home equity
464 473 495 476
Commercial real estate
253 658 6,521 5,390
Construction and land development
- -
Construction and land development.
0 0
Multifamily
541 420 400 504
Farmland
- - 0 0
Commercial business
1,015 582 429 1,039
Consumer
- - 0 0
Manufactured homes
- - 0 0
Government
- - 0 0
Total
$ 7,408 $ 6,507 $ 12,025 $ 13,799

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 June 30, ~~2020,~~2021, total purchased credit impaired loans with unpaid principal balances totaled ~~$5.7~~$5.0 million with a recorded investment of ~~$3.6~~$3.0 million. At December 31, ~~2019,~~2020, purchased credit impaired loans with unpaid principal balances totaled ~~$6.3~~$5.4 million with a recorded investment of ~~$4.1~~$3.4 million.
~~Accretable interest taken from the purchase credit impaired portfolio, or income recorded for the~~ ~~six~~ ~~months ended~~ ~~June 30,~~ ~~is as follows:~~
(dollars in thousands)

First Personal

2019
$ 90
2020
57
~~Accretable interest taken from the purchase credit impaired portfolio, or income expected to be recorded in the future is as follows:~~
(dollars in thousands)

First Personal

2020
43
2021
21
Total
$ 64

1619

Accretable interest taken from the purchase credit impaired portfolio, or income recorded for the six months ended June 30, is as follows:

(dollars in thousands)

Total

2020
$ 57
2021
21
For the acquisitions of First Federal Savings & Loan (“First Federal”), Liberty Savings Bank (“Liberty Savings”), First Personal Bank (“First Personal”), and A.J. Smith Federal Savings Bank (“AJ Smith”), as part
Accretable interest taken from the purchase credit impaired portfolio, or income recorded for the three months ended June 30, is as follows:

(dollars in thousands)

Total

2020
$ 28
2021
0
The accretable interest portion of the ~~fair value of loans receivable, a net fair value discount was established for loans as summarized below:~~purchase credit impaired portfolio has fully amortized at June 30, 2021.
(dollars in thousands)

First Federal

Liberty Savings

First Personal

AJSB

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
$ 1,062 59 $ 1,203 44 $ 948 56 $ 3,734 52
Home equity
44 29 5 29 51 50 141 32
Commercial real estate
- - - - 208 56 8 9
Construction and land development
- - - - 1 30 - -
Multifamily
- - - - 11 48 2 48
Consumer
- - - - 146 50 1 5
Commercial business
- - - - 348 24 - -
Purchased credit impaired loans
- - - - 424 32 - -
Total
$ 1,106 $ 1,208 $ 2,137 $ 3,886

Accretable yield, or income recorded for the six months ended June 30, is as follows:

(dollars in thousands)

First Federal

Liberty Savings

First Personal

AJSB

Total

Total

2019
$ 22 $ 42 $ 357 $ 451 $ 872
2020
- - 285 691 $ 975 $ 975
2021
605
Accretable yield, or income recorded for the three months ended June 30, is as follows:
(dollars in thousands)

Total

2020
$ 615
2021
300

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

(dollars in thousands)

First Personal

AJSB

Total

2020
$ 162 $ 347 $ 509
2021
311 694 1,005
2022
300 694 994
2023
68 287 355
Total
$ 841 $ 2,022 $ 2,863
(dollars in thousands)

Total

2021
$ 384
2022
758
2023
271
Total
$ 1,413

Note 65 - Foreclosed Real Estate
Foreclosed real estate at period-end is summarized below:

(Dollars in thousands)

(Dollars in thousands)

June 30, 2020

December 31, 2019

June 30, 2021

December 31, 2020

Residential real estate
$ 524 $ 957 $ 158 $ 328
Commercial real estate
110 126
Commercial business
210 210
Total
$ 634 $ 1,083 $ 368 $ 538

20

Note 76 – ~~Intangible~~sIntangibles and Acquisition Related Accounting
The Bancorp established a goodwill balance totaling $11.1 million with the acquisitions of AJSB, First Personal, First Federal, and Liberty Savings. Goodwill of $2.9 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.from past acquisitions. Goodwill is tested annually ~~for impairment, or when circumstances or events are deemed significant enough to test~~ 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. ~~As a result~~Additionally, as part of the ~~COVID-~~19 ~~outbreak, and its broad effects on the economy, the Bancorp deemed it necessary to perform an interim~~Bancorp’s annual impairment test of goodwill as of ~~June 30, 2020.~~December 31, 2020, ~~As part of the impairment test,~~ the Bancorp enlisted a third party expert to ~~perform a~~assist with the evaluation of goodwill ~~valuation analysis.~~for impairment. The ~~analysis showed~~evaluation involved the ~~implied~~comparison of the fair value of the Bancorp to its carrying value. The Bancorp determined its fair value using a blend of the income approach (discounted cash flow model) and market approach (guideline public company method and guideline transaction method). The determination of the fair value using the discounted cash flow model required the Bancorp to make significant estimates and assumptions related to forecasts of future income, provision for credit losses, and discount rates. The determination of the fair value using the guideline public company method required management to make significant assumptions related to price to tangible book value multiples and price to earnings multiples, as well as significant assumptions related to control premiums. The determination of the fair value using the guideline transaction method required management to review the value of the business based on pricing multiples derived from the sale of companies that are similar to the Bancorp. The Bancorp’s estimation of fair value for the quantitative goodwill ~~was higher than~~impairment testing exceeded its carrying value as of December 31, 2020 and notherefore, 0 impairment was ~~necessary for the~~ ~~six~~ ~~months ended~~ ~~June 30, 2020.~~ recognized. There has not been any impairment of goodwill identified or recorded. Goodwill totaled $11.1 million as of June 30, ~~2020,~~2021 and December 31, ~~2019.~~2020.

17

In addition to goodwill, acore deposit intangibles were established from past acquisitions and are subject to amortization. As of June 30, 2021, the Bancorp had core deposit intangible balances 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.$3.6 million. The table below summarizes the annual amortization:

~~Amortization recorded for the~~ ~~six~~ ~~months ended~~ ~~June 30, 2020~~ ~~is as follows:~~
Amortization recorded for the six months ended June 30, 2021 is as follows:

(dollars in thousands)

Total

Current period
$ 497

Amortization recorded for the three months ended June 30, 2021 is as follows:
Amortization recorded for the three months ended June 30, 2021 is as follows:

(dollars in thousands)

First Federal

Liberty Savings

First Personal

AJSB

Total

Total

Current period
$ 6 $ 29 $ 238 $ 224 $ 497 $ 249

~~Amortization to be recorded in future periods, is as follows:~~
(dollars in thousands)

First Federal

Liberty Savings

First Personal

AJSB

Total

Remainder 2020
6 29 238 224 497
2021
12 58 475 449 994
2022
1 58 475 449 983
2023
- 38 475 449 962
2024
- - 470 449 919
2025
- - - 261 261
2026
- - - -
Total
$ 19 $ 183 $ 2,133 $ 2,281 $ 4,616
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 $34 thousand of amortization was taken as income during the ~~six~~ ~~months ended~~ ~~June 30, 2020.~~ ~~The fair market premium on the certificates of deposit has fully amortized as of~~ ~~June 30, 2020.~~
Amortization to be recorded in future periods, is as follows:

(dollars in thousands

Total

Remainder 2021
497
2022
983
2023
962
2024
919
2025
261
Total
$ 3,622

Note 87 - 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 DuPage, Lake, and Will counties in Illinois. Substantially all loans are secured by specific items of collateral including residences, commercial real estate, land development, business assets and consumer assets.

Note 98 - 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 six months ended June 30, ~~2020,~~2021, and ~~2019~~2020, are as follows:

Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

(Dollars in thousands, except per share data)

June 30,

June 30,

June 30,

June 30,

2020

2019

2020

2019

2021

2020

2021

2020

Basic earnings per common share:

Net income as reported
$ 5,063 $ 4,023 $ 8,255 $ 6,245 $ 3,571 $ 4,851 $ 8,114 $ 7,964
Weighted average common shares outstanding
3,463,136 3,451,961 3,460,820 3,397,872 3,478,392 3,463,136 3,475,017 3,460,820
Basic earnings per common share
$ 1.46 $ 1.17 $ 2.39 $ 1.84 $ 1.03 $ 1.40 $ 2.33 $ 2.30
Diluted earnings per common share:
- -
Net income as reported
$ 5,063 $ 4,023 $ 8,255 $ 6,245 $ 3,571 $ 4,851 $ 8,114 $ 7,964
Weighted average common shares outstanding
3,463,136 3,451,961 3,460,820 3,397,872 3,478,392 3,463,136 3,475,017 3,460,820
Weighted average common and dilutive potential common shares outstanding
3,463,136 3,451,961 3,460,820 3,397,872 3,478,392 3,463,136 3,475,017 3,460,820
Diluted earnings per common share
$ 1.46 $ 1.17 $ 2.39 $ 1.84 $ 1.03 $ 1.40 $ 2.33 $ 2.30

21

Note 109 - Stock Based Compensation
The Bancorp’s 2015 Stock Option and Incentive Plan (the “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 six months ended June 30, ~~2020,~~2021, stock based compensation expense of ~~$202~~$285 thousand was recorded, compared to ~~$154~~$202 thousand for the six months ended June 30, ~~2019.~~2020. It is anticipated that current outstanding unvested awards will result in additional compensation expense of approximately ~~$794 thousand~~$1.1 million through ~~2023~~2024 with an additional ~~$215 thousand in~~ ~~2020,~~ ~~$339~~$285 thousand in 2021, ~~$209~~$464 thousand in 2022, ~~and $31~~$291 thousand in ~~2023.~~2023, and $53 thousand in 2024.

There were ~~0 incentive stock options granted during the~~ ~~first~~~~six~~ ~~months of~~ ~~2020~~ or ~~2019.~~ 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 ~~June 30, 2020,~~ ~~there were 0 outstanding incentive stock options.~~
18

~~There were 13,243~~19,693 shares of restricted stock granted during the first six months of ~~2020~~2021 compared to ~~7,407~~13,243 shares granted during the first six months of ~~2019.~~2020. 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 Plan described above for the year ended December 31, ~~2019,~~2020, and six months ended June 30, ~~2020,~~2021, follows:

Non-vested Shares

Shares

Weighted
Average
Grant Date
Fair Value

Non-vested at January 1, 2019
27,423 $ 32.58
Granted
7,407 43.00
Vested
(4,625 ) 29.37
Forfeited
- -
Non-vested at December 31, 2019
30,205 $ 35.63

Non-vested at January 1, 2020.
30,205 $ 35.63
Granted
13,243 44.30
Vested
(6,400 ) 27.50
Forfeited
- -
Non-vested at June 30, 2020
37,048 $ 40.13
Non-vested Shares

Shares

Weighted
Average
Grant Date
Fair Value

Non-vested at January 1, 2020
30,205 $ 35.63
Granted
13,243 44.30
Vested
(6,400 ) 27.50
Forfeited
(220 ) 43.65
Non-vested at December 31, 2020
36,828 $ 40.11

Non-vested at January 1, 2021
36,828 $ 40.11
Granted
19,693 40.96
Vested
(13,493 ) 34.84
Forfeited
(355 ) 41.50
Non-vested at June 30, 2021
42,673 $ 42.16

Note 1110 – Change in Accounting Principles
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 iswas effective for the ~~Company’s~~Bancorp’s year ending December 31, 2020, and was adopted on January 1, 2020. The adoption of this ASU has not had a material impact on the consolidated financial statements, and the Bancorp has not recorded goodwill impairment to date as part of their acquisition activity.

22
On January 1, 2020, the Bancorp adopted the provision of ASU 2018–13, which modifies the disclosure requirements on fair value measurements. The amendment removes certain disclosures required by Topic 820 related to transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. The update also adds certain disclosure requirements related to changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, the Bancorp may disclose other quantitative information in lieu of the weighted average if we determine that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. The adoption of this new guidance did not have a material impact on our consolidated financial statements
In ~~March 2017,~~December 2019, the FASB issued ASU ~~2017~~2019-~~08,~~12 ~~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 amortizedwhich remove specific exceptions to the ~~earliest call date. The amendments do~~general principles in Topic 740 in GAAP. It eliminates the need for an organization to analyze whether the following apply in a given period: exception to the incremental approach for intraperiod tax allocation; exceptions to accounting for basis differences where there are ownership changes in foreign investments; and exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. It also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for: franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not ~~however, require an accounting change for securities held at a discount; instead, the discount continues~~subject to ~~be amortized to maturity.~~tax; and enacts changes in tax laws in interim periods. 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 couponguidance 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 was effective for ~~the Company’s year ending~~public business entities for fiscal years, and interim periods within those fiscal years, beginning after December ~~31,~~ 15, 2020. Early adoption is permitted. The Bancorp adopted ASU 2019~~and was adopted~~-12 on January 1, ~~2019.~~2021 ~~The adoption of this ASU has~~and it did not ~~had~~have a material impact on ~~the consolidated financial statements, management has recognized amortization expense as dictated by the amount of premiums~~its accounting and ~~the differences between maturity and call dates at the time of adoption.~~disclosures.

19

Note 1211 - Upcoming Accounting Standards
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. In October 2019, the FASB voted and approved proposed changes to the effective date of this ASU for smaller reporting companies, such as the Bancorp, and other non-SEC reporting entities. The approval changed the effective date of the ASU to fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. The new credit loss guidance will be effective for the Bancorp's year ending December 31, 2023. 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. Management has been actively monitoring developments and evaluating the use of different methods allowed. Due to continuing development of understanding of application, additional time is required to understand how this ASU will 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 March 2020, the FASB issued ASU No.2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. In January 2021, the FASB issued ASU 2021-01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The guidance is effective for all entities as of March 12, 2020, through December 31, 2022. The Bancorp is implementing a transition plan to identify and modify its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. The Bancorp believes the adoption of this guidance on activities after December 31, 2020, through December 31, 2022, will not have a material impact on the consolidated financial statements.
23

Note 1312 – Derivative Financial Instruments

The Bancorp uses derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities. The Bancorp has certain interest rate derivative positions that are not designated as hedging instruments. Derivative assets and liabilities are recorded at fair value on the Consolidated Balance Sheet and do not take into account the effects of master netting agreements. Master netting agreements allow the Bancorp to settle all derivative contracts held with a single counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable. These derivative positions relate to transactions in which the Bancorp enters into an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, the Bancorp agrees to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate. At the same time, the Bancorp agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the client to effectively convert a variable rate loan to a fixed rate. Because the terms of the swaps with the customers and the other financial institutions offset each other, with the only difference being counterparty credit risk, changes in the fair value of the underlying derivative contracts are not materially different and do not significantly impact the Bancorp’s results of operations.

The Bancorp enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (i.e., interest rate lock commitment). The interest rate lock commitments are considered derivatives and are recorded on the accompanying consolidated balance sheets at fair value in accordance with FASB ASC 815, Derivatives and Hedging.

The following table shows the amounts of non-hedging derivative financial instruments:

June 30, 2020

Notational or

Asset derivatives

Liability derivatives

(Dollars in thousands)

contractual amount

Statement of Financial Condition classification

Fair value

Statement of Financial Condition classification

Fair value

Interest rate swap contracts
$ 38,866
Other assets
$ 3,778
Other liabilties
$ 3,778
Interest rate lock commitments
35,904
Other assets
485 N/A -
Total
$ 74,770 $ 4,263 $ 3,778

December 31, 2019

Notational or

Asset derivatives

Liability derivatives

June 30, 2021
June 30, 2021

(Unaudited)

Notational or contractual

Asset derivatives

Liability derivatives

(Dollars in thousands)

contractual amount

Statement of Financial Condition classification

Fair value

Statement of Financial Condition classification

Fair value

amount

Statement of Financial Condition classification

Fair value

Statement of Financial Condition classification

Fair value

Interest rate swap contracts
$ 29,466
Other assets
$ 1,358
Other liabilties
$ 1,358 $ 87,667
Other assets
$ 2,938
Other liabilties
$ 2,938
Interest rate lock commitments
12,822
Other assets
186 N/A - 13,641
Other assets
246 N/A 0
Total
$ 42,288 $ 1,544 $ 1,358 $ 101,308 $ 3,184 $ 2,938

20

December 31, 2020

Notational or contractual

Asset derivatives

Liability derivatives

(Dollars in thousands)

amount

Statement of Financial Condition classification

Fair value

Statement of Financial Condition classification

Fair value

Interest rate swap contracts
$ 72,707
Other assets
$ 3,638
Other liabilties
$ 3,638
Interest rate lock commitments
26,443
Other assets
374 N/A 0
Total
$ 99,150 $ 4,012 $ 3,638

The following table shows the amounts included in the Statements of Income for non-hedging derivative financial instruments:

Six Months Ended

Six Months Ended

Three Months Ended

June 30,

(Unaudited)

June 31,

June 31,

(Dollars in thousands)
Statement of Income Classification

2020

2019

Statement of Income Classification

2021

2020

2021

2020

Interest rate swap contracts
Other income
$ 231 $ 338
Fees and service charges
$ 218 $ 231 $ 231 $ 231
Interest rate lock commitments
Gain on sale of loans held-for-sale, net
298 -
Gain on sale of loans held-for-sale, net
(128 ) 298 (151 ) (220 )
Total
$ 529 $ 338
Total
$ 90 $ 529 $ 80 $ 11

The following table shows the offsetting of financial assets and derivative assets:

Gross Amounts not Offset in the

Gross Amounts not Offset in the

Statement of Financial Condition

Statement of Financial Condition

(Unaudited)

Gross Amounts Offset in

Net Amounts of Assets
Presented

(Dollars in thousands)

Gross Amounts of
Recognized Assets

Gross Amounts Offset in the
Statement of Financial Condition

Net Amounts of Liabilities Presented
in the Statement of Financial Condition

Financial Instruments

Cash Collateral
Received

Net Amount

Gross Amounts of
Recognized Assets

the Statement of
Financial Condition

in the Statement of
Financial Condition

Financial Instruments

Cash Collateral
Received

Net Amount

June 30, 2020

June 30, 2021

Interest rate swap contracts
$ 3,778 $ - $ 3,778 $ - $ - $ 3,778 $ 2,938 $ 0 $ 2,938 $ 0 $ 0 $ 2,938
Interest rate lock commitments
485 - 485 - - 485 246 0 246 0 0 246
Total
$ 4,263 $ - $ 4,263 $ - $ - $ 4,263 $ 3,184 $ 0 $ 3,184 $ 0 $ 0 $ 3,184

Gross Amounts not Offset in the

Gross Amounts not Offset in the

Statement of Financial Condition

Statement of Financial Condition

Gross Amounts Offset in

Net Amounts of Liabilities
Presented

(Dollars in thousands)

Gross Amounts of
Recognized Liabilities

Gross Amounts Offset in the
Statement of Financial Condition

Net Amounts of Liabilities Presented
in the Statement of Financial Condition

Financial Instruments

Cash Collateral
Received

Net Amount

Gross Amounts of
Recognized Assets

the Statement of
Financial Condition

in the Statement of
Financial Condition

Financial Instruments

Cash Collateral
Received

Net Amount

December 31, 2019

December 31, 2020

Interest rate swap contracts
$ 1,358 $ - $ 1,358 $ - $ - $ 1,358 $ 3,638 $ 0 $ 3,638 $ 0 $ 0 $ 3,638
Interest rate lock commitments
186 - 186 - - 186 374 0 374 0 0 374
Total
$ 1,544 $ - $ 1,544 $ - $ - $ 1,544 $ 4,012 $ 0 $ 4,012 $ 0 $ 0 $ 4,012

24
The following table shows the offsetting of financial liabilities and derivative liabilities:

Gross Amounts not Offset in the

Gross Amounts not Offset in the

Statement of Financial Condition

Statement of Financial Condition

(Unaudited)

Gross Amounts Offset in

Net Amounts of Liabilities Presented

(Dollars in thousands)

Gross Amounts of
Recognized Liabilities

Gross Amounts Offset in the
Statement of Financial Condition

Net Amounts of Liabilities Presented
in the Statement of Financial Condition

Financial Instruments

Cash Collateral
Pledged

Net Amount

Gross Amounts of
Recognized Liabilities

the Statement of
Financial Condition

in the Statement of
Financial Condition

Financial Instruments

Cash Collateral
Pledged

Net Amount

March 31, 2020

June 30, 2021

Interest rate swap contracts
$ 3,778 $ - $ 3,778 $ - $ 3,660 $ 118 $ 2,938 $ 0 $ 2,938 $ 0 $ 3,930 $ (992 )
Total
$ 3,778 $ - $ 3,778 $ - $ 3,660 $ 118 $ 2,938 $ 0 $ 2,938 $ 0 $ 3,930 $ (992 )

Gross Amounts not Offset in the

Gross Amounts not Offset in the

Statement of Financial Condition

Statement of Financial Condition

Gross Amounts Offset in

Net Amounts of Liabilities
Presented

(Dollars in thousands)

Gross Amounts of
Recognized Liabilities

Gross Amounts Offset in the
Statement of Financial Condition

Net Amounts of Liabilities Presented
in the Statement of Financial Condition

Financial Instruments

Cash Collateral
Pledged

Net Amount

Gross Amounts of
Recognized Liabilities

the Statement of
Financial Condition

in the Statement of
Financial Condition

Financial Instruments

Cash Collateral
Pledged

Net Amount

December 31, 2019

December 31, 2020

Interest rate swap contracts
$ 1,358 $ - $ 1,358 $ - $ 2,290 $ (932 ) $ 3,638 $ 0 $ 3,638 $ 0 $ 3,930 $ (292 )
Total
$ 1,358 $ - $ 1,358 $ - $ 2,290 $ (932 ) $ 3,638 $ 0 $ 3,638 $ 0 $ 3,930 $ (292 )

21

Note 1134- 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 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 ~~semi-annually~~annually during~~June~~ ~~and~~ 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 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 ~~semi-annual~~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 0 additional impairment was taken at ~~June 30,~~December 31, 2020. A specialist will be used to review all pooled trust preferred securities again at December 31, ~~2020.~~2021.

25
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:

(Dollars in Thousands)

(Dollars in Thousands)

Collateralized

Collateralized

debt obligations

debt obligations

other-than-temporary

other-than-temporary

(Dollars in thousands)

impairment

impairment

Ending balance, December 31, 2019
$ 173
Ending balance, December 31, 2020
$ 173
Additions not previously recognized
- 0
Ending balance, June 30, 2020
$ 173
Ending balance, June 30, 2021
$ 173

At June 30, 2021, ~~30,2020,~~trust preferred securities with a cost basis of $2.2 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 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.

22

Assets and Liabilities Measured at Fair Value on a Recurring Basis
There were no transfers to or from Levels 1 and 2 during the six months ended June 30, ~~2020.~~2021. Assets measured at fair value on a recurring basis are summarized below:

Fair Value Measurements at June 30, 2020, Using

Fair Value Measurements at June 30, 2021 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
$ 21,457 $ 21,457 $ - $ -
residential mortgage-backed securities
134,073 - 134,073 -
U.S. government sponsored entities
10,796 0 10,796 0
U.S. treasury securities
401 0 401 0
Collateralized mortgage obligations and residential mortgage-backed securities
195,361 0 195,361 0
Municipal securities
138,374 - 138,374 - 266,399 0 266,399 0
Collateralized debt obligations
815 - - 815 970 0 0 970
Total securities available-for-sale
$ 294,719 $ 21,457 $ 272,447 $ 815 $ 473,927 $ 0 $ 472,957 $ 970

Fair Value Measurements at December 31, 2019, Using

Fair Value Measurements at December 31, 2020 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
$ 9,670 $ 9,670 $ - $ - $ 52,941 $ 52,941 $ 0 $ 0
U.S. government sponsored entities
13,058 - 13,058 - 7,860 0 7,860 0
Collateralized mortgage obligations and residential mortgage-backed securities
150,988 - 150,988 - 154,736 0 154,736 0
Municipal securities
102,427 - 102,427 - 194,203 0 194,203 0
Collateralized debt obligations
1,076 - - 1,076 929 0 0 929
Total securities available-for-sale
$ 277,219 $ 9,670 $ 266,473 $ 1,076 $ 410,669 $ 52,941 $ 356,799 $ 929

26
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)

Estimated Fair Value
Measurements Using
Significant Unobservable
Inputs (Level 3)

Available-for-
sale securities

Beginning balance, January 1, 2019
$ 2,049
Principal payments
(38 )
Total unrealized gains, included in other comprehensive income
52
Transfers in and/or (out) of Level 3
(987 )
Ending balance, December 31, 2019
$ 1,076

Available-for-
sale securities

Beginning balance, January 1, 2020
$ 1,076 $ 1,076
Principal payments
(11 ) (20 )
Total unrealized losses, included in other comprehensive income
(250 ) (127 )
Sale out of Level 3
-
Ending balance, June 30, 2020
$ 815
Ending balance, December 31, 2020
$ 929

Beginning balance, January 1, 2021
$ 929
Principal payments
(9 )
Total unrealized gains, included in other comprehensive income
50
Ending balance, June 30, 2021
$ 970

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

(Dollars in thousands)

(Dollars in thousands)

Fair Value Measurements at June 30, 2020, Using

Fair Value Measurements at June 30, 2021 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
$ 6,441 $ - $ - $ 6,441 $ 10,348 $ 0 $ 0 $ 10,348
Foreclosed real estate
634 - - 634 368 0 0 368

(Dollars in thousands)

(Dollars in thousands)

Fair Value Measurements at December 31, 2019, Using

Fair Value Measurements at December 31, 2020 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
$ 7,052 $ - $ - $ 7,052 $ 10,046 $ 0 $ 0 $ 10,046
Foreclosed real estate
1,083 - - 1,083 538 0 0 538

23

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 ~~$6.9~~$12.1 million and the related specific reserves totaled approximately ~~$482 thousand,~~$1.8 million, resulting in a fair value of impaired loans totaling approximately ~~$6.4~~$10.3 million, at June 30, ~~2020.~~2021. The recorded investment of impaired loans was approximately ~~$7.2~~$11.8 million and the related specific reserves totaled approximately ~~$166 thousand,~~$1.8 million, resulting in a fair value of impaired loans totaling approximately ~~$7.1~~$10.0 million, at December 31, 2020. 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.

27
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.

June 30, 2020

Estimated Fair Value Measurements at June 30, 2020 Using

June 30, 2021

Estimated Fair Value Measurements at March 31, 2021 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)

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
$ 97,305 $ 97,305 $ 97,305 $ - $ - $ 68,625 $ 68,625 $ 68,625 $ 0 $ 0
Certificates of deposit in other financial institutions
1,639 1,614 - 1,614 - 1,471 1,526 0 1,526 0
Securities available-for-sale
294,719 294,719 21,457 272,447 815 473,927 473,927 0 472,957 970
Loans held-for-sale
10,024 10,311 10,311 - - 5,878 6,030 6,030 0 0
Loans receivable, net
972,036 989,824 - - 989,824 955,852 960,652 0 0 960,652
Federal Home Loan Bank stock
3,918 3,918 - 3,918 - 3,247 3,247 0 3,247 0
Interest rate swap agreements
3,778 3,778 - 3,778 - 2,938 2,938 0 2,938 0
Accrued interest receivable
4,284 4,284 - 4,284 - 4,803 4,803 0 4,803 0

Financial liabilities:

Non-interest bearing deposits
262,001 262,001 262,001 - - 275,819 275,819 275,819 0 0
Interest bearing deposits
1,015,633 1,016,961 720,953 296,008 - 1,119,277 1,119,535 838,519 281,016 0
Repurchase agreements
17,159 17,166 15,425 1,741 - 24,399 24,415 22,661 1,754 0
Borrowed funds
12,000 12,140 - 12,140 -
Interest rate swap agreements
3,778 3,778 - 3,778 - 2,938 2,938 0 2,938 0
Accrued interest payable
65 65 - 65 - 36 36 0 36 0

December 31, 2019

Estimated Fair Value Measurements at December 31, 2019 Using

December 31, 2020

Estimated Fair Value Measurements at December 31, 2020 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)

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
$ 47,258 $ 47,258 $ 47,258 $ - $ - $ 19,922 $ 19,922 $ 19,922 $ 0 $ 0
Certificates of deposit in other financial institutions
2,170 2,137 - 2,137 - 1,897 1,868 0 1,868 0
Securities available-for-sale
277,219 277,219 9,670 266,473 1,076 410,669 410,669 52,941 356,799 929
Loans held-for-sale
6,091 6,204 6,204 - - 11,329 11,660 11,660 0 0
Loans receivable, net
897,870 917,174 - - 917,174 952,688 982,793 0 0 982,793
Federal Home Loan Bank stock
3,912 3,912 - 3,912 - 3,918 3,918 0 3,918 0
Interest rate swap agreements
1,358 1,358 - 1,358 - 3,638 3,638 0 3,638 0
Accrued interest receivable
4,029 4,029 - 4,029 - 4,713 4,713 0 4,713 0

Financial liabilities:

Non-interest bearing deposits
172,094 172,094 172,094 - - 241,620 241,620 241,620 0 0
Interest bearing deposits
982,276 982,241 654,573 327,668 - 1,060,719 1,061,294 775,891 285,403 0
Repurchase agreements
11,499 11,499 9,721 1,778 - 13,711 13,713 11,976 1,737 0
Borrowed funds
14,000 14,108 - 14,108 - 6,149 6,018 0 6,018 0
Interest rate swap agreements
1,358 1,358 - 1,358 - 3,638 3,638 0 3,638 0
Accrued interest payable
179 179 - 179 - 54 54 0 54 0

The following methods were used to estimate the fair value of financial instruments presented in the preceding table for the periods ended June 30, ~~2020~~2021 and December 31, ~~2019:~~2020:

Cash and cash equivalent carrying amounts approximate fair value. Certificates of 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 the exit price notion which is the exchange price that would be received to transfer the loans at the most advantageous market price in an orderly transaction between market participants on the measurement date (Level 3). Federal Home Loan Bank stock is estimated at book value due to restrictions that limit the sale or transfer of the security. Interest rate swap agreements, both assets and liabilities, are valued by a third-party pricing agent using an income approach (Level 2). Fair values of accrued interest receivable and payable approximate book value, as the carrying values are determined using the observable interest rate, balance, and last payment date.

2428

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.
Note 14 - Acquisition Activity

On July 28, 2021, Finward Bancorp (“Finward”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Royal Financial, Inc., a Delaware corporation (“RYFL”). Pursuant to the Merger Agreement, RYFL will merge with and into Finward, with Finward as the surviving corporation (the “Merger”). At a time to be determined at or following the Merger, Royal Savings Bank, an Illinois state chartered savings bank and wholly-owned subsidiary of RYFL (“Royal Bank”), will merge with and into Peoples Bank, the wholly-owned Indiana state chartered commercial bank subsidiary of Finward (“Peoples Bank”), with Peoples Bank as the surviving bank.
The boards of directors of each of Finward and RYFL have approved the Merger and the Merger Agreement. Subject to the approval of the Merger by Finward’s and RYFL’s respective stockholders, regulatory approvals, and other customary closing conditions, the parties anticipate completing the Merger during the first quarter of 2022.
Upon completion of the Merger, each RYFL stockholder will have the right to receive, at the stockholder’s election, 0.4609 shares of Finward common stock or $20.14 in cash, or a combination of both, for each share of RYFL’s common stock, subject to allocation provisions and adjustment, as described below. Stockholders holding less than 101 shares of RYFL common stock will only have the right to receive fixed consideration of $20.14 in cash and will not be entitled to make an election with respect to the merger consideration. Based on Finward’s closing stock price of $44.00 as of July 28, 2021, the transaction has an implied valuation of approximately $52.9 million.
A current director or executive officer of RYFL, as mutually agreed upon prior to closing by Finward and RYFL, will be appointed to the boards of directors of Finward and Peoples Bank effective as of the closing of the Merger.
RYFL has a home office and eight branch offices in Cook County, Illinois. As of June 30, 2021, RYFL reported total assets of $533.7 million, total loans of $464.2 million, and total deposits of $466.3 million. The combined bank is expected to have approximately $2.1 billion in total assets, $1.4 billion in total loans, and $1.9 billion in deposits. The acquisition will further expand the Bank’s banking center network in Cook County, Illinois.

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

Summary
~~NorthWest Indiana~~Finward Bancorp (the “Bancorp”) is a financial holding company registered with the Board of Governors of the Federal Reserve System. Peoples Bank (“the Bank”), an Indiana commercial bank, and NWIN Risk Management, Inc., a captive insurance company, are wholly-owned subsidiaries of the Bancorp. The ~~Bank (which was formerly known as Peoples Bank SB) converted from an Indiana-chartered stock savings bank to an Indiana-chartered commercial bank effective May 22, 2020. 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 June 30, ~~2020,~~2021, as compared to December 31, ~~2019,~~2020, and the results of operations for the quarter and six months ending June 30, ~~2020,~~2021, and June 30, ~~2019.~~2020. 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, ~~2019.~~2020.

At June 30, ~~2020,~~2021, the Bancorp had total assets of ~~$1.5~~$1.6 billion, total loans receivable of ~~$981.9~~$969.5 million and total deposits of ~~$1.3~~$1.4 billion. Stockholders' equity totaled ~~$145.2~~$155.6 million or ~~9.85%~~9.7% of total assets, with a book value per share of ~~$41.92.~~$44.71. Net income for the quarter ended June ~~30,2020,~~30, 2021, was ~~$5.1~~$3.6 million, or ~~$1.46~~$1.03 earnings per common share for both basic and diluted calculations. For the quarter ended June 30, ~~2020,~~2021, the return on average assets (ROA) was ~~1.42%~~0.90%, while the return on average stockholders’ equity (ROE) was ~~14.32%~~9.17%. Net income for the six months ended June 30, ~~2020,~~2021, was ~~$8.3~~$8.1 million, or ~~$2.39~~$2.33 earnings per common share for both basic and diluted calculations. For the six months ended June 30, ~~2020,~~2021, the ROA was ~~1.20%~~1.04%, while the ROE was ~~11.90%~~10.54%.
29
Revision of Previously Issued Financial Statements
This information should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in “Part I, Item 1” of this Quarterly Report. We have revised our prior period financial statements to reflect the correction of immaterial errors as described in this Quarterly Report in Notes to Condensed Consolidated Financial Statements, Note 1 – Basis of Presentation, “Revision of Previously Issued Financial Statements”.

Recent Developments
Merger Agreement with Royal Financial, Inc. On July 28, 2021, Finward Bancorp (“Finward”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Royal Financial, Inc., a Delaware corporation (“RYFL”). Pursuant to the Merger Agreement, RYFL will merge with and into Finward, with Finward as the surviving corporation (the “Merger”). At a time to be determined at or following the Merger, Royal Savings Bank, an Illinois state chartered savings bank and wholly-owned subsidiary of RYFL (“Royal Bank”), will merge with and into Peoples Bank, the wholly-owned Indiana state chartered commercial bank subsidiary of Finward (“Peoples Bank”), with Peoples Bank as the surviving bank.
The boards of directors of each of Finward and RYFL have approved the Merger and the Merger Agreement. Subject to the approval of the Merger by Finward’s and RYFL’s respective stockholders, regulatory approvals, and other customary closing conditions, the parties anticipate completing the Merger during the first quarter of 2022.
Upon completion of the Merger, each RYFL stockholder will have the right to receive, at the stockholder’s election, 0.4609 shares of Finward common stock or $20.14 in cash, or a combination of both, for each share of RYFL’s common stock, subject to allocation provisions and adjustment, as described below. Stockholders holding less than 101 shares of RYFL common stock will only have the right to receive fixed consideration of $20.14 in cash and will not be entitled to make an election with respect to the merger consideration. The Merger Agreement provides that, in the aggregate, 65% of the outstanding shares of RYFL common stock will be converted into the right to receive shares of Finward common stock and the remaining 35% of the outstanding shares of RYFL common stock will be converted into the right to receive cash. All outstanding options to purchase RYFL common stock, whether or not vested, will be converted into the right to receive at the effective time of the Merger, an amount of cash equal to $20.14 minus the per share exercise price for each share of RYFL common stock subject to an option, less applicable tax withholdings. In addition, at the effective time of the Merger, each award of RYFL restricted stock, whether or not vested, that is outstanding immediately prior to the effective time will fully vest and be cancelled and converted into the right to receive the merger consideration, less applicable tax withholdings. Based on Finward’s closing stock price of $44.00 as of July 28, 2021, the transaction has an implied valuation of approximately $52.9 million.
A current director or executive officer of RYFL, as mutually agreed upon prior to closing by Finward and RYFL, will be appointed to the boards of directors of Finward and Peoples Bank effective as of the closing of the Merger.

COVID-19

In December 2019, COVID-19 was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. On March 12, 2020, the President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments ordered non-essential businesses to close and residents to shelter in place at home. While many of these measures have been lifted or eased since the beginning of the pandemic and economic growth is beginning to recover, the pandemic resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 outbreak,the stock markets have experienced high levels of volatility at times and, in particular, many bank stocks have declined in value. In response to the COVID-19 outbreak, the ~~Federal Reserve Board~~FRB has reduced the benchmark federal funds rate to a target range of 0% to 0.25%, and the yields on 10- and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are ~~requiring~~encouraging lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality, restaurant, and retail industries.

25

In addition, the spread of COVID-19 has caused us to modify our business practices, including remote employee work locations, restrictions on employee travel, social distancing guidelines for our employees, and the cancellation or postponement of physical participation in meetings, events, and conferences. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by COVID-19 or will otherwise be satisfactory to government authorities and regulators.
Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 ~~outbreak~~pandemic on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be fully reopened in our market areas.
30

As a result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a significant effect on our business, financial condition, liquidity, and results of operations:

●
Demand for our products and services may decline, making it difficult to grow assets and income.

●
If the economies in the Bank’s market areas are unable to fully reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased provisions for loan losses, charge-offs, and reduced income.

●
Collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase.

●
The Bank’s allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income.

●
The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to the Bank.

●
As a result of the decline in the ~~Federal Reserve Board’s~~FRB’s target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread, and correspondingly reducing our net income.

●
A material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend.

●
Our wealth management revenues may decline with continuing market volatility.

●
We rely on third party vendors for certain critical services, and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on the Bank.

●
FDIC premiums may increase if the agency experiences additional resolution costs.

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with the Bancorp and the Bank for many years. The Bancorp has put in place measures such as remote work to protect the health and safety of our employees. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. However, the Bancorp has an appropriate emergency succession plan in place, which is reviewed and approved annually by the Bancorp’s ~~Board~~board of ~~Directors.~~directors.
26

Any one or a combination of the factors identified above may remain prevalent for a significant period of time and could negatively impact our business, financial condition, and results of operations and prospects even after the COVID-19 outbreak has subsided.

The extent to which the COVID-19 outbreak impacts our business, results of operations, and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can fully resume. Even after the COVID-19 outbreak has subsided, we may continue to experience significant impacts to our business as a result of the virus’s regional, national, and global economic impact, including the availability of credit, adverse impacts on our liquidity, and any recession that has occurred or may occur in the future.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. That being said, we believe the Bancorp and the Bank are well prepared for the economic and social consequences of the COVID-19 global pandemic.

31
Impacts of COVID-19

The COVID-19 pandemic began to impact the Bancorp’s operations during March 2020, and as of the date of this report, continues to influence operating decisions. In response to the pandemic, the Bancorp’s management implemented the following policy actions:

●
Participating in the U.S. Small Business Administration’s Paycheck Protection Program ~~(PPP)~~(“PPP”), a program initiated to help small businesses maintain their ~~workforce~~workforces during the pandemic. As of June 30, ~~2020,~~2021, the Bancorp approved ~~773~~782 applications totaling $91.5 million for the first round, with an average loan size of approximately ~~$118,000.~~$117 thousand. These loans helped local business owners retain 10,758 employees based on the borrowers’ applications. The Bancorp’s SBA lender fee is averaging approximately 3.80% for the first round of the program, and fees will be earned over the life of the associated loans. The first round of PPP closed in August of 2020. On December 21, 2020, Congress passed the Consolidated Appropriations Act, 2021, which included provisions for a second round of PPP funding in 2021. As of June 30, 2021, the Bancorp approved 420 applications totaling $37.5 million for the second round, with an average loan size of approximately $89 thousand. These loans will help local business owners retain ~~10,744~~4,410 employees based on the ~~borrower’s application.~~borrowers’ applications. The Bancorp’s SBA lender fee is averaging approximately ~~3.80%~~5.32% for this program, and fees will be earned over the life of the associated ~~loan. .~~loans. As of June 30, 2021, the Bancorp had remaining loan balances under the Paycheck Protection Program totaling $50.3 million.

●
Prudently helping borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. Consistent with regulatory guidance, the Bancorp will consider ~~and has been~~ deferring or modifying ~~its~~a loan customer’s repayment obligation if ~~their~~the customer’s cash flow has been negatively impacted by the pandemic. The Bancorp’s management anticipates that additional borrower deferral and modification requests will continue ~~during the remainder of 2020.~~in 2021 at a reduced pace. Loans modified to interest only payment or full payment deferral as part of the effects of COVID-19 as of June 30, ~~2020,~~2021, are as follows:

(Dollars in thousands)

(Unaudited)

As of June 30, 2020

Mortgage loans

Commercial Loans

Number
of Loans

Recorded
Investment

Number
of Loans

Recorded
Investment

Interest only payment
90 $ 10,975 95 $ 42,259
Full payment deferral
8 653 41 27,220
Total $
98 $ 11,628 136 $ 69,479
27

(Dollars in thousands)

(Unaudited)

As of June 30, 2021

Mortgage loans

Commercial Loans

Number of Loans

Recorded Investment

Number of Loans

Recorded Investment

Interest only
15 $ 1,656 1 $ 2,973
Full interest, partial principal
- - 2 1,021
Full payment deferral
1 98 - -
Total $
16 $ 1,754 3 $ 3,994

●
~~Commercial real estate loans~~As the Bancorp continues to monitor the borrowers that are ~~one~~in and outside of ~~the Bancorp’s primary~~deferral status, some loan concentrations. Key loan data for commercial real estate loans secured by restaurants, hotels, and retail non-owner occupied properties indicate a strong weighted average loan-to-value and debt service coverage.relationships may be deemed non-performing. As of June 30, ~~2020,~~2021, a single large commercial real estate ~~loans secured by restaurants represented 5%~~loan relationship, which operates a hotel, with a carrying balance of $5.0 million, came out of deferral status and was deemed non-performing after COVID-19 pandemic stresses negatively impacted weak operating performance which occurred prior to the pandemic. Through management’s review of the ~~commercial real estate, construction and land development, and multifamily~~ loan ~~portfolio,~~relationship, a specific reserve within the allowance for loan losses was allocated as of ~~which is comprised of 47% quick service and fast casual loans balances, and had a weighted average debt coverage ratio of 1.60 and loan to value of 50%.~~June 30, 2021. As of June 30, ~~2020, commercial real estate~~2021, the customer has opened a payment reserve account with the Bancorp to be used for future contractual payments and is currently in compliance with all modified loan terms. No other material COVID-19 impacted loans secured by hotels represented 5% of the commercial real estate, construction and land development, and multifamily loan portfolio, of which is comprised of 88% flagged hotel loan balances, and had a weighted average debt coverage ratio of 1.46 and loan to value of 59%.that are in deferral status have been deemed non-performing at this time. As of June 30, ~~2020,~~2021, a total of 211 loans have come out of COVID-19 related deferral status with carrying balances of $81.6 million. All of these loans continue to be performing, except one commercial real estate ~~loans secured by retail non-owner occupied properties represented 13%~~loan with a carrying balance of ~~the commercial~~$835 thousand and one residential real estate ~~construction and land development, and multifamily~~ loan ~~portfolio and had~~with a ~~weighted average debt coverage~~carrying balances of ~~1.48 and loan to value of 51%.~~
●
~~Maintaining a strong liquidity position to support funding demand. The Bancorp has sufficient on balance sheet liquidity and contingent liquidity sources to meet funding demand.~~
●
~~Implementing remote working policies for the Bancorp’s workforce. 142 employees or 50% of the workforce have been provided remote work capabilities to support social distancing measures.~~
●
Keeping the Bancorp’s 22 banking centers open during the pandemic. To ensure banking processes run efficiently, drive-ups are open and fully functional, and a wide range of digital banking options are available. All banking centers lobbies are also available to serve customers, however we are requesting that they make appointments via the Bank’s website to help us adhere to social distancing guidelines.$108 thousand.

~~U.S. Small Business Administration Paycheck Protection Program~~
The Bank has participated in the U.S. Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”), which was initiated on April 3, 2020 in order to help small businesses maintain their workforce during the COVID-19 pandemic. The Bank began accepting applications from qualified business customers immediately upon the initiation of the PPP. Under the PPP, borrowers who use the funds for payroll and certain other expenses are eligible to have the loan balances forgiven by the SBA. Applications for forgiveness can be submitted to the Bank beginning eight weeks after loan disbursement. The PPP loans carry a fixed interest rate of 1.0% and a term of two years (for loans made before June 5, 2020) or five years (for loans made on or after June 5, 2020), if not forgiven, in whole or in part, and are 100% guaranteed by the SBA. Payments are deferred until either the date on which the SBA remits the amount of forgiveness proceeds to the Bank or the date that is six months after the last day of the covered period if the borrower does not apply for forgiveness within that 10 month period. As of June 30, 2020, the Bank approved 773 applications totaling $91.5 million in loan requests, with an average loan size of approximately $118,000. The Bank began closing and funding PPP loans late during the week of April 6, 2020. These loans are expected to help local business owners retain 10,744 employees. We expect the majority of the PPP loans we have originated to qualify for and receive forgiveness from the SBA by December 31, 2020. This expectation is subject to change due to borrower behavior, changing SBA requirements and processes related to loan forgiveness, and other relevant factors. The Bank is a certified SBA lender and was one of the first local banks to fund loans under the PPP. The PPP has been extended until August 8, 2020, and may be extended again. The Bank may have additional PPP loan originations in the third quarter of 2020, but not likely at the pace experienced in the second quarter of 2020.
SBA Loan Subsidy Program

Pursuant to the CARES Act, Section 1112, Congress has determined that all existing borrowers under the SBA Section 7(a) program are adversely affected by COVID-19, and are therefore entitled to a subsidy in the form of relief payments. Specifically, the CARES Act provides that the SBA will pay the principal and interest on any existing and current SBA 7(a) loan for a period of ~~six~~nine months. These principal and interest payments will be made by the SBA directly to the SBA 7(a) lender and will begin with the next payment due. The Bancorp is a qualified SBA Section 7(a) lender, and is participating in the Section 1112 program. As of June 30, ~~2020,~~2021, the Bancorp had 4916 loans eligible for the program, with an aggregate principal amount of ~~$6.7~~$1.1 million. Payments under the program will not constitute new loans for the Bancorp, but simply payments of principal and interest on loans that already exist in the Bancorp’s SBA 7(a) loan portfolio and are current on borrower payments. The Bancorp received its first tranche of payments under the program on April 30, 2020, and expects to receive subsequent payments from the SBA by the 25th of each month thereafter until the expiration of the six-month program period.

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Financial Condition
During the six months ended June 30, ~~2020,~~2021, total assets increased by ~~$145.3~~$107.2 million ~~(10.9%~~(7.2%), with interest-earning assets increasing by ~~$143.0~~$106.2 million ~~(11.7%~~(7.6%). At June 30, ~~2020,~~2021, interest-earning assets totaled ~~$1.4~~$1.5 billion compared to ~~$1.2~~$1.4 billion at December 31, ~~2019.~~2020. Earning assets represented ~~92.6%~~93.9% of total assets at June 30, ~~2020~~2021 and ~~92.0%~~93.5% of total assets at December 31, ~~2019.~~2020. The increase in total assets and interest earning assets for the six months was primarily the result of ~~the Bancorp’s participation in the PPP.~~increased cash balances related to strong core deposit growth.

~~Net loans~~Loans receivable totaled ~~$981.9~~$969.5 million at June 30, ~~2020,~~2021, compared to ~~$906.9~~$965.1 million at December 31, ~~2019.~~2020. 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 continues to review its loan pipelines and credit product specifications in ~~anticipation of~~connection with the ~~significant declines in~~effects on economic activity and employment stemming from the COVID-19 global pandemic. As a result of this review, management believes the Bancorp’s loan portfolio and current pipelines are well-positioned to withstand the current effects of the pandemic and address the needs of the Bancorp’s customers.

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

June 30,

June 30,

2020

December 31,

2021

December 31,

(Dollars in thousands)

(unaudited)

2019

(unaudited)

2020

Balance

% Loans

Balance

% Loans

Balance

% Loans

Balance

% Loans

Residential real estate
$ 284,563 29.0 % $ 299,333 33.0 % $ 268,649 27.8 % $ 286,048 29.8 %
Home equity
46,312 4.7 % 49,181 5.4 % 36,684 3.8 % 39,233 4.1 %
Commercial real estate
286,122 29.1 % 283,108 31.2 % 315,087 32.6 % 298,257 31.0 %
Construction and land development
92,982 9.5 % 87,710 9.7 % 104,154 10.8 % 93,562 9.7 %
Multifamily
56,070 5.7 % 51,286 5.7 % 53,639 5.6 % 50,571 5.3 %
Farmland
221 0.0 % 227 0.0 % 309 0.0 % 215 0.0 %
Commercial business
149,414 15.5 % 158,140 16.4 %
Consumer
522 0.1 % 627 0.1 % 544 0.1 % 1,025 0.1 %
Commercial business
178,863 18.2 % 103,088 11.4 %
Manufactured homes
22,518 2.3 % 16,505 1.8 % 28,135 2.9 % 24,232 2.5 %
Government
13,729 1.4 % 15,804 1.7 % 8,462 0.9 % 10,142 1.1 %
Loans receivable
$ 981,902 100.0 % $ 906,869 100.0 % $ 965,077 100.0 % $ 961,425 100.0 %

Adjustable rate loans / loans receivable
$ 496,505 50.6 % $ 504,941 55.7 % $ 534,824 55.4 % $ 491,860 51.2 %

June 30,

June 30,

2020

December 31,
��
2021

December 31,

(unaudited)

2019

(unaudited)

2020

Loans receivable to total assets
66.6 % 68.3 % 60.5 % 64.5 %
Loans receivable to earning assets
71.9 % 74.2 % 64.5 % 69.0 %
Loans receivable to total deposits
76.9 % 78.6 % 69.6 % 74.2 %

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 six months ended June 30, ~~2020,~~2021, the Bancorp originated ~~$114.2~~$85.9 million in new fixed rate mortgage loans for sale, compared to ~~$29.6~~$114.2 million during the six months ended June 30, ~~2019.~~2020. The ~~increase~~decrease in originations of these fixed rate mortgage loans ~~was~~is due to significant refinance activity in the prior year due to the low interest rate ~~environment, and customer preferences to refinance existing mortgages to lower rates.~~environment. Net gains realized from the mortgage loan sales totaled $3.2 million for the six months ended June 30, 2021, compared to $3.6 million for the six months ended June 30, ~~2020, compared to $642 thousand for the six months ended~~2020. At June 30, ~~2019. At June 30,2020,~~2021, the Bancorp had ~~$10.0~~$5.9 million in loans that were classified as held for sale, compared to ~~$6.1~~$11.3 million at December 31, ~~2019.~~2020.

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 June 30, ~~2020,~~2021, non-performing loans that remained accruing and more than 90 days past due include ~~six~~one commercial real estate ~~loans~~loan totaling ~~$1.2 million, five~~$95 thousand, one residential real estate ~~loans~~loan totaling ~~$343~~$79 thousand, ~~two commercial business~~one construction and land development loan totaling ~~$318~~$42 thousand and one ~~home equity~~commercial business loan totaling ~~$49~~$33 thousand. The Bancorp will at times leave notes accruing, despite being over 90 days past due, for short periods of time when management has reason to believe payments are in process of being received.

2933

The Bancorp's nonperforming loans are summarized below: The Bancorp's nonperforming loans are summarized below:
The Bancorp's nonperforming loans are summarized below:

(Dollars in thousands)

Loan Segment

June 30, 2020
(unaudited)

December 31,
2019

June 30, 2021

December 31,
2020

Residential real estate
$ 5,478 $ 4,826 $ 4,259 $ 6,470
Home equity
513 492 495 505
Commercial real estate
1,447 719 6,616 5,827
Construction and land development
- - 41 20
Multifamily
541 420 400 504
Farmland
- - - -
Commercial business
1,333 870 462 1,039
Consumer
- - - -
Manufactured homes
- 46 - -
Government
- - - -
Total
$ 9,312 $ 7,373 $ 12,273 $ 14,365
Nonperforming loans to total loans
0.95 % 0.81 % 1.26 % 1.49 %
Nonperforming loans to total assets
0.63 % 0.56 % 0.76 % 0.96 %

Substandard loans include potential problem loans, where information about possible credit issues or other conditions causes management to question the ability of such borrowers to comply with loan covenants or repayment terms. No loans were internally classified as doubtful or loss at June 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

The Bancorp's substandard loans are summarized below:
(Dollars in thousands)

Loan Segment

June 30, 2020
(unaudited)

December 31,
2019

Residential real estate
$ 5,163 $ 4,491
Home equity
498 507
Commercial real estate
3,173 1,565
Construction and land development
- -
Multifamily
541 802
Farmland
- -
Commercial business
1,080 727
Consumer
- -
Manufactured homes
- -
Government
- -
Total
$ 10,455 $ 8,092
The Bancorp's substandard loans are summarized below:

(Dollars in thousands)

Loan Segment

June 30, 2021

December 31,
2020

Residential real estate
$ 4,113 $ 6,387
Home equity
512 495
Commercial real estate
8,398 8,180
Construction and land development
- -
Multifamily
400 504
Farmland
- -
Commercial business
916 1,061
Consumer
- -
Manufactured homes
- -
Government
- -
Total
$ 14,339 $ 16,627

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:

The Bancorp's special mention loans are summarized below:

(Dollars in thousands)

Loan Segment

June 30, 2020
(unaudited)

December 31,
2019

June 30, 2021

December 31,
2020

Residential real estate
$ 3,164 $ 4,203 $ 3,969 $ 3,539
Home equity
565 813 560 761
Commercial real estate
6,731 5,380 13,801 11,983
Construction and land development
- - 3,662 3,652
Multifamily
501 - 1,377 1,408
Farmland
- - - -
Commercial business
1,851 2,228 1,162 1,341
Consumer
- - - -
Manufactured homes
- - 60 -
Government
- - - -
Total
$ 12,812 $ 12,624 $ 24,591 $ 22,684

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.

3034

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)

Loan Segment

June 30, 2020
(unaudited)

December 31,
2019

June 30, 2021

December 31,
2020

Residential real estate
$ 2,264 $ 2,223 $ 1,732 $ 2,165
Home equity
372 437 293 353
Commercial real estate
1,262 1,565 7,406 6,341
Construction and land development
- - - -
Multifamily
768 802 596 716
Farmland
- - - -
Commercial business
2,257 2,191 2,091 2,246
Consumer
- - - -
Manufactured homes
- - - -
Government
- - - -
Total
$ 6,923 $ 7,218 $ 12,118 $ 11,821

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)

Loan Segment

June 30, 2020
(unaudited)

December 31,
2019

June 30, 2021

December 31,
2020

Residential real estate
$ 520 $ 480 $ 315 $ 614
Home equity
192 176 102 187
Commercial real estate
928 823 1,646 872
Construction and land development
- - - -
Multifamily
- - - -
Farmland
- - - -
Commercial business
518 622 388 448
Consumer
- - - -
Manufactured homes
- - - -
Government
- - - -
Total
$ 2,158 $ 2,101 $ 2,451 $ 2,121

The decrease in nonperforming and substandard loans as of June 30, 2021, is the result of the removal of residential real estate loans totaling $2.2 million, which was offset by the addition of two commercial real estate customers with loans totaling $1,253 thousand to nonaccrual. The increase in ~~the troubled debt restructure~~special mention loans ~~reflected in the table above for the six months ending~~as of June 30, ~~2020~~2021, is the result of the addition of five commercial real estate customers with loans totaling $3.1 million, which was offset by the ~~result~~movement of one commercial real estate loan totaling $148 thousand, one residential real estate loan totaling $52 thousand and one home equity loan totaling $24 thousand which were new troubled debt restructuring loans during 2020. The new troubled debt restructuring loans along with one commercial business relationship with loans totaling $428 thousand, one commercial business customer with loans totaling ~~$151~~$835 thousand to substandard and one commercial real estate customer with loans totaling ~~$148~~$189 thousand ~~offset the overall decline~~to a pass rating. The increase in impaired ~~loans.~~
~~Five~~ loans ~~to one~~as of June 30, 2021, is the result of the addition of two commercial real estate ~~relationship~~customers with loans totaling $1.1 million, two loans to one commercial business relationship totaling $445 thousand and nine loans to one commercial business relationship totaling $428 thousand contributed to the June 30, 2020, increase in nonperforming loans. Three loans to one commercial real estate customer totaling $1.3 million, one loan to a commercial real estate customer totaling $837 thousand, two loans to one commercial business relationship totaling $445 thousand and nine loans to one commercial business relationship totaling $428 thousand contributed to the June 30, 2020, increase in substandard loans. Two loans to one commercial real estate customer totaling $5.3 million contributed to the June 30, 2020, increase in watch loans. The purchased credit impaired loans decreased at June 30, 2020, to $3,416 thousand ledger balance from $4,041 thousand ledger balance at December 31, 2019, due primarily to the overall reduction in impaired loan balances in accordance with required payment schedules and the payoff of two impaired loans.$1,253 thousand.
31

At June 30, ~~2020,~~2021, management is of the opinion that there are no loans, except certain of those discussed above or as part of credit risk impacts of COVID-19, 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.

35
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~~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 six months ended are summarized below:

The Bancorp's provision for loan losses for the six months ended are
The Bancorp's provision for loan losses for the six months ended are

summarized below:

(Dollars in thousands)

(unaudited)

Loan Segment

June 30, 2020

June 30, 2019

June 30, 2021

June 30, 2020

Residential real estate
$ (112 ) $ (7 ) $ 62 $ (112 )
Home equity
8 (2 ) 96 8
Commercial real estate
19 194 533 19
Construction and land development
120 50 393 120
Multifamily
80 (19 ) 114 80
Farmland
- - - -
Commercial business
932 139 (53 ) 932
Consumer
(8 ) 490 9 (8 )
Manufactured homes
- - - -
Government
(17 ) (17 ) - (17 )
Total
$ 1,022 $ 828 $ 1,154 $ 1,022

The Bancorp's charge-off and recovery information 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)

(unaudited)

As of June 30, 2020

As of June 30, 2021

Loan Segment

Charge-off

Recoveries

Net Charge-offs

Charge-off

Recoveries

Net Recoveries

Residential real estate
$ (2 ) $ 10 $ 8 $ (4 ) $ 25 $ 21
Home equity
- - - (1 ) - (1 )
Commercial real estate
(80 ) - (80 ) - - -
Construction and land development
(17 ) - (17 ) - - -
Multifamily
- - - - - -
Farmland
- - - - - -
Commercial business
(78 ) 17 (61 ) - 19 19
Consumer
(13 ) 8 (5 ) (17 ) 5 (12 )
Manufactured homes
- - - -
Government
- - - - - -
Total
$ (190 ) $ 35 $ (155 ) $ (22 ) $ 49 $ 27
(Dollars in thousands)

(unaudited)

As of June 30, 2020

Loan Segment

Charge-off

Recoveries

Net Recoveries

Residential real estate
$ (2 ) $ 10 $ 8
Home equity
- - -
Commercial real estate
(80 ) - (80 )
Construction and land development
(17 ) - (17 )
Multifamily
- - -
Farmland
- - -
Commercial business
(78 ) 17 (61 )
Consumer
(13 ) 8 (5 )
Manufactured homes
- -
Government
- - -
Total
$ (190 ) $ 35 $ (155 )

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.

3236

In addition, management considers reserves that are not part of the ALL 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 June 30, ~~2020,~~2021, total purchased credit impaired loans reserves totaled ~~$2.1~~$2.0 million compared to ~~$2.2~~$2.1 million at December 31, ~~2019.~~2020. 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 ~~$2.9~~$1.4 million at June 30, ~~2020,~~2021, compared to ~~$3.8~~$2.0 million at December 31, ~~2019.~~2020. 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:

(Dollars in thousands)

(unaudited)

June 30, 2020

June 30, 2019

Allowance for loan losses
$ 9,866 $ 8,744
Total loans
$ 981,902 $ 906,869
Non-performing loans
$ 9,312 $ 7,373
ALL-to-total loans
1.00 % 0.96 %
ALL-to-non-performing loans (coverage ratio)
105.9 % 118.6 %
The non-GAAP ALL-to-total loans and coverage ratio when adjusted with purchased fair value marks and additional reserves discussed in Note 5, Loans Receivable, reconciled to the most directly comparable GAAP measure, are presented as follows:
($ in thousands)

(Unaudited)

For the three months ended March 31, 2020

GAAP

Additional
reserves not
part of the ALL

Non-GAAP

Allowance for loan losses (ALL)
$ 9,866 $ 4,986 $ 14,852
Total loans
$ 981,902 $ 981,902
ALL to total loans
1.00 % 1.51 %
($ in thousands)

(Unaudited)

For the three months ended March 31, 2020

GAAP

Additional
reserves not
part of the ALL

Non-GAAP

Allowance for loan losses (ALL)
$ 9,866 $ 4,986 $ 14,852
Non-performing loans
$ 9,312 $ 9,312
ALL to nonperfroming loans (coverage ratio)
105.95 % 159.49 %
The non-GAAP ALL-to-total loans ratio when adjusted for PPP loans, which are fully guaranteed by the SBA, outstanding at June 30, 2020, reconciled to the most directly comparable GAAP measure, is presented as follows:
($ in thousands)

(Unaudited)

For the three months ended March 31, 2020

GAAP

PPP loans
which are
SBA guaranteed

Non-GAAP

Allowance for loan losses (ALL)
$ 9,866 $ 14,852
Total loans
$ 981,902 $
91,335
$ 890,567
ALL to total loans
1.00 % 1.11 %
The Bancorp has included the above non-GAAP measures to help investors evaluate the allowance for loan loss once adjusted for purchased fair value marks and additional reserves, and also adjusted for PPP loans that are fully guaranteed by the SBA.
The Bancorp's allowance to total loans and non-performing loans are summarized below:

(Dollars in thousands)

June 30, 2021

December 31, 2020

Allowance for loan losses
$ 13,639 $ 12,458
Total loans
$ 969,491 $ 965,146
Non-performing loans
$ 12,273 $ 14,365
ALL-to-total loans
1.41 % 1.29 %
ALL-to-non-performing loans (coverage ratio)
111.1 % 86.7 %

The June 30, ~~2020~~2021, balance in the ALL account is considered adequate by management after evaluation of the loan portfolio, past experience, current economic and market conditions, and additional reserves from acquisition accounting as described in the immediately preceding paragraph. 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 June 30, ~~2020,~~2021, foreclosed real estate totaled ~~$634~~$368 thousand, which was comprised of ~~fourteen~~five properties, compared to ~~$1.1 million~~$538 thousand and ~~seventeen~~ten properties at December 31, ~~2019.~~2020. Net gains from the sale of foreclosed real estate totaled ~~$103~~$27 thousand for the six months ended June 30, ~~2020.~~2021. At the end of June ~~2020,~~2021, all of the Bancorp’s foreclosed real estate is located within its primary market area.
33

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 ~~$294.7~~$473.9 million at June 30, ~~2020,~~2021, compared to ~~$277.2~~$410.7 million at December 31, ~~2019,~~2020, an increase of ~~$17.5~~$63.3 million ~~(6.3%~~(15.4%). The increase in the securities portfolio during the year is a result of investment in the security ~~portfolio and market value adjustments.~~portfolio. At June 30, ~~2020,~~2021, the securities portfolio represented ~~21.6%~~31.5% of interest-earning assets and ~~20.0%~~29.5% of total assets compared to ~~22.7%~~29.3% of interest-earning assets and ~~20.9%~~27.4% of total assets at December 31, ~~2019.~~2020.

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

June 30,

June 30,

2020

December 31,

2021

December 31,

(Dollars in thousands)

(unaudited)

2019

(unaudited)

2020

Balance

% Securities

Balance

% Securities

Balance

% Securities

Balance

% Securities

Money market fund
$ 21,457 7.3 % $ 9,670 3.5 % $ - 0.0 % $ 52,941 12.9 %
U.S. government sponsored entities
- 0.0 % 13,058 4.7 % 10,796 2.3 % 7,860 1.9 %
U.S. treasury securities
401 0.1 % - 0.0 %
Collateralized mortgage obligations and residential mortgage-backed securities
134,073 45.5 % 150,988 54.5 % 195,361 41.2 % 154,736 37.7 %
Municipal securities
138,374 47.0 % 102,427 36.9 % 266,399 56.2 % 194,203 47.3 %
Collateralized debt obligations
815 0.2 % 1,076 0.4 % 970 0.2 % 929 0.2 %
Total securities available-for-sale
$ 294,719 100.0 % $ 277,219 100.0 % $ 473,927 100.0 % $ 410,669 100.0 %

June 30,

June 30,

2020

December 31,

YTD

2021

December 31,

YTD

(Dollars in thousands)

(unaudited)

2019

Change

(unaudited)

2020

Change

Balance

Balance
$
%

Balance

Balance
$
%

Interest bearing deposits in other financial institutions
$ 72,993 $ 10,750 $ 62,243 579.0 % $ 50,406 $ 5,908 $ 44,498 753.2 %
Fed funds sold
323 15,544 (15,221 ) -97.9 % 649 - 649 100.0 %
Certificates of deposit in other financial institutions
1,639 2,170 (531 ) -24.5 % 1,471 1,897 (426 ) -22.5 %
Federal Home Loan Bank stock
3,918 3,912 6 0.2 % 3,247 3,918 (671 ) -17.1 %
37

The net increase in interest bearing deposits in other financial institutions and fed funds sold ~~and certificates of deposit in other financial institutions~~ is primarily the result of ~~the Bancorp’s participation in the PPP and customer’s current preference toward security and liquidity of assets.~~deposit growth.

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:

June 30,

June 30,

2020

December 31,

YTD

2021

December 31,

YTD

(Dollars in thousands)

(unaudited)

2019

Change

(unaudited)

2020

Change

Balance

Balance
$
%

Balance

Balance
$
%

Checking
$ 511,798 $ 392,324 $ 119,474 30.5 % $ 582,967 $ 516,487 $ 66,480 12.9 %
Savings
235,254 209,945 25,309 12.1 % 277,944 254,108 23,836 9.4 %
Money market
235,902 224,398 11,504 5.1 % 253,427 246,916 6,511 2.6 %
Certificates of deposit
294,680 327,703 (33,023 ) -10.1 % 280,758 284,828 (4,070 ) -1.4 %
Total deposits
$ 1,277,634 $ 1,154,370 $ 123,264 10.7 % $ 1,395,096 $ 1,302,339 $ 92,757 7.1 %

The overall increase in total deposits is primarily ~~the~~a result of management’s sales efforts ~~deposits gained through the participation in the PPP,~~ along with customer ~~loyalty to the Bancorp and~~ preferences for ~~the security the deposit products offer.~~competitively priced short-term liquid investments.

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:

June 30,

June 30,

2020

December 31,

YTD

2021

December 31,

YTD

(Dollars in thousands)

(unaudited)

2019

Change

(unaudited)

2020

Change

Balance

Balance

$

%

Balance

Balance
$
%

Repurchase agreements
$ 17,159 $ 11,499 $ 5,660 49.2 % $ 24,399 $ 13,711 $ 10,688 78.0 %
Borrowed funds
12,000 14,000 (2,000 ) -14.3 % - 6,149 (6,149 ) -100.0 %
Total borrowed funds
$ 29,159 $ 25,499 $ 3,660 14.4 % $ 24,399 $ 19,860 $ 4,539 22.9 %

Repurchase agreements increased as part of normal account fluctuations within that product line. ~~Borrowed funds decreased as FHLB advances were paid down and matured during~~The decrease in borrowings was the ~~quarter.~~result of paydowns on the Bancorp’s outstanding borrowed funds.
34

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 six months ended June 30, ~~2020,~~2021, cash and cash equivalents increased by ~~$50.0~~$48.7 million compared to a ~~$44.0~~$50.0 million increase for the six months ended June 30, ~~2019.~~2020. The primary sources of cash and cash equivalents were the ~~growth~~sale loans originated for sale, proceeds from the maturity and paydown of ~~deposits,~~securities, proceeds from the sale of ~~loans originated for sale, proceeds and paydown of~~ securities, and ~~proceeds from sales~~growth of ~~securities.~~deposits. The primary uses of cash and cash equivalents were origination of loans for sale ~~other loan originations,~~and purchase of ~~securities, and the repayment of FHLB advances.~~securities. Cash provided by operating activities totaled ~~$11.7~~$13.5 million for the six months ended June 30, ~~2020,~~2021, compared to cash provided of ~~$6.0~~$10.9 million for the six month period ended June 30, ~~2019.~~2020. Cash provided from operating activities was primarily a result of net income ~~change in accrued expenses and liabilities,~~ and sale of loans originated for sale, offset by ~~the origination of~~ loans originated for sale. Cash outflows from investing activities totaled ~~$86.4~~$60.0 million for the current period, compared to cash ~~provided~~outflows of ~~$2.9~~$85.6 million for the six months ended June 30, ~~2019.~~2020. Cash outflows from investing activities for the current six months were primarily related to the purchase of securities ~~available-for-sale~~ and ~~origination of~~ loans receivable, offset against ~~the~~ proceeds from ~~the maturity, paydown,~~sales of securities, and ~~sale~~proceeds from maturities and paydowns of ~~available-for-sale~~ securities. ~~Net cash~~Cash provided from financing activities totaled ~~$124.8~~$95.1 million during the current period compared to net cash provided of ~~$35.2~~$124.8 million for the six months ended June 30, ~~2019.~~2020. The ~~net~~ cash inflows from financing activities were primarily a result of net change in deposits and change in other borrowed funds, offset against repayment of FHLB advances and payment of quarterly dividends. On a cash basis, the Bancorp paid dividends on common stock of $2.2 million for the six months ended June 30, 2021, and $2.1 million for the six months ended June 30, ~~2020, and $1.9 million for the six months ended June 30, 2019.~~2020.
38

At June 30, ~~2020,~~2021, outstanding commitments to fund loans totaled ~~$213.7~~$219.9 million. Approximately ~~56.8%~~52.1% 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 ~~$11.4~~$11.2 million at June 30, ~~2020.~~2021. 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 six months ended June 30, ~~2020,~~2021, stockholders' equity increased by ~~$11.1~~$3.9 million ~~(8.3%~~(2.6%). During the six months ended June 30, ~~2020,~~2021, stockholders’ equity was primarily increased by net income of ~~$8.3 million and increased~~$8.1 million. Decreasing stockholders’ equity was decreased unrealized gains on available securities of ~~$4.9 million. Decreasing stockholders’ equity was~~$2.2 million and the declaration of ~~$2.1~~$2.2 million in cash 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 six months of ~~2020~~2021 or ~~2019.~~2020. During ~~2020, 6,400~~2021, 13,493 restricted stock shares vested under the Incentive Plan outlined in Note 109 of the financial statements, of which ~~1,904~~3,115 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”), 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%.

35

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions by the institution and certain discretionary bonus payments to management if an institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increased each year until the buffer requirement became fully effective on January 1, 2019.

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.

39
During the six months ended June 30, ~~2020,~~2021, 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 $2.2 million. These investments currently have ratings that are below investment grade. As a result, approximately ~~$10.5~~$9.3 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 June 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, 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 June 30, 2020

Amount

Ratio

Amount

Ratio

Amount

Ratio

At June 30, 2021

Amount

Ratio

Amount

Ratio

Amount

Ratio

Common equity tier 1 capital to risk-weighted assets
$118.2 12.5% $42.4 4.5% N/A N/A $ 130.7 13.0 % $ 45.4 4.5 % N/A N/A
Tier 1 capital to risk-weighted assets
$118.2 12.5% $56.6 6.0% N/A N/A $ 130.7 13.0 % $ 60.6 6.0 % N/A N/A
Total capital to risk-weighted assets
$128.1 13.6% $75.4 8.0% N/A N/A $ 143.4 14.2 % $ 80.8 8.0 % N/A N/A
Tier 1 capital to adjusted average assets
$118.2 8.3% $57.4 4.0% N/A N/A $ 130.7 8.3 % $ 64.0 4.0 % N/A N/A

(Dollars in millions)

Minimum Required To Be

Minimum Required For

Well Capitalized Under Prompt

Actual

Capital Adequacy Purposes

Corrective Action Regulations

At December 31, 2019

Amount

Ratio

Amount

Ratio

Amount

Ratio

Common equity tier 1 capital to risk-weighted assets
$110.8 11.8% $42.4 4.5% N/A N/A
Tier 1 capital to risk-weighted assets
$110.8 11.8% $56.5 6.0% N/A N/A
Total capital to risk-weighted assets
$119.8 12.7% $75.3 8.0% N/A N/A
Tier 1 capital to adjusted average assets
$110.8 8.5% $52.3 4.0% N/A N/A
36

(Dollars in millions)

Minimum Required To Be

Minimum Required For

Well Capitalized Under Prompt

Actual

Capital Adequacy Purposes

Corrective Action Regulations

At December 31, 2020

Amount

Ratio

Amount

Ratio

Amount

Ratio

Common equity tier 1 capital to risk-weighted assets
$ 124.0 12.7 % $ 43.9 4.5 % N/A N/A
Tier 1 capital to risk-weighted assets
$ 124.0 12.7 % $ 58.6 6.0 % N/A N/A
Total capital to risk-weighted assets
$ 136.2 14.0 % $ 78.1 8.0 % N/A N/A
Tier 1 capital to adjusted average assets
$ 125.3 8.4 % $ 59.2 4.0 % N/A N/A

In addition, the following table shows that, at June 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, 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 June 30, 2020

Amount

Ratio

Amount

Ratio

Amount

Ratio

At June 30, 2021

Amount

Ratio

Amount

Ratio

Amount

Ratio

Common equity tier 1 capital to risk-weighted assets
$115.9 12.3% $42.4 4.5% $61.3 6.5% $ 128.0 12.7 % $ 45.3 4.5 % $ 65.4 6.5 %
Tier 1 capital to risk-weighted assets
$115.9 12.3% $56.6 6.0% $75.4 8.0% $ 128.0 12.7 % $ 60.3 6.0 % $ 80.5 8.0 %
Total capital to risk-weighted assets
$125.7 13.3% $75.4 8.0% $94.3 10.0% $ 140.6 14.0 % $ 80.5 8.0 % $ 100.6 10.0 %
Tier 1 capital to adjusted average assets
$115.9 8.2% $57.3 4.0% $71.6 5.0% $ 128.0 8.1 % $ 63.9 4.0 % $ 79.9 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, 2019

Amount

Ratio

Amount

Ratio

Amount

Ratio

At December 31, 2020

Amount

Ratio

Amount

Ratio

Amount

Ratio

Common equity tier 1 capital to risk-weighted assets
$108.9 11.6% $42.4 4.5% $61.2 6.5% $ 122.0 12.6 % $ 43.8 4.5 % $ 63.2 6.5 %
Tier 1 capital to risk-weighted assets
$108.9 11.6% $56.5 6.0% $75.3 8.0% $ 122.0 12.6 % $ 58.4 6.0 % $ 77.8 8.0 %
Total capital to risk-weighted assets
$117.9 12.5% $75.3 8.0% $94.1 10.0% $ 134.2 13.8 % $ 77.8 8.0 % $ 97.3 10.0 %
Tier 1 capital to adjusted average assets
$108.9 8.3% $52.3 4.0% $65.3 5.0% $ 122.0 8.3 % $ 59.1 4.0 % $ 73.9 5.0 %

The Bancorp’s ability to pay dividends to its shareholders is ~~primarily~~entirely 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 ~~2020,~~2021, without the need for qualifying for an exemption or prior DFI approval, is its ~~2020~~2021 net ~~profits.~~profits plus $4.7 million. Moreover, the FDIC and the 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 ~~May 15, 2020,~~June 25, 2021, the Board of Directors of the Bancorp declared a second quarter dividend of $0.31 per share. The Bancorp’s second quarter dividend was paid to shareholders on July ~~3, 2020.~~7, 2021.
40

Results of Operations - Comparison of the Quarter Ended June 30, ~~2020~~2021 to the Quarter Ended June 30, ~~2019~~2020
For the quarter ended June 30, ~~2020,~~2021, the Bancorp reported net income of ~~$5.1~~$3.6 million, compared to net income of ~~$4.0~~$4.9 million for the quarter ended June 30, ~~2019, an increase~~2020, a decrease of ~~$1.0~~$1.3 million ~~(25.9%~~(26.4%). For the quarter, the ROA was ~~1.42%~~0.90%, compared to ~~1.27%~~1.36% for the quarter ended June 30, ~~2019.~~2020. The ROE was ~~14.32%~~9.17% for the quarter ended June 30, ~~2020,~~2021, compared to ~~12.77%~~13.72% for the quarter ended June 30, ~~2019.~~ 2020.

Net interest income for the quarter ended June 30, ~~2020~~2021 was ~~$11.4~~$11.9 million, an increase of ~~$215~~$457 thousand ~~(1.9%~~(4.0%), compared to ~~$11.2~~$11.4 million for the quarter ended June 30, ~~2019.~~2020. The weighted-average yield on interest-earning assets was 3.38% for the quarter ended June 30, 2021, compared to 3.93% for the quarter ended June 30, ~~2020, compared to 4.65% for the quarter ended June 30, 2019.~~2020. The weighted-average cost of funds for the quarter ended June 30, ~~2020~~2021 was ~~0.47%~~0.16% compared to ~~0.78%~~0.47% for the quarter ended June 30, ~~2019.~~2020. The impact of the ~~3.93%~~3.38% return on interest earning assets and the ~~0.47%~~0.16% cost of funds resulted in an interest rate spread of ~~3.46%~~3.22% for the current quarter, ana decrease from the ~~3.87%~~3.46% spread for the quarter ended June 30, ~~2019.~~2020. The net interest margin on earning assets was 3.22% for the quarter ended June 30, 2021 and 3.48% for the quarter ended June 30, ~~2020 and 3.89% for the quarter ended June 30, 2019.~~2020. On a tax equivalent basis, the Bancorp’s net interest margin was ~~3.60%~~3.42% for the quarter ended June 30, 2021, compared to 3.63% for the quarter ended June 30, 2020. 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

(unaudited)

June 30, 2021

June 30, 2020

Average
Balance

Interest

Rate (%)

Average
Balance

Interest

Rate (%)

ASSETS

Interest bearing deposits in other financial institutions
$ 57,543 $ 9 0.06 $ 39,325 $ 15 0.15
Federal funds sold
1,288 - - 1,738 18 4.14
Certificates of deposit in other financial institutions
1,473 7 1.90 1,734 11 2.54
Securities available-for-sale
433,355 2,124 1.96 288,330 1,532 2.13
Loans receivable
976,520 10,275 4.21 977,866 11,297 4.62
Federal Home Loan Bank stock
3,446 20 2.32 3,918 32 3.27
Total interest earning assets
1,473,625 $ 12,435 3.38 1,312,911 $ 12,905 3.93
Cash and non-interest bearing deposits in other financial institutions
36,377 17,713
Allowance for loan losses
(13,255 ) (9,553 )
Other noninterest bearing assets
97,863 102,964
Total assets
$ 1,594,610 $ 1,424,035

LIABILITIES AND STOCKHOLDERS' EQUITY

Total deposits
$ 1,402,398 $ 549 0.16 $ 1,237,241 $ 1,380 0.45
Repurchase agreements
16,855 12 0.28 13,671 17 0.50
Borrowed funds
1,720 2 0.47 13,981 93 2.66
Total interest bearing liabilities
1,420,973 $ 563 0.16 1,264,893 $ 1,490 0.47
Other noninterest bearing liabilities
17,787 17,741
Total liabilities
1,438,760 1,282,634
Total stockholders' equity
155,850 141,401
Total liabilities and stockholders' equity
$ 1,594,610 $ 1,424,035 ��
The decrease in interest earning asset income for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, is primarily related to continued decreased reinvestment rates in 2021 for loans, securities, and excess cash balances, as a result of the Federal Reserve cuts occurring in March 2020. The decrease in interest bearing liability expense is primarily the result of the Bancorp adjusting deposit and repurchase agreement pricing to align with the current interest rate cycle.
41
The following table shows the change in noninterest income for the quarter ending June 30, 2021, and June 30, 2020.

Three Months Ended

(Dollars in thousands)

June 30,

Three Months Ended

2021

2020

$ Change

% Change

Noninterest income:

Gain on sale of loans held-for-sale, net
$ 1,116 $ 2,464 $ (1,348 ) -54.7 %
Fees and service charges
1,471 1,151 320 162.4 %
Wealth management operations
576 514 62 12.1 %
Gain on sale of securities, net
269 667 (398 ) -59.7 %
Increase in cash value of bank owned life insurance
188 188 - 0.0 %
Gain on sale of foreclosed real estate, net
36 43 (7 ) -16.3 %
Other
24 19 5 26.3 %
Total noninterest income
$ 3,680 $ 5,046 $ (1,366 ) -27.1 %
The decrease in gain on sale of loans is the result of significant refinance activity in the prior year due to the economic and rate environment, which resulted in more loans originated and sold. The increase in fees and service charges is primarily the result of changes in customer usage of bank services as our community recovers from the pandemic. The decrease in gains on the sale of securities is a result of current market conditions and actively managing the portfolio.
The following table shows the change in noninterest expense for the quarter ending June 30, 2021, and June 30, 2020.

Three Months Ended

(Dollars in thousands)

June 30,

Three Months Ended

2021

2020

$ Change

% Change

Noninterest expense:

Compensation and benefits
$ 5,897 $ 5,620 $ 277 4.9 %
Occupancy and equipment
1,324 1,295 29 2.2 %
Data processing
597 532 65 12.2 %
Marketing
195 180 15 8.3 %
Federal deposit insurance premiums
204 159 45 28.3 %
Other
2,793 2,227 566 25.4 %
Total noninterest expense
$ 11,010 $ 10,013 $ 997 10.0 %
The increase in compensation and benefits is primarily the result of management’s continued focus on talent management and retention. The increase in other operating expenses is primarily the result of investments in strategic initiatives. The Bancorp’s efficiency ratio was 70.79% for the quarter ended June 30, 2021, compared to 60.83% for the quarter ended June 30, 2020. The increase in the efficiency ratio is the result of lower noninterest income and higher 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.
Income tax expenses for the quarter ended June 30, 2021, totaled $395 thousand, compared to income tax expense of $1.1 million for the quarter ended June 30, 2020, ~~compared to 3.96%~~an decrease of $694 thousand (63.7%). The combined effective federal and state tax rates for the Bancorp was 10.0% for the quarter ended June 30, 2021, compared to 18.3% for the quarter ended June 30, 2020. The decrease in the effective tax rate for the quarter ended June 30, 2021, is the result of higher tax preferred income relative to earnings.
Results of Operations - Comparison of the Six Months Ended June 30, 2021 to the Six Months Ended June 30, 2020
For the six months ended June 30, 2021, the Bancorp reported net income of $8.1 million, compared to net income of $8.0 million for the six months ended June 30, 2020, an increase of $150 thousand (1.9%). For the six months ended, the ROA was 1.04%, compared to 1.16% for the six months ended June 30, 2020. The ROE was 10.54% for the six months ended June 30, 2021, compared to 11.48% for the six months ended June 30, 2020.
Net interest income for the six months ended June 30, 2021, was $23.9 million, an increase of $1.8 million (8.3%), compared to $22.1 million for the six months ended June 30, 2020. The weighted-average yield on interest-earning assets was 3.48% for the six months ended June 30, 2021, compared to 4.07% for the six months ended June 30, 2020. The weighted-average cost of funds for the six months ended June 30, 2021, was 0.18% compared to 0.60% for the six months ended June 30, 2019. The impact of the 3.48% return on interest earning assets and the 0.18% cost of funds resulted in an interest rate spread of 3.30% for the current six months, which is a decrease from the spread of 3.47% as of June 30, 2020. The net interest margin on earning assets was 3.31% for the six months ended June 30, 2021, and 3.49% for the six months ended June 30, 2020. On a tax equivalent basis, the Bancorp’s net interest margin was 3.51% for the six months ended June 30, 2021, compared to 3.64% for the six months ended June 30, 2020. 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.

3742

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

Year-to-Date

(Dollars in thousands)

Average Balances, Interest, and Rates

Average Balances, Interest, and Rates

(unaudited)

June 30, 2020

June 30, 2019

June 30, 2021

June 30, 2020

Average
Balance

Interest

Rate (%)

Average
Balance

Interest

Rate (%)

Average
Balance

Interest

Rate (%)

Average
Balance

Interest

Rate (%)

ASSETS

Interest bearing deposits in other financial institutions
$ 39,325 $ 15 0.15 $ 13,985 $ 92 2.63 $ 54,195 $ 21 0.08 $ 26,406 $ 69 0.52
Federal funds sold
1,738 18 4.14 3,818 36 3.77 1,040 - - 3,726 85 4.56
Certificates of deposit in other financial institutions
1,734 11 2.54 2,118 15 2.83 1,535 15 1.95 1,851 25 2.70
Securities available-for-sale
288,330 1,532 2.13 253,421 1,732 2.73 408,753 4,065 1.99 284,955 3,202 2.25
Loans receivable
977,866 11,297 4.62 874,652 11,485 5.25 976,059 21,021 4.31 945,189 22,326 4.72
Federal Home Loan Bank stock
3,918 32 3.27 3,931 45 4.58 3,681 40 2.17 3,915 67 3.42
Total interest earning assets
1,312,911 $ 12,905 3.93 1,151,925 $ 13,405 4.65 1,445,263 $ 25,162 3.48 1,266,042 $ 25,774 4.07
Cash and non-interest bearing deposits in other financial institutions
17,713 29,756 35,055 18,397
Allowance for loan losses
(9,553 ) (8,357 ) (12,960 ) (9,302 )
Other noninterest bearing assets
102,964 91,808 97,967 98,409
Total assets
$ 1,424,035 $ 1,265,132 $ 1,565,325 $ 1,373,546
��
LIABILITIES AND STOCKHOLDERS' EQUITY

Total deposits
$ 1,237,241 $ 1,380 0.45 $ 1,097,283 $ 2,011 0.73 $ 1,375,429 $ 1,200 0.17 $ 1,192,482 $ 3,444 0.58
Repurchase agreements
13,671 17 0.50 13,638 66 1.94 15,674 22 0.28 12,803 57 0.89
Borrowed funds
13,981 93 2.66 15,341 128 3.34 1,903 22 2.31 14,087 187 2.65
Total interest bearing liabilities
1,264,893 $ 1,490 0.47 1,126,262 $ 2,205 0.78 1,393,006 $ 1,244 0.18 1,219,372 $ 3,688 0.60
Other noninterest bearing liabilities
17,741 12,864 18,295 15,380
Total liabilities
1,282,634 1,139,126 1,411,301 1,234,752
Total stockholders' equity
141,401 126,006 154,024 138,794
Total liabilities and stockholders' equity
$ 1,424,035 $ 1,265,132 $ 1,565,325 $ 1,373,546

The decrease in interest earning asset income for ~~interest bearing deposits in other financial institutions was~~ the ~~result of lower weighted average rates for~~six months ended June 30, 2021, compared to the ~~quarter~~six months ended June 30, 2020, ~~compared~~is primarily related to continued decreased reinvestment rates in 2021 for loans, securities, and excess cash balances, as a result of the ~~quarter ended June 30, 2019.~~Federal Reserve cuts occurring in March 2020. The decrease in interest ~~income for federal funds sold was~~bearing liability expense is primarily the result of ~~lower average balances for~~ the ~~quarter ended June 30, 2020, compared~~Bancorp adjusting deposit and repurchase agreement pricing to align with the ~~quarter ended June 30, 2019. The decrease in~~current interest income for certificates of deposit in other financial institutions was the result of lower average balances and lower average rates received for the quarter ended June 30, 2020, compared to the quarter ended June 30, 2019. The decrease in interest income for securities available-for-sale was primarily the result of lower average rates for the quarter ended June 30, 2020, compared to the quarter ended June 30, 2019. The decrease in interest income for loans receivable was the result of lower weighted average rates received during quarter ended June 30, 2020, compared to the quarter ended June 30, 2019. The decrease in Federal Home Loan Bank stock was the result of lower weighted average rates received during quarter ended June 30, 2020, compared to quarter ended June 30, 2019. The decrease in the interest expense of total deposits was the result of lower weighted average rates for the quarter ended June 30, 2020, compared to the quarter ended June 30, 2019. The decrease in the interest expense for repurchase agreements was the result of lower weighted average rates for the quarter ended June 30, 2020, compared to the quarter ended June 30, 2019. The decrease in the interest expense for borrowed funds was the result of lower weighted average rates for the quarter ended June 30, 2020, compared to the quarter ended June 30, 2019.rate cycle.

The following table shows the change in noninterest income for the ~~quarter~~six months ending June 30, ~~2020,~~2021, and June 30, ~~2019.~~2020.

Three Months Ended

Six Months Ended

(Dollars in thousands)

June 30,
Three Months Ended
June 30,

Six Months Ended

2020

2019

$ Change

% Change

2021

2020

$ Change

% Change

Noninterest income:

Gain on sale of loans held-for-sale, net
$ 2,464 $ 400 $ 2,064 516.0 % $ 3,165 $ 3,617 $ (452 ) -12.5 %
Fees and service charges
1,151 1,243 (92 ) -7.4 % 2,537 2,200 337 15.3 %
Wealth management operations
1,183 1,068 115 10.8 %
Gain on sale of securities, net
667 301 366 121.6 % 686 1,177 (491 ) -41.7 %
Wealth management operations
514 479 35 7.3 %
Increase in cash value of bank owned life insurance
188 179 9 5.0 % 357 357 - 0.0 %
Gain on sale of foreclosed real estate, net
43 13 30 230.8 % 27 103 (76 ) -73.8 %
Other
19 54 (35 ) -64.8 % 38 70 (32 ) -45.7 %
Total noninterest income
$ 5,046 $ 2,669 $ 2,377 89.1 % $ 7,993 $ 8,592 $ (599 ) -7.0 %

The ~~increase~~decrease in gain on sale of loans is the result of significant refinance activity in the ~~current~~prior year due to the economic and rate environment, which ~~we anticipate will return to~~resulted in more ~~normal levels as the current low rate environment persists or rates return to higher levels.~~loans originated and sold. The ~~decrease~~increase in fees and service charges is primarily the result of changes in customer usage of bank services ~~during~~as our community recovers from the pandemic. ~~The increase in gains on the sale of securities is a result of current market conditions and actively managing the portfolio.~~ The increase in wealth management income is the result of the Bancorp’s continued focus on expanding its wealth management line of business. The decrease in ~~other noninterest income~~gains on the sale of securities is ~~primarily the~~a result of ~~one-time legal gains in~~current market conditions and actively managing the ~~prior year.~~portfolio.

3843

The following table shows the change in noninterest expense for the ~~quarter~~six ending June 30, ~~2020,~~2021, and June 30, ~~2019.~~2020.

Six Months Ended

(Dollars in thousands) Three Months Ended Three Months Ended
June 30,

Six Months Ended

2020 2019 $ Change % Change
2021

2020

$ Change

% Change

Noninterest expense:

Compensation and benefits
$ 5,371 $ 4,600 $ 771 16.8 % $ 11,582 $ 10,930 $ 652 6.0 %
Occupancy and equipment
1,295 1,169 126 10.8 % 2,696 2,704 (8 ) -0.3 %
Data processing
532 351 181 51.6 % 1,125 1,088 37 3.4 %
Marketing
180 176 4 2.3 % 394 388 6 1.5 %
Federal deposit insurance premiums
159 177 (18 ) -10.2 % 384 355 29 8.2 %
Other
2,227 1,951 276 14.1 % 5,322 4,640 682 14.7 %
Total noninterest expense
$ 9,764 $ 8,424 $ 1,340 15.9 % $ 21,503 $ 20,105 $ 1,398 7.0 %

~~Compensation~~The increase in compensation and benefits is primarily the result of management’s continued focus on talent management and retention. The increase in occupancy and equipment is primarily related to facilities improvement efforts aimed at enhancing technology and to accommodate recent growth. The increase in data processing is primarily the result of increased system utilization and investment in the customer experience. The increase in other operating expenses is primarily the result of investments in strategic initiatives. The Bancorp’s efficiency ratio was ~~59.3%~~67.38% for the ~~quarter~~six months ended June 30, ~~2020,~~2021, compared to ~~60.7%~~65.54% for the ~~quarter~~six months ended June 30, ~~2019.~~2020. The ~~decreased~~increase in the efficiency ratio is ~~related primarily to~~ the ~~increase in~~result of lower noninterest ~~income.~~income and higher 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.

Income tax expenses for the ~~quarter~~six months ended June 30, ~~2020,~~2021 totaled $1.1 million, compared to income tax expense of ~~$911 thousand~~$1.6 million for the ~~quarter~~six months ended June 30, ~~2019, an increase~~2020, a decrease of ~~$215~~$447 thousand ~~(23.6%~~(28.2%). The combined effective federal and state tax rates for the Bancorp was ~~18.2% for the quarter ended June 30, 2020, compared to 18.5% for the quarter ended June 30, 2019.~~
~~Results of Operations - Comparison of the Six Months Ended~~ ~~June 30, 2020~~ ~~to the Six Months Ended~~ ~~June 30, 2019~~
~~For the six months ended June 30, 2020, the Bancorp reported net income of $8.3 million, compared to net income of $6.2 million~~12.3% for the six months ended June 30, ~~2019, an increase of $2.0 million (32.2%). For the six months ended, the ROA was 1.20%,~~2021, compared to ~~1.00% for the six months ended June 30, 2019. The ROE was 11.90% for the six months ended June 30, 2020, compared to 10.25% for the six months ended June 30, 2019.~~
Net interest income for the six months ended June 30, 2020, was $22.1 million, an increase of $287 thousand (1.3%), compared to $21.8 million for the six months ended June 30, 2019. The weighted-average yield on interest-earning assets was 4.07% for the six months ended June 30, 2020, compared to 4.53% for the six months ended June 30, 2019. The weighted-average cost of funds for the six months ended June 30, 2020, was 0.60% compared to 0.74% for the six months ended June 30, 2019. The impact of the 4.07% return on interest earning assets and the 0.60% cost of funds resulted in an interest rate spread of 3.47% for the current six months, which is a decrease from the spread of 3.79% as of June 30, 2019. The net interest margin on earning assets was 3.49% for the six months ended June 30, 2020, and 3.81% for the six months ended June 30, 2019. On a tax equivalent basis, the Bancorp’s net interest margin was 3.61% for the six months ended June 30, 2020, compared to 3.88% for the six months ended June 30, 2019. 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.
39

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.
Year-to-Date
(Dollars in thousands)

Average Balances, Interest, and Rates

June 30, 2020

June 30, 2019

Average
Balance

Interest

Rate (%)

Average
Balance

Interest

Rate (%)

ASSETS

Interest bearing deposits in other financial institutions
$ 26,406 $ 69 0.52 $ 26,840 $ 176 1.31
Federal funds sold
3,726 85 4.56 4,644 77 3.32
Certificates of deposit in other financial institutions
1,851 25 2.70 2,194 32 2.92
Securities available-for-sale
284,955 3,202 2.25 250,016 3,489 2.79
Loans receivable
945,189 22,326 4.72 855,908 22,028 5.15
Federal Home Loan Bank stock
3,915 67 3.42 3,886 89 4.58
Total interest earning assets
1,266,042 $ 25,774 4.07 1,143,488 $ 25,891 4.53
Cash and non-interest bearing deposits in other financial institutions
18,397 23,628
Allowance for loan losses
(9,302 ) (8,213 )
Other noninterest bearing assets
98,409 88,967
Total assets
$ 1,373,546 $ 1,247,870

LIABILITIES AND STOCKHOLDERS' EQUITY

Total deposits
$ 1,192,482 $ 3,444 0.58 $ 1,067,976 $ 3,683 0.69
Repurchase agreements
12,803 57 0.89 12,098 115 1.90
Borrowed funds
14,087 187 2.65 21,426 294 2.74
Total interest bearing liabilities
1,219,372 $ 3,688 0.60 1,101,500 $ 4,092 0.74
Other noninterest bearing liabilities
15,380 24,528
Total liabilities
1,234,752 1,126,028
Total stockholders' equity
138,794 121,842
Total liabilities and stockholders' equity
$ 1,373,546 $ 1,247,870
The decrease in yields for interest bearing deposits in other financial institutions was the result of lower weighted average rates for the six months ended June 30, 2020, compared to the six months ended June 30, 2019. The increase in yields for federal funds sold was primarily the result of higher weighted average rates for the six months ended June 30, 2020, compared to the six months ended June 30, 2019. The decrease in yields for certificates of deposits in other financial institutions was primarily the result of lower average balance and lower weighted average rates for the six months ended June 30, 2020, compared to the six months ended June 30, 2019. The decrease in yields for securities available-for-sale was the result of lower weighted average rates for the six months ended June 30, 2020, compared to the six months ended June 30, 2019. The increase in yields for loans receivable was the result of higher average balances during the six months ended June 30, 2020, compared to the six months ended June 30, 2019. The decrease in the cost of total deposits was the result of lower weighted average rates for the six months ended June 30, 2020, compared to the six months ended June 30, 2019. The decrease in the cost of repurchase agreements was the result of lower weighted average rates for the six months ended June 30, 2020, compared to the six months ended June 30, 2019. The decrease in the cost of borrowed funds was the result of lower average balances and lower wighted average rates for the six months ended June 30, 2020, compared to the six months ended June 30, 2019.
~~The following table shows the change in noninterest income for the six months ending June 30, 2020, and June 30, 2019.~~

Six Months Ended

(Dollars in thousands)

June 30,
Six Months Ended

2020

2019

$ Change

% Change

Noninterest income:

Gain on sale of loans held-for-sale, net
$ 3,617 $ 642 $ 2,975 463.4 %
Fees and service charges
2,200 2,405 (205 ) -8.5 %
Gain on sale of securities, net
1,177 652 525 80.5 %
Wealth management operations
1,068 979 89 9.1 %
Increase in cash value of bank owned life insurance
357 342 15 4.4 %
Gain on sale of foreclosed real estate, net
103 40 63 157.5 %
Other
70 178 (108 ) -60.7 %
Total noninterest income
$ 8,592 $ 5,238 $ 3,354 64.0 %
The increase in gain on sale of loans is the result of the current economic and rate environment, which we anticipate will return to more normal levels as the current low rate environment persists or rates return to higher levels. The decrease in fees and service charges is primarily the result of changes in customer usage of bank services during the pandemic. The increase in gains on the sale of securities is a result of current market conditions and actively managing the portfolio. The increase in wealth management income is the result of the Bancorp’s continued focus on expanding its wealth management line of business. The decrease in other noninterest income is the result of a one-time fixed asset sale for a gain in the prior year.
40

~~The following table shows the change in noninterest expense for the six ending June 30, 2020, and June 30, 2019.~~

Six Months Ended

(Dollars in thousands)

June 30,

Six Months Ended

Noninterest expense:

Compensation and benefits
$ 10,588 $ 9,401 $ 1,187 12.6 %
Occupancy and equipment
2,704 2,291 413 18.0 %
Data processing
1,088 1,947 (859 ) -44.1 %
Marketing
388 613 (225 ) -36.7 %
Federal deposit insurance premiums
355 268 87 32.5 %
Other
4,640 4,193 447 10.7 %
Total noninterest expense
$ 19,763 $ 18,713 $ 1,050 5.6 %
Compensation and benefits is primarily the result of management’s continued focus on talent management and retention. The increase in occupancy and equipment is primarily related to facilities improvement efforts aimed at enhancing technology and to accommodate recent growth. The decrease in data processing expense is primarily the result of prior year data conversion expenses incurred in the first quarter of 2019 related to the acquisition of AJSB. The decrease in marketing is a result of the timing of the Bancorp’s marketing initiatives. The increase in other operating expenses is primarily the result of investments in strategic initiatives. The Bancorp’s efficiency ratio was 64.4% for the six-months ended June 30, 2020, compared to 69.2% for the six-months ended June 30, 2019. The increased ratio is related primarily to the increase in noninterest income. The efficiency ratio is determined by dividing total noninterest expense by the sum of net interest income and total noninterest income for the period.
Income tax expenses for the six months ended June 30, 2020 totaled $1.6 million, compared to income tax expense of $1.3 million for the six months ended June 30, 2019, an increase of $387 thousand (30.9%). The combined effective federal and state tax rates for the Bancorp was 16.6% for the six months ended June 30, ~~2020, compared to 16.7% for the six months ended June 30, 2019.~~2020. The Bancorp’s lower current period effective tax rate is a result of an increase in tax preferred income in relation to income.
Non-GAAP Financial Measures
This filing includes certain financial measures that are identified as non-GAAP. However, certain non-GAAP performance measures are used by management to evaluate and measure the ~~increase~~Bancorp’s performance. Although these non-GAAP financial measures are frequently used by investors to evaluate a financial institution, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of ~~income.~~results as reported under GAAP. This supplemental information should not be considered in isolation or as a substitute for the related GAAP measures.

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, ~~2019,~~2020, 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 ~~2019~~2020 Form 10-K.
~~Item 3~~. ~~Quantitative and Qualitative Disclosures~~ ~~about~~ ~~Market Risk~~
~~Not applicable.~~
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.

Item 4.4. Controls and Procedures
(a)
~~(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"~~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 June 30, ~~2020,~~2021, the Bancorp’s Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures were effective as of that date 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~~.
Changes in Internal Control Over Financial Reporting.
There was no change in the Bancorp's internal control over financial reporting identified in connection with the Bancorp’s evaluation of controls that occurred during the six months ended June 30, ~~2020,~~2021, that has materially affected, or is reasonably likely to materially affect, the Bancorp's internal control over financial reporting.

41

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 six months ended June 30, ~~2020~~2021 under the stock repurchase program.

Period		Total Number 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, ~~2020~~2021 – January 31, ~~2020~~	-2021		~~N/A~~	-		-		N/A			-			48,828
February 1, ~~2020~~2021 – February 28, ~~2020~~	-2021		~~N/A~~	-		-		N/A			-			48,828
March 1, ~~2020~~2021 – March 31, ~~2020~~	-2021		~~N/A~~	-		-		N/A			-			48,828
April 1, ~~2020~~2021 – April 30, ~~2020~~	-2021		~~N/A~~	-		-		N/A			-			48,828
May 1, ~~2020~~2021 – May 31, ~~2020~~	-2021		~~N/A~~	-		-		N/A			-			48,828
June 1, ~~2020~~2021 – June 30, ~~2020~~	-2021		~~N/A~~	-		-		N/A			-			48,828
	-		~~N/A~~ -		-		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
Number	Description
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 ,June 30, 2021, formatted in an Inline 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.
104	Cover Page Interactive Data File ~~(formatted as~~(embedded within the Inline XBRL and contained in Exhibit 101).

4245

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~~

		FINWARD BANCORP

~~Date: August 7, 2020~~	~~/s/ Benjamin J. Bochnowski~~
	~~Benjamin J. Bochnowski~~ ~~President and Chief Executive Officer~~


Date: August 16, 2021		/s/ Benjamin J. Bochnowski
		Benjamin J. Bochnowski
		President and Chief Executive Officer


Date: August ~~7, 2020~~ 16, 2021		/s/ ~~Robert T. Lowry~~Peymon S. Torabi
		~~Robert T. Lowry~~Peymon S. Torabi
		Executive Vice President, Chief Financial
		Officer and Treasurer

4346

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

Consolidated Balance Sheet

As of December 31, 2020	As Reported		Adjustment			As Revised
Loans receivable	$	966,578	$	(1,432	)	$	965,146
Net loans receivable		954,120		(1,432	)		952,688
Other assets		13,681		199			13,880
Total assets		1,497,525		(1,233	)		1,496,292
Retained earnings		112,494		(1,233	)		111,261
Total shareholders' equity		152,922		(1,233	)		151,689
Total liabilities and Stockholders' equity		1,497,525		(1,233	)		1,496,292

Consolidated Statement of Operations

Three months ended June 30, 2020	As Reported		Adjustment			As Revised
Compensation and benefits	$	5,371	$	249		$	5,620
Total noninterest expense		9,764		249			10,013
Income before income tax expense		6,189		(249	)		5,940
Income tax expenses		1,126		(37	)		1,089
Net income		5,063		(212	)		4,851
Earnings per common share:
Basic		1.46		(0.06	)		1.40
Diluted		1.46		(0.06	)		1.40

Six months ended June 30, 2020	As Reported		Adjustment			As Revised
Compensation and benefits	$	10,588	$	342		$	10,930
Total noninterest expense		19,763		342			20,105
Income before income tax expense		9,893		(342	)		9,551
Income tax expenses		1,638		(51	)		1,587
Net income		8,255		(291	)		7,964
Earnings per common share:
Basic		2.39		(0.09	)		2.30
Diluted		2.39		(0.09	)		2.30

Consolidated Statements of Comprehensive Income

Three months ended June 30, 2020	As Reported		Adjustment			As Revised
Net income	$	5,063	$	(212	)	$	4,851
Comprehensive income, net of tax		5,491		(212	)		5,279

Consolidated Statements of Changes in Stockholders' Equity

Balance at January 1, 2020	As Reported		Adjustment			As Revised
Retained earnings	$	100,185	$	(561	)	$	99,624
Total equity		134,103		(561	)		133,542

For the quarter ending March 31, 2020
Net income		3,192		(79	)		3,113
Retained earnings		102,303		(640	)		101,663
Total equity		140,655		(640	)		140,015

For the quarter ending June 30, 2020
Net income		5,063		(212	)		4,851
Retained earnings		106,293		(852	)		105,441
Total equity		145,181		(852	)		144,329

Balance at January 1, 2021
Retained earnings		112,494		(1,233	)		111,261
Total equity		152,922		(1,233	)		151,689

For the quarter ending March 31, 2021
Net income		4,679		(136	)		4,543
Retained earnings		116,094		(1,369	)		114,725
Total equity		150,139		(1,369	)		148,770

Consolidated Statements of Cash Flows

Six months ended June 30, 2020	As Reported			Adjustment			As Revised
Net income	$	8,255		$	(291	)	$	7,964
Net change in other assets		(1,657	)		(51	)		(1,708	)
Net cash - operating activities		11,239			(342	)		10,897
Net change in loan		(70,553	)		342			(70,211	)
Net cash - investing activities		(85,976	)		342			(85,634	)

ASSETS
Cash and due from banks	$	68,303
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		2,939
Core deposit intangible		2,917
Interest receivable		351
Other assets		8,939
Total assets purchased	$	178,781
Common shares issued		17,492
Cash paid		15,743
Total purchase price	$	33,235

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

	(Dollars in thousands)									(Dollars in thousands)
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Cost		Unrealized		Unrealized			Fair		Cost		Unrealized		Unrealized			Fair
	Basis		Gains		Losses			Value		Basis		Gains		Losses			Value
June 30, 2020
Money market fund	$	21,457	$	-	$	-		$	21,457
June 30, 2021
U.S. government sponsored entities											10,883		5		(92	)		10,796
U.S. treasury securities											401		0		0			401
Collateralized mortgage obligations and residential mortgage-backed securities		129,789		4,284		-			134,073		194,601		2,009		(1,249	)		195,361
Municipal securities		129,754		8,622		(2	)		138,374		255,485		11,111		(197	)		266,399
Collateralized debt obligations		2,191		-		(1,376	)		815		2,173		0		(1,203	)		970
Total securities available-for-sale	$	283,191	$	12,906	$	(1,378	)	$	294,719	$	463,543	$	13,125	$	(2,741	)	$	473,927

	(Dollars in thousands)				(Dollars in thousands)
	Available-for-sale				Available-for-sale
	Estimated				Estimated
	Fair		Tax-Equivalent		Fair		Tax-Equivalent
June 30, 2020	Value		Yield (%)
June 30, 2021					Value		Yield (%)
Due in one year or less	$	21,457		0.11	$	202		1.13
Due from one to five years		3,134		4.79		3,228		4.23
Due from five to ten years		9,857		4.00		27,336		2.47
Due over ten years		126,198		3.55		247,800		2.98
Collateralized mortgage obligations and residential mortgage-backed securities		134,073		2.31		195,361		1.69
Total	$	294,719		2.76	$	473,927		2.43

	(Dollars in thousands)
	Unrealized gain/(loss)
Ending balance, December 31, 2019	$	4,261
Current period change		4,853
Ending balance, June 30, 2020	$	9,114

	(Dollars in thousands)
	Unrealized gain/(loss)
Ending balance, December 31, 2020	$	10,441
Current period change		(2,232	)
Ending balance, June 30, 2021	$	8,209

	(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
	Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses
June 30, 2020
June 30, 2021
U.S. government sponsored entities																$	8,791	$	(92	)	$	0	$	0		$	8,791	$	(92	)
Collateralized mortgage obligations and residential mortgage-backed securities		-		-			-		-			-		-			92,998		(1,249	)		0		0			92,998		(1,249	)
Municipal securities		1,088		(2	)		-		-			1,088		(2	)		27,532		(197	)		0		0			27,532		(197	)
Collateralized debt obligations		-		-			815		(1,376	)		815		(1,376	)		0		0			970		(1,203	)		970		(1,203	)
Total temporarily impaired	$	1,088	$	(2	)	$	815	$	(1,376	)	$	1,903	$	(1,378	)	$	129,321	$	(1,538	)	$	970	$	(1,203	)	$	130,291	$	(2,741	)
Number of securities				2					2					4					77					2					79

(Dollars in thousands)
	June 30, 2020		December 31, 2019
Loans secured by real estate:
Residential real estate	$	284,703	$	299,569
Home equity		46,254		49,118
Commercial real estate		286,122		283,108
Construction and land development		92,982		87,710
Multifamily		56,070		51,286
Farmland		221		227
Total loans secured by real estate		766,352		771,018
Commercial business		181,984		103,222
Consumer		522		627
Manufactured homes		17,806		13,285
Government		13,729		15,804
Subtotal		980,393		903,956
Less:
Net deferred loan origination fees		1,411		2,934
Undisbursed loan funds		98		(21	)
Loans receivable	$	981,902	$	906,869

(Dollars in thousands)	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 June 30, 2020:

Allowance for loan losses:
Residential real estate	$	1,828	$	(2	)	$	4	$	(122	)	$	1,708
Home equity		246		-			-		(15	)		231
Commercial real estate		3,693		(80	)		-		99			3,712
Construction and land development		1,223		(17	)		-		(5	)		1,201
Multifamily		562		-			-		47			609
Farmland		-		-			-		-			-
Commercial business		1,901		(78	)		16		536			2,375
Consumer		42		(1	)		5		(16	)		30
Manufactured homes		-		-			-		-			-
Government		16		-			-		(16	)		-
Total	$	9,511	$	(178	)	$	25	$	508		$	9,866

Allowance for loan losses:
Residential real estate	$	1,680	$	(18	)	$	4	$	(6	)	$	1,660
Home equity		194		-			2		6			202
Commercial real estate		3,485		-			-		44			3,529
Construction and land development		777		-			-		29			806
Multifamily		434		-			-		19			453
Farmland		-		-			-		-			-
Commercial business		1,391		-			10		116			1,517
Consumer		254		(7	)		6		303			556
Manufactured homes		-		-			-		-			-
Government		21		-			-		-			21
Total	$	8,236	$	(25	)	$	22	$	511		$	8,744

Allowance for loan losses:
Residential real estate	$	1,812	$	(2	)	$	10	$	(112	)	$	1,708
Home equity		223		-			-		8			231
Commercial real estate		3,773		(80	)		-		19			3,712
Construction and land development		1,098		(17	)		-		120			1,201
Multifamily		529		-			-		80			609
Farmland		-		-			-		-			-
Commercial business		1,504		(78	)		17		932			2,375
Consumer		43		(13	)		8		(8	)		30
Manufactured homes		-		-			-		-			-
Government		17		-			-		(17	)		-
Total	$	8,999	$	(190	)	$	35	$	1,022		$	9,866

Allowance for loan losses:
Residential real estate	$	1,715	$	(66	)	$	18	$	(7	)	$	1,660
Home equity		202		-			2		(2	)		202
Commercial real estate		3,335		-			-		194			3,529
Construction and land development		756		-			-		50			806
Multifamily		472		-			-		(19	)		453
Farmland		-		-			-		-			-
Commercial business		1,362		-			16		139			1,517
Consumer		82		(25	)		9		490			556
Manufactured homes		-		-			-		-			-
Government		38		-			-		(17	)		21
Total	$	7,962	$	(91	)	$	45	$	828		$	8,744

(Dollars in thousands)
	June 30, 2021		December 31, 2020
Loans secured by real estate:
Residential real estate	$	268,649	$	286,048
Home equity		36,684		39,233
Commercial real estate		315,087		298,257
Construction and land development		104,154		93,562
Multifamily		53,639		50,571
Farmland		309		215
Total loans secured by real estate		778,522		767,886
Commercial business		149,414		158,140
Consumer		544		1,025
Manufactured homes		28,135		24,232
Government		8,462		10,142
Subtotal		965,077		961,425
Add (less):
Net deferred loan origination fees and purchase premiums..		4,235		3,871
Undisbursed loan funds and clearings		179		(150	)
Loans receivable	$	969,491	$	965,146

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended June 30, 2020:

Allowance for loan losses:
Residential real estate	$	1,828	$	(2	)	$	4	$	(122	)	$	1,708
Home equity		246		0			0		(15	)		231
Commercial real estate		3,693		(80	)		0		99			3,712
Construction and land development		1,223		(17	)		0		(5	)		1,201
Multifamily		562		0			0		47			609
Farmland		0		0			0		0			0
Commercial business		1,901		(78	)		16		536			2,375
Consumer		42		(1	)		5		(16	)		30
Manufactured homes		0		0			0		0			0
Government		16		0			0		(16	)		0
Total	$	9,511	$	(178	)	$	25	$	508		$	9,866

The Bancorp's impairment analysis is summarized below:
	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

The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at June 30, 2021:

Residential real estate	$	85	$	2,209	$	268,649	$	730	$	1,002	$	266,917
Home equity		5		366		36,684		164		129		36,391
Commercial real estate		1,204		4,735		315,087		7,260		146		307,681
Construction and land development		0		1,798		104,154		0		0		104,154
Multifamily		0		740		53,639		0		596		53,043
Farmland		0		0		309		0		0		309
Commercial business		476		1,998		149,414		944		1,147		147,323
Consumer		0		23		544		0		0		544
Manufactured homes		0		0		28,135		0		0		28,135
Government		0		0		8,462		0		0		8,462
Total	$	1,770	$	11,869	$	965,077	$	9,098	$	3,020	$	952,959

The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2020:													The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2020:

Residential real estate	$	10	$	1,802	$	299,333	$	642	$	1,581	$	297,110		$	173	$	2,038	$	286,048	$	868	$	1,297	$	283,883
Home equity		4		219		49,181		221		216		48,744			1		275		39,233		216		137		38,880
Commercial real estate		-		3,773		283,108		1,078		487		281,543			1,089		4,317		298,257		6,190		151		291,916
Construction and land development		-		1,098		87,710		-		-		87,710			0		1,405		93,562		0		0		93,562
Multifamily		-		529		51,286		129		673		50,484			0		626		50,571		95		621		49,855
Farmland		-		-		227		-		-		227			0		0		215		0		0		215
Commercial business		152		1,352		103,088		1,041		1,150		100,897			512		1,996		158,140		1,086		1,160		155,894
Consumer		-		43		627		-		-		627			0		26		1,025		0		0		1,025
Manufactured homes		-		-		16,505		-		-		16,505			0		0		24,232		0		0		24,232
Government		-		17		15,804		-		-		15,804			0		0		10,142		0		0		10,142
Total	$	166	$	8,833	$	906,869	$	3,111	$	4,107	$	899,651		$	1,775	$	10,683	$	961,425	$	8,455	$	3,366	$	949,604

The Bancorp's credit quality indicators are summarized below at June 30, 2021 and December 31, 2020:																	The Bancorp's credit quality indicators are summarized below at June 30, 2021 and December 31, 2020:

	Credit Exposure - Credit Risk Portfolio By Creditworthiness Category																	Credit Exposure - Credit Risk Portfolio By Creditworthiness Category
	June 30, 2020																	June 30, 2021
(Dollars in thousands)	2		3		4		5		6		7		8					1-5		6		7		8

Loan Segment	Moderate		Above average acceptable		Acceptable		Marginally acceptable		Pass/monitor		Special mention		Substandard		Total			Pass		Pass/monitor		Special mention		Substandard		Total
Residential real estate	$	660	$	113,209	$	101,700	$	13,550	$	47,117	$	3,164	$	5,163	$	284,563		$	224,121	$	36,446	$	3,969	$	4,113	$	268,649
Home equity		120		6,371		37,894		121		743		565		498		46,312			34,900		712		560		512		36,684
Commercial real estate		-		2,123		71,620		146,373		56,102		6,731		3,173		286,122			233,022		59,866		13,801		8,398		315,087
Construction and land development		-		1,087		28,609		50,274		13,012		-		-		92,982			80,521		19,971		3,662		0		104,154
Multifamily		-		757		17,409		31,844		5,018		501		541		56,070			46,911		4,951		1,377		400		53,639
Farmland		-		-		-		-		221		-		-		221			101		208		0		0		309
Commercial business		5,256		99,733		16,920		36,300		17,723		1,851		1,080		178,863			127,244		20,092		1,162		916		149,414
Consumer		55		-		467		-		-		-		-		522			544		0		0		0		544
Manufactured homes		4,712		2,146		14,663		180		817		-		-		22,518			27,335		740		60		0		28,135
Government		-		1,775		10,294		1,660		-		-		-		13,729			8,462		0		0		0		8,462
Total	$	10,803	$	227,201	$	299,576	$	280,302	$	140,753	$	12,812	$	10,455	$	981,902		$	783,161	$	142,986	$	24,591	$	14,339	$	965,077

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

							For the six months ended											For the six months ended				For the three months ended
	As of June 30, 2020						June 30, 2020					As of June 30, 2021						June 30, 2021				June 30, 2021
(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		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	2,077	$	3,459	$	-	$	2,107	$	49		$	1,571	$	2,904	$	-	$	1,735	$	42	$	1,655	$	20
Home equity		372		392		-		384		9			271		283		-		317		5		300		1
Commercial real estate		1,096		1,682		-		1,379		47			1,538		2,121		-		1,295		26		1,354		14
Construction and land development		-		-		-		-		-			0		0		-		0		0		0		0
Multifamily		768		850		-		784		14			596		678		-		670		11		648		6
Farmland		-		-		-		-		-			0		0		-		0		0		0		0
Commercial business		1,463		1,517		-		1,588		40			1,408		1,408		-		1,447		36		1,422		18
Consumer		-		-		-		-		-			0		0		-		0		0		0		0
Manufactured homes		-		-		-		-		-			0		0		-		0		0		0		0
Government		-		-		-		-		-			0		0		-		0		0		0		0

With an allowance recorded:
Residential real estate	$	187	$	187	$	130	$	107	$	1		$	161	$	161	$	85	$	198	$	5	$	162	$	0
Home equity		-		-		-		5		-			22		22		5		15		0		23		0
Commercial real estate		166		166		15		67		1			5,868		5,868		1,204		5,655		113		5,901		63
Construction and land development		-		-		-		-		-			0		0		0		0		0		0		0
Multifamily		-		-		-		-		-			0		0		0		0		0		0		0
Farmland		-		-		-		-		-			0		0		0		0		0		0		0
Commercial business		794		794		337		676		19			683		683		476		719		22		704		11
Consumer		-		-		-		-		-			0		0		0		0		0		0		0
Manufactured homes		-		-		-		-		-			0		0		0		0		0		0		0
Government		-		-		-		-		-			0		0		0		0		0		0		0

Total:
Residential real estate	$	2,264	$	3,646	$	130	$	2,214	$	50		$	1,732	$	3,065	$	85	$	1,933	$	47	$	1,817	$	20
Home equity	$	372	$	392	$	-	$	389	$	9		$	293	$	305	$	5	$	332	$	5	$	323	$	1
Commercial real estate	$	1,262	$	1,848	$	15	$	1,446	$	48		$	7,406	$	7,989	$	1,204	$	6,950	$	139	$	7,255	$	77
Construction & land development	$	-	$	-	$	-	$	-	$	-		$	0	$	0	$	0	$	0	$	0	$	0	$	0
Multifamily	$	768	$	850	$	-	$	784	$	14		$	596	$	678	$	0	$	670	$	11	$	648	$	6
Farmland	$	-	$	-	$	-	$	-	$	-		$	0	$	0	$	0	$	0	$	0	$	0	$	0
Commercial business	$	2,257	$	2,311	$	337	$	2,264	$	59		$	2,091	$	2,091	$	476	$	2,166	$	58	$	2,126	$	29
Consumer	$	-	$	-	$	-	$	-	$	-		$	0	$	0	$	0	$	0	$	0	$	0	$	0
Manufactured homes	$	-	$	-	$	-	$	-	$	-		$	0	$	0	$	0	$	0	$	0	$	0	$	0
Government	$	-	$	-	$	-	$	-	$	-		$	0	$	0	$	0	$	0	$	0	$	0	$	0

							For the six months ended										For the six months ended				For the three months ended
	As of December 31, 2019						June 30, 2019				As of December 31, 2020						June 30, 2020				June 30, 2020
(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		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	2,140	$	3,555	$	-	$	1,813	$	31	$	1,895	$	3,228	$	-	$	2,107	$	49	$	2,090	$	25
Home equity		429		451		-		344		3		352		363		-		384		9		362		4
Commercial real estate		1,547		2,141		-		1,655		33		1,177		1,761		-		1,379		47		1,295		34
Construction & land development		-		-		-		-		-		0		0		-		0		0		0		0
Multifamily		802		884		-		472		3		716		798		-		784		14		775		7
Farmland		-		-		-		-		-		0		0		-		0		0		0		0
Commercial business		1,814		1,906		-		1,967		43		1,497		1,514		-		1,588		40		1,475		23
Consumer		-		-		-		-		-		0		0		-		0		0		0		0
Manufactured homes		-		-		-		-		-		0		0		-		0		0		0		0
Government		-		-		-		-		-		0		0		-		0		0		0		0

With an allowance recorded:
Residential real estate	$	83	$	83	$	10	$	159	$	2	$	270	$	314	$	173	$	107	$	1	$	120	$	0
Home equity		8		8		4		59		1		1		9		1		5		0		0		0
Commercial real estate		18		18		-		478		-		5,164		5,164		1,089		67		1		92		1
Construction & land development		-		-		-		-		-		0		0		0		0		0		0		0
Multifamily		-		-		-		-		-		0		0		0		0		0		0		0
Farmland		-		-		-		-		-		0		0		0		0		0		0		0
Commercial business		377		377		152		145		-		749		749		512		676		19		826		16
Consumer		-		-		-		-		-		0		0		0		0		0		0		0
Manufactured homes		-		-		-		-		-		0		0		0		0		0		0		0
Government		-		-		-		-		-		0		0		0		0		0		0		0

Total:
Residential real estate	$	2,223	$	3,638	$	10	$	1,972	$	33	$	2,165	$	3,542	$	173	$	2,214	$	50	$	2,210	$	25
Home equity	$	437	$	459	$	4	$	403	$	4	$	353	$	372	$	1	$	389	$	9	$	362	$	4
Commercial real estate	$	1,565	$	2,159	$	-	$	2,133	$	33	$	6,341	$	6,925	$	1,089	$	1,446	$	48	$	1,387	$	35
Construction & land development	$	-	$	-	$	-	$	-	$	-	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Multifamily	$	802	$	884	$	-	$	472	$	3	$	716	$	798	$	0	$	784	$	14	$	775	$	7
Farmland	$	-	$	-	$	-	$	-	$	-	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Commercial business	$	2,191	$	2,283	$	152	$	2,112	$	43	$	2,246	$	2,263	$	512	$	2,264	$	59	$	2,301	$	39
Consumer	$	-	$	-	$	-	$	-	$	-	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Manufactured homes	$	-	$	-	$	-	$	-	$	-	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Government	$	-	$	-	$	-	$	-	$	-	$	0	$	0	$	0	$	0	$	0	$	0	$	0

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
June 30, 2021
Residential real estate	$	1,894	$	1,191	$	2,396	$	5,481	$	263,168	$	268,649	$	79
Home equity		398		47		413		858		35,826		36,684		0
Commercial real estate		619		488		1,421		2,528		312,559		315,087		95
Construction and land development		328		0		42		370		103,784		104,154		41
Multifamily		256		0		120		376		53,263		53,639		0
Farmland		0		0		0		0		309		309		0
Commercial business		1,316		0		215		1,531		147,883		149,414		33
Consumer		1		0		0		1		543		544		0
Manufactured homes		249		109		0		358		27,777		28,135		0
Government		0		0		0		0		8,462		8,462		0
Total	$	5,061	$	1,835	$	4,607	$	11,503	$	953,574	$	965,077	$	248

December 31, 2020
Residential real estate	$	2,797	$	1,119	$	4,875	$	8,791	$	277,257	$	286,048	$	80
Home equity		616		323		416		1,355		37,878		39,233		29
Commercial real estate		1,172		237		680		2,089		296,168		298,257		437
Construction and land development		471		0		20		491		93,071		93,562		20
Multifamily		94		266		150		510		50,061		50,571		0
Farmland		0		0		0		0		215		215		0
Commercial business		845		96		269		1,210		156,930		158,140		0
Consumer		2		0		0		2		1,023		1,025		0
Manufactured homes		303		173		0		476		23,756		24,232		0
Government		380		0		0		380		9,762		10,142		0
Total	$	6,680	$	2,214	$	6,410	$	15,304	$	946,121	$	961,425	$	566

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

(Dollars in thousands)
	June 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Residential real estate	$	5,135	$	4,374		$	4,180	$	6,390
Home equity		464		473			495		476
Commercial real estate		253		658			6,521		5,390
Construction and land development		-		-
Construction and land development.							0		0
Multifamily		541		420			400		504
Farmland		-		-			0		0
Commercial business		1,015		582			429		1,039
Consumer		-		-			0		0
Manufactured homes		-		-			0		0
Government		-		-			0		0
Total	$	7,408	$	6,507		$	12,025	$	13,799

Accretable interest taken from the purchase credit impaired portfolio, or income recorded for the six months ended June 30, is as follows:


(dollars in thousands)	Total
2020	$	57
2021		21

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

	(Dollars in thousands)				(Dollars in thousands)
	June 30, 2020		December 31, 2019		June 30, 2021		December 31, 2020
Residential real estate	$	524	$	957	$	158	$	328
Commercial real estate		110		126
Commercial business						210		210
Total	$	634	$	1,083	$	368	$	538