UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September 30, 2021~~March 31, 2022 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

Finward Bancorp

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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
Common stock, no par value	FNWD	The NASDAQ Stock Market, LLC

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 ☐~~

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 ~~3,479,139~~4,294,709 shares of the registrant’s Common Stock, without par value, outstanding at ~~November 9, 2021.~~May 16, 2022.

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	29 27

Item 3. Quantitative and Qualitative Disclosures about Market Risk	4538

Item 4. Controls and Procedures	4538

PART II. Other Information	46 39

SIGNATURES	4740

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

Part I – Financial Information

Item 1. Financial Statements

Finward Bancorp

~~Finward Bancorp~~

Consolidated Balance Sheet

~~Condensed Consolidated Balance Sheets~~

	September 30,						March 31, 2022			December 31,
(Dollars in thousands)	2021			December 31,			(unaudited)			2021
	(unaudited)			2020
ASSETS

Cash and non-interest bearing deposits in other financial institutions	$	17,715		$	14,014		$	21,262		$	12,725
Interest bearing deposits in other financial institutions		12,132			5,908			31,420			19,987
Federal funds sold		1,918			0			1,819			464

Total cash and cash equivalents		31,765			19,922			54,501			33,176

Certificates of deposit in other financial institutions		977			1,897			1,731			1,709

Securities available-for-sale		531,010			410,669			464,320			526,889
Loans held-for-sale		3,868			11,329			1,420			4,987
Loans receivable		956,352			965,146
Loans receivable, net of deferred fees and costs								1,439,728			966,720
Less: allowance for loan losses		(13,774	)		(12,458	)		(13,387	)		(13,343	)
Net loans receivable		942,578			952,688			1,426,341			953,377
Federal Home Loan Bank stock		3,247			3,918			3,038			3,247
Accrued interest receivable		5,259			4,713			7,427			5,444
Premises and equipment		29,980			30,785			45,773			31,385
Foreclosed real estate		81			538
Cash value of bank owned life insurance		31,262			30,725			31,378			31,440
Goodwill		11,109			11,109			22,774			11,109
Other intangible assets		3,374			4,119			5,998			3,126
Other assets		15,414			13,880			33,144			14,854

Total assets	$	1,609,924		$	1,496,292		$	2,097,845		$	1,620,743

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Non-interest bearing	$	287,376		$	241,620		$	380,515		$	295,294
Interest bearing		1,118,824			1,060,719			1,514,696			1,138,907
Total		1,406,200			1,302,339			1,895,211			1,434,201
Repurchase agreements		23,844			13,711			23,239			14,581
Borrowed funds		0			6,149			5			0
Accrued expenses and other liabilities		27,311			22,404			21,753			15,346

Total liabilities		1,457,355			1,344,603			1,940,208			1,464,128

Commitments and contingent liabilties
Commitments and contingencies

Stockholders' Equity:
Preferred stock, no par or stated value; 10,000,000 shares authorized, none outstanding		0			0			0			0
Common stock, no par or stated value; 10,000,000 shares authorized; shares issued and outstanding: September 30, 2021 - 3,479,139 December 31, 2020 - 3,462,916		0			0
Common stock, no par or stated value; 10,000,000 shares authorized; shares issued and outstanding: March 31, 2022 - 4,294,136 December 31, 2021 - 3,480,701								0			0
Additional paid-in capital		30,284			29,987			68,386			30,430
Accumulated other comprehensive income		2,608			10,441
Accumulated other comprehensive (loss) income								(33,462	)		4,276
Retained earnings		119,677			111,261			122,713			121,909

Total stockholders' equity		152,569			151,689			157,637			156,615

Total liabilities and stockholders' equity	$	1,609,924		$	1,496,292		$	2,097,845		$	1,620,743

See accompanying notes to ~~condensed~~ consolidated financial statements.

Finward Bancorp

Consolidated Statements of Income

(unaudited)

(Dollars in thousands)	Quarter Ended March 31,
	2022		2021
Interest income:
Loans receivable	$	13,286	$	10,746
Securities		2,597		1,961
Other interest earning assets		11		20

Total interest income		15,894		12,727

Interest expense:
Deposits		337		651
Repurchase agreements		16		10
Borrowed funds		6		20

Total interest expense		359		681

Net interest income		15,535		12,046
Provision for loan losses		0		578

Net interest income after provision for loan losses		15,535		11,468

Noninterest income:
Fees and service charges		1,304		1,066
Gain on sale of loans held-for-sale, net		607		2,049
Wealth management operations		595		607
Gain on sale of securities, net		381		417
Increase in cash value of bank owned life insurance		252		169
Gain (loss) on sale of foreclosed real estate		0		(9	)
Other		5		14

Total noninterest income		3,144		4,313

Noninterest expense:
Compensation and benefits		7,367		5,685
Data processing		3,054		674
Occupancy and equipment		1,500		1,372
Marketing		651		199
Federal deposit insurance premiums		219		180
Other		3,478		2,383

Total noninterest expense		16,269		10,493

Income before income tax expenses		2,410		5,288
Income tax expenses		275		745

Net income	$	2,135	$	4,543

Earnings per common share:
Basic	$	0.53	$	1.31
Diluted	$	0.53	$	1.31

Dividends declared per common share	$	0.31	$	0.31

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

Three Months Ended

Nine Months Ended

(Dollars in thousands)

September 30,

September 30,

(unaudited)

2021

2020

2021

2020

Interest income:

Loans receivable

Real estate loans
$ 8,177 $ 8,560 $ 24,627 $ 27,222
Commercial loans
1,737 2,427 5,728 5,746
Consumer loans
356 276 936 621
Total loan interest
10,270 11,263 31,291 33,589
Securities
2,378 1,534 6,483 4,803
Other interest earning assets
18 39 54 218

Total interest income
12,666 12,836 37,828 38,610

Interest expense:

Deposits
452 1,050 1,652 4,494
Repurchase agreements
13 15 35 72
Borrowed funds
1 83 23 270

Total interest expense
466 1,148 1,710 4,836

Net interest income
12,200 11,688 36,118 33,774
Provision for loan losses
139 849 1,293 1,871

Net interest income after provision for loan losses
12,061 10,839 34,825 31,903

Noninterest income:

Gain on sale of loans held-for-sale, net
$ 1,229 $ 2,420 $ 4,394 $ 6,037
Fees and service charges
1,473 1,473 4,010 3,673
Wealth management operations
604 537 1,787 1,605
Gain on sale of securities, net
590 197 1,276 1,374
Increase in cash value of bank owned life insurance
180 177 537 534
Gain on sale of foreclosed real estate, net
0 24 27 127
Other
70 27 108 97
Total noninterest income
$ 4,146 $ 4,855 $ 12,139 $ 13,447

Noninterest expense:

Compensation and benefits
$ 6,042 $ 5,517 $ 17,624 $ 16,447
Occupancy and equipment
1,380 1,150 4,076 3,854
Data processing
872 583 1,997 1,671
Marketing
334 183 728 571
Federal deposit insurance premiums
236 209 620 564
Other
3,537 2,393 8,859 7,033
Total noninterest expense
$ 12,401 $ 10,035 $ 33,904 $ 30,140

Income before income tax expenses
3,806 5,659 13,060 15,210
Income tax expenses
268 972 1,408 2,559
Net income
$ 3,538 $ 4,687 $ 11,652 $ 12,651

Earnings per common share:

Basic
$ 1.02 $ 1.35 $ 3.35 $ 3.65
Diluted
$ 1.02 $ 1.35 $ 3.35 $ 3.65

Dividends declared per common share
$ 0.31 $ 0.31 $ 0.93 $ 0.93

See accompanying notes to ~~condensed~~ consolidated financial statements.

Finward Bancorp

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

(Dollars in thousands)	Three Months Ended March 31,
	2022			2021

Net income	$	2,135		$	4,543

Net change in net unrealized gains and losses on securities available-for-sale:
Unrealized loss arising during the period		(47,389	)		(7,761	)
Less: reclassification adjustment for gains included in net income		(381	)		(417	)
Net securities loss during the period		(47,770	)		(8,178	)
Tax effect		10,032			1,717
Other comprehensive loss, net of tax		(37,738	)		(6,461	)

Comprehensive loss, net of tax		(35,603	)		(1,918	)

See accompanying notes to consolidated financial statements.

Finward Bancorp

Consolidated Statements of Changes in Stockholder's Equity

~~Condensed Consolidated Statements of Comprehensive Income~~

(unaudited)

Three Months Ended

Nine Months Ended

(Dollars in thousands)

September 30,

September 30,

2021

2020

2021

2020

Net income
$ 3,538 $ 4,687 $ 11,652 $ 12,651

Net change in net unrealized gains and losses on securities available-for-sale:

Unrealized (losses)/gains arising during the period
(6,501 ) (25 ) (8,638 ) 7,294
Less: reclassification adjustment for gains included in net income
(590 ) (197 ) (1,276 ) (1,374 )
Net securities (loss)/gain during the period
(7,091 ) (222 ) (9,914 ) 5,920
Tax effect
1,490 46 2,081 (1,243 )
Net of tax amount
(5,601 ) (176 ) (7,833 ) 4,677

Comprehensive (loss)/income, net of tax
$ (2,063 ) $ 4,511 $ 3,819 $ 17,328

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


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

Net income		0		0			0			4,543			4,543
Other comprehensive loss, net of tax		0		0			(6,461	)		0			(6,461	)
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

Balance at January 1, 2022	$	0	$	30,430		$	4,276		$	121,909		$	156,615

Net income		0		0			0			2,135			2,135
Other comprehensive loss, net of tax		0		0			(37,738	)		0			(37,738	)
Net surrender value of 2,336 restricted stock awards		0		(115	)		0			0			(115	)
Stock-based compensation expense		0		169			0			0			169
Issuance of 795,423 shares at $47.75 per share, for acquisition of Royal Financial, Inc.		0		37,902			0			0			37,902
Cash dividends, $0.31 per share		0		0			0			(1,331	)		(1,331	)

Balance at March 31, 2022	$	0	$	68,386		$	(33,462	)	$	122,713		$	157,637

See accompanying notes to ~~condensed~~ consolidated financial statements.

Finward Bancorp

Consolidated Statements of Cash Flows

~~Consolidated Statements of Changes in Stockholders' Equity~~

(unaudited)

Three Months Ended

Accumulated

Additional

Other

Common

Paid-in

Comprehensive

Retained

Total

(Dollars in thousands, except per share data)

Stock

Capital

(Loss)/Income

Earnings

Equity

Balance at June 30, 2020
$ 0 $ 29,774 $ 9,114 $ 105,441 $ 144,329

Comprehensive income:

Net income
0 0 0 4,687 4,687
Other comprehensive loss
0 0 (176 ) 0 (176 )
Comprehensive income
0 0 0 0 4,511
Stock-based compensation expense
0 107 0 0 107
Cash dividends, $0.31 per share
0 0 0 (1,074 ) (1,074 )

Balance at September 30, 2020
$ 0 $ 29,881 $ 8,938 $ 109,054 $ 147,873

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

Comprehensive income:

Net income
0 0 0 3,538 3,538
Other comprehensive loss
0 0 (5,601 ) 0 (5,601 )
Comprehensive income
0 0 0 0 (2,063 )
Stock-based compensation expense
0 143 0 0 143
Cash dividends, $0.31 per share
0 0 0 (1,080 ) (1,080 )

Balance at September 30, 2021
$ 0 $ 30,284 $ 2,608 $ 119,677 $ 152,569

(Dollars in thousands)	Three months ended March 31,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,135		$	4,543
Adjustments to reconcile net income to net cash provided by operating activities:
Origination of loans for sale		(15,664	)		(49,083	)
Sale of loans originated for sale		19,760			57,876
Depreciation and amortization, net of accretion		1,191			1,043
Stock based compensation expense		169			146
Gain on sale of securities, net		(381	)		(417	)
Gain on sale of loans held-for-sale, net		(582	)		(2,026	)
Loss on sale of foreclosed real estate		0			9
Gain on cash value of bank owned life insurance		(252	)		(169	)
Gain on derivatives		(25	)		(23	)
Provision for loan losses		0			578
Net change in:
Interest receivable		(1,983	)		(284	)
Other assets		1,504			2,643
Accrued expenses and other liabilities		(5,150	)		1,558
Net cash provided by operating activities		722			16,394

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of certificates of deposit in other financial institutions		223			423
Proceeds from maturities and pay downs of securities available-for-sale		9,225			27,287
Proceeds from sales of securities available-for-sale		16,236			6,904
Purchase of securities available-for-sale		(10,724	)		(54,540	)
Proceeds from bank owned life insurance		314			0
Net change in loans receivable		(20,094	)		(4,331	)
Proceeds of Federal Home Loan Bank Stock		1,512			0
Purchase of loans receivable		(2,113	)		(2,989	)
Purchase of premises and equipment, net		(1,219	)		(379	)
Proceeds from sale of foreclosed real estate		0			48
Cash and cash equivalents from acquisition activity, net		33,799			0
Net cash provided by (used in) investing activities		27,159			(27,577	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Change in deposits		(14,025	)		64,355
Repayment of FHLB advances		0			(6,000	)
Net surrender value of restricted stock awards		(115	)		(68	)
Change in repurchase agreements and other borrowed funds		8,663			2,057
Dividends paid		(1,079	)		(1,074	)
Net cash (used in) provided by financing activities		(6,556	)		59,270
Net change in cash and cash equivalents		21,325			48,087
Cash and cash equivalents at beginning of period		33,176			19,922
Cash and cash equivalents at end of period	$	54,501		$	68,009

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	339		$	690
Acquisition activity:
Fair value of assets acquired, including cash and cash equivalents	$	528,083		$	0
Value of goodwill and other intangible assets		14,884			0
Fair value of liabilities assumed		486,340			0
Cash paid for acquisition		18,725			0
Issuance of common stock for acquisition		37,902			0
Noncash activities:
Dividends declared not paid		1,331			1,079
Securities purchased not settled		0			1,765

Nine Months Ended

Accumulated

Additional

Other

Common

Paid-in

Comprehensive

Retained

Total

(Dollars in thousands, except per share data)

Stock

Capital

(Loss)/Income

Earnings

Equity

Balance at January 1, 2020
$ 0 $ 29,657 $ 4,261 $ 99,624 $ 133,542

Comprehensive income:

Net income
0 0 0 12,651 12,651
Other comprehensive income
0 0 4,677 0 4,677
Comprehensive income
0 0 0 0 17,328
Net surrender value of 1,245 restricted stock awards
0 (85 ) 0 0 (85 )
Stock-based compensation expense
0 309 0 0 309
Cash dividends, $0.93 per share
0 0 0 (3,221 ) (3,221 )

Balance at September 30, 2020
$ 0 $ 29,881 $ 8,938 $ 109,054 $ 147,873

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

Comprehensive income:

Net income
0 0 0 11,652 11,652
Other comprehensive loss
0 0 (7,833 ) 0 (7,833 )
Comprehensive income
0 0 0 0 3,819
Net surrender value of 1,904 restricted stock awards
0 (131 ) 0 0 (131 )
Stock-based compensation expense
0 428 0 0 428
Cash dividends, $0.93 per share
0 0 0 (3,236 ) (3,236 )

Balance at September 30, 2021
$ 0 $ 30,284 $ 2,608 $ 119,677 $ 152,569

See accompanying notes to consolidated financial statements.

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

Nine Months Ended

(Dollars in thousands)

September 30,

2021

2020

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income
$ 11,652 $ 12,651
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:

Origination of loans for sale
(120,101 ) (171,151 )
Sale of loans originated for sale
131,477 177,556
Depreciation and amortization, net of accretion
3,109 3,178
Amortization of mortgage servicing rights
180 63
Stock based compensation expense
428 309
Gain on sale of securities, net
(1,276 ) (1,374 )
Gain on sale of loans held-for-sale, net
(4,546 ) (6,037 )
Loss/(gain) on derivatives
152 (308 )
Gain on cash value of bank owned life insurance
(537 ) (534 )
Gain on sale of foreclosed real estate, net
(27 ) (127 )
Provision for loan losses
1,293 1,871
Net change in:

Interest receivable
(546 ) (685 )
Other assets
1,591 (1,682 )
Accrued expenses and other liabilities
(6,290 ) 5,526
Net cash - operating activities
16,559 19,256

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from maturities of certificates of deposits in other financial institutions
920 269
Proceeds from maturities and pay downs of securities available-for-sale
43,488 49,311
Proceeds from sales of securities available-for-sale
28,565 39,242
Purchase of securities available-for-sale
(191,130 ) (129,503 )
Loan participations purchased
0 (8,267 )
Net change in loans receivable
20,148 (60,386 )
Proceeds (purchase) of Federal Home Loan Bank Stock
671 (6 )
Purchase of loans receivable
(11,331 ) 0
Purchase of premises and equipment, net
(1,019 ) (2,088 )
Proceeds from sale of foreclosed real estate, net
484 731
Net cash - investing activities
(109,204 ) (110,697 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Net change in deposits
103,861 126,286
Repayment of FHLB advances
(6,000 ) (2,000 )
Change in other borrowed funds
9,984 7,646
Net surrender value of restricted stock awards
(131 ) (85 )
Dividends paid
(3,226 ) (3,217 )
Net cash - financing activities
104,488 128,630
Net change in cash and cash equivalents
11,843 37,189
Cash and cash equivalents at beginning of period
19,922 47,258
Cash and cash equivalents at end of period
$ 31,765 $ 84,447

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the period for:

Interest
$ 1,744 $ 4,953
Income taxes
2,185 5,000
Noncash activities:

Transfers from loans to foreclosed real estate
$ 0 $ 23
Dividends declared not paid
1,080 1,074
Securities purchased not settled
11,187 0

~~See accompanying notes to condensed consolidated financial statements.~~

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 Finward Bancorp (the “Bancorp” or ~~“Finward”~~“FNWD”), 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,1683 Real Estate LLC, and Columbia Development Company, LLC. The Bancorp’s business activities include being a holding company for the Bank as well as a holding company for NWIN Risk Management, Inc. The Bancorp’s earnings are primarily dependent upon the earnings of the Bank. The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by U.S. generally accepted accounting principles for complete presentation of consolidated financial statements. In the opinion of management, the consolidated financial statements contain all adjustments necessary to present fairly the consolidated balance sheets of the Bancorp as of ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020,~~2021, and the consolidated statements of income, comprehensive income ~~and~~(loss), changes in stockholders’ equity, ~~for the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2021,~~ ~~and~~ ~~2020,~~ and consolidated statements of cash flows for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, and ~~2020.~~2021. The income reported for the ~~nine~~three month period ended ~~September 30, 2021,~~March 31, 2022, 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~~2021 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~~2021 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. These reclassifications had no effect on net income.

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 discovered during the second quarter of 2021. 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~~

Consolidated Statement of Income

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

For the three months ending March 31, 2021	As Reported		Adjustment			As Revised
Compensation and benefits	$	5,530	$	155		$	5,685
Total noninterest expense		10,338		155			10,493
Income before income tax expense		5,443		(155	)		5,288
Income tax expenses		764		(19	)		745
Net income		4,679		(136	)		4,543
Earnings per common share:
Basic		1.35		(0.04	)		1.31
Diluted		1.35		(0.04	)		1.31

~~Consolidated Statement~~

Consolidated Statements of Comprehensive Income (Loss)

Three months ended September 30, 2020

As Reported

Adjustment

As Revised

Compensation and benefits
$ 5,263 $ 254 $ 5,517
Total noninterest expense
9,781 254 10,035
Income before income tax expense
5,913 (254 ) 5,659
Income tax expenses
1,010 (38 ) 972
Net income
4,903 (216 ) 4,687
Earnings per common share:

Basic
1.42 (0.07 ) 1.35
Diluted
1.42 (0.07 ) 1.35

For the three months ending March 31, 2021	As Reported			Adjustment			As Revised
Net income	$	4,679		$	(136	)	$	4,543
Comprehensive income, net of tax		(1,782	)		(136	)		(1,918	)

Nine months ended September 30, 2020

As Reported

Adjustment

As Revised

Compensation and benefits
$ 15,851 $ 596 $ 16,447
Total noninterest expense
29,544 596 30,140
Income before income tax expense
15,806 (596 ) 15,210
Income tax expenses
2,648 (89 ) 2,559
Net income
13,158 (507 ) 12,651
Earnings per common share:

Basic
3.80 (0.15 ) 3.65
Diluted
3.80 (0.15 ) 3.65

Consolidated Statements of Changes in Stockholders' Equity

~~Consolidated Statements of Comprehensive Income~~

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

For the three months 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

Three months ended September 30, 2020

As Reported

Adjustment

As Revised

Net income
$ 4,903 $ (216 ) $ 4,687
Comprehensive income, net of tax
4,727 (216 ) 4,511

Consolidated Statements of Cash Flows

Nine months ended September 30, 2020

As Reported

Adjustment

As Revised

Net income
$ 13,158 $ (507 ) $ 12,651
Comprehensive income, net of tax
17,835 (507 ) 17,328

~~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 nine months ending September 30, 2020

Net income
13,158 (507 ) 12,651
Retained earnings
110,122 (1,068 ) 109,054
Total equity
148,941 (1,068 ) 147,873

For the quarter ending June 30, 2020

Retained earnings
106,293 (852 ) 105,441
Total equity
145,181 (852 ) 144,329

For the quarter ending September 30, 2020

Net income
4,903 (216 ) 4,687
Retained earnings
110,122 (1,068 ) 109,054
Total equity
148,941 (1,068 ) 147,873

Balance at January 1, 2021

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

~~Consolidated Statements of Cash Flows~~

Nine months ended September 30, 2020	As Reported			Adjustment			As Revised
For the three months ending March 31, 2021										As Reported			Adjustment			As Revised
Net income	$	13,158		$	(507	)	$	12,651		$	4,679		$	(136	)	$	4,543
Net change in other assets		(1,593	)		(89	)		(1,682	)		2,662			(19	)		2,643
Net cash - operating activities		19,852			(596	)		19,256			16,549			(155	)		16,394
Net change in loan		(60,982	)		596			(60,386	)		(4,486	)		155			(4,331	)
Net cash - investing activities		(111,293	)		596			(110,697	)		(27,732	)		155			(27,577	)

Note 2 - Use of Estimates

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

Note 3 - Acquisition Activity

On January 31, 2022, Finward Bancorp (“Finward”) completed its previously announced acquisition of Royal Financial, Inc., a Delaware corporation (“RYFL”), pursuant to an Agreement and Plan of Merger dated July 28, 2021 (the “Merger Agreement”) between Finward and RYFL. The stockholders of both Finward and RYFL approved the Merger Agreement at the respective stockholder meetings of the companies held on December 13, 2021. Pursuant to the Merger Agreement, RYFL merged with and into Finward, with Finward as the surviving corporation (the “Merger”), and Royal Savings Bank, an Illinois state-chartered savings bank and wholly-owned subsidiary of RYFL, merged with and into Peoples Bank, the wholly-owned Indiana state-chartered commercial bank subsidiary of Finward, with Peoples Bank as the surviving bank.

Under the terms of the merger agreement, RYFL stockholders who owned 101 or more shares of RYFL common stock were permitted to elect to receive either 0.4609 shares of Finward common stock or $20.14 in cash, or a combination of both, for each share of RYFL common stock owned, subject to proration and allocation provisions such that 65% of the shares of RYFL common stock outstanding immediately prior to the closing of the merger were converted into the right to receive shares of Finward common stock and the remaining 35% of the outstanding RYFL shares were converted into the right to receive cash. Stockholders holding less than 101 shares of RYFL common stock received fixed consideration of $20.14 in cash per share and no stock consideration.

As a result of RYFL stockholder stock and cash elections and the related allocation and proration provisions of the merger agreement, Finward issued 795,423 shares of its common stock and paid cash consideration of approximately $18.7 million in the Merger. Based on the January 28, 2022, closing price of $47.75 per share of Finward common stock, the transaction had an implied valuation of approximately $56.7 million. In connection with the acquisition, Robert W. Youman, was appointed to the boards of directors of Finward and Peoples Bank effective as of the closing of the Merger. RYFL had a home office and eight branch offices in Cook County and DuPage County, Illinois. The acquisition has further expanded the Bank’s banking center network in Cook County and DuPage County, Illinois.

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, which are based on estimates and assumptions that are subject to change, the final purchase price for the Royal acquisition is allocated as follows:

ASSETS			*LIABILITIES*
Cash and due from banks	$	52,524	Deposits
Investment securities, available for sale		0	Non-interest bearing	$	32,095
Certificate of deposit in other financial institutions		245	NOW accounts		63,639
			Savings and money market		184,149
Total Loans		450,757	Certificates of deposits		195,153
			Total Deposits		475,036
Premises and equipment, net		13,848
FHLB stock		1,303	Interest payable		75
Goodwill		11,664	Other liabilities		11,228
Core deposit intangible		3,220
Interest receivable		1,836
Other assets		7,569
Total assets purchased	$	542,966
Common shares issued		37,902
Cash paid		18,725
Total purchase price	$	56,627	Total liabilities assumed	$	486,339

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

Goodwill of approximately $11.7 million, which is the excess of the acquisition consideration over the fair value of net assets acquired, is expected to be recorded in the RYFL acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes. To the extent that management revises any of the above fair value adjustments as a result of its continuing evaluation, the amount of goodwill recorded in the RYFL acquisition will change.

Gross loans acquired during the RYFL transaction totaled $456.7 million. As of the three months ended March 31, 2022, the remaining outstanding principal of loans directly related to the RYFL acquisition total $443.8 million, of which $6.1 million are expected to be uncollectable.

Revenue, excluding all purchase accounting adjustments, attributed to RYFL totaled $3.2 million for the three months ended March 31, 2022.

The following pro-forma and earnings (unaudited) of the combined company are presented as if the RYFL merger had occurred on January 1, 2022 and January 1, 2021:

	For the three months ended			For the three months ended
(in thousands)	*March 31, 2022*			*March 31, 2021*
Selected Financial Data
Interest income	$	17,589		$	17,391
Interest expense		(460	)		(1,191	)
Recovery of (provision for) loan losses		0			(278	)
Non-interest income		3,283			4,516
Non-interest expense (1)		(14,397	)		(12,945	)
Income before provision for income taxes		6,015			7,493
Income tax expense		(1,032	)		(1,173	)
Net income	$	4,983		$	6,320

Earnings per common share:
Basic	$	1.24		$	1.82
Diluted	$	1.24		$	1.82

(1)	Excludes $2.9 million in pre-tax merger expenses for the three months ended March 31, 2022.

As of the three months ended March 31, 2022, the Bancorp has recorded $2.9 million in pretax one-time merger expenses related to the RYFL acquisition, these expenses have been allocated to the following non-interest expense line items within the income statement:

	Three months ended
Noninterest expense:	March 31, 2022
Compensation and benefits	$	132
Data processing		1,929
Marketing		135
Other		656

Period merger expense	$	2,852

Note 34 - Securities

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

(Dollars in thousands)
			Gross		Gross			Estimated		(Dollars in thousands)
	Cost		Unrealized		Unrealized			Fair				Gross		Gross			Estimated
	Basis		Gains		Losses			Value		Cost		Unrealized		Unrealized			Fair
September 30, 2021
										Basis		Gains		Losses			Value
March 31, 2022
U.S. government sponsored entities		10,883		8		(130	)		10,761	$	8,883	$	0	$	(681	)	$	8,202
U.S. treasury securities		401		0		0			401		199		0		0			199
Collateralized mortgage obligations and residential mortgage-backed securities		199,749		1,559		(2,823	)		198,485		178,431		45		(14,353	)		164,123
Municipal securities		314,511		8,496		(2,655	)		320,352		317,000		1,727		(27,903	)		290,824
Collateralized debt obligations		2,173		0		(1,162	)		1,011		2,173		0		(1,201	)		972
Total securities available-for-sale	$	527,717	$	10,063	$	(6,770	)	$	531,010	$	506,686	$	1,772	$	(44,138	)	$	464,320

(Dollars in thousands)
			Gross		Gross			Estimated		(Dollars in thousands)
	Cost		Unrealized		Unrealized			Fair				Gross		Gross			Estimated
	Basis		Gains		Losses			Value		Cost		Unrealized		Unrealized			Fair
December 31, 2020
Money market fund	$	52,941	$	0	$	0		$	52,941
										Basis		Gains		Losses			Value
December 31, 2021
U.S. government sponsored entities		7,881		3		(24	)		7,860	$	8,883	$	0	$	(214	)	$	8,669
U.S. treasury securities											400		0		0			400
Collateralized mortgage obligations and residential mortgage-backed securities		151,355		3,417		(36	)		154,736		187,279		961		(3,539	)		184,701
Municipal securities		183,103		11,102		(2	)		194,203		322,750		9,904		(527	)		332,127
Collateralized debt obligations		2,182		0		(1,253	)		929		2,173		0		(1,181	)		992
Total securities available-for-sale	$	397,462	$	14,522	$	(1,315	)	$	410,669	$	521,485	$	10,865	$	(5,461	)	$	526,889

The estimated fair value of available-for-sale debt securities at ~~September 30, 2021,~~March 31, 2022, 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		Cost		Fair
September 30, 2021	Value		Yield (%)
March 31, 2022					Basis		Value
Due in one year or less	$	401		0.63	$	389	$	390
Due from one to five years		3,817		4.39		1,759		1,763
Due from five to ten years		28,638		2.63		30,204		29,468
Due over ten years		299,669		2.91		295,903		268,576
Collateralized mortgage obligations and residential mortgage-backed securities		198,485		1.62		178,431		164,123
Total	$	531,010		2.42	$	506,686	$	464,320

The contractual maturities and weighted average yields for the U.S. government securities, agency securities, municipal securities, and trust preferred securities at March 31, 2022, are summarized in the table below. Securities not due at a single maturity date, such as mortgage-backed securities and collateralized mortgage obligations are not included in the following table. The carrying values are stated in thousands (000’s).

The weighted average yields were calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values. Yields presented are not on a tax-equivalent basis.

	Within 1 Year					1 - 5 Years					5 - 10 Years					After 10 Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount
U.S. government sponsored entities:	$	0		0.00	%	$	0		0.00	%	$	8,202		1.00	%	$	0		0.00	%	$	8,202
AFS
U.S. treasury securities:
AFS		199		0.13	%		0		0.00	%		0		0.00	%		0		0.00	%		199
Municipal Securities:
AFS		191		4.84	%		1,763		4.13	%		21,266		3.56	%		267,604		2.87	%		290,824
Trust Preferred Securities:
AFS		0		0.00	%		0		0.00	%		0		0.00	%		972		1.57	%		972
Totals	$	390		2.43	%	$	1,763		4.13	%	$	29,468		2.85	%	$	268,576		2.87	%	$	300,197

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

	(Dollars in thousands)					(Dollars in thousands)
	September 30,			September 30,		March 31,				March 31,
	2021			2020		2022			��	2021

Proceeds	$	9,275		$	4,144	$	16,236			$	6,904
Gross gains		591			197		397				417
Gross losses		(1	)		0		(16	)			0

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

(Dollars in thousands)

September 30,

September 30,

2021

2020

Proceeds
$ 28,565 $ 39,242
Gross gains
1,297 1,433
Gross losses
(21 ) (59 )

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, 2020
$ 10,441
Current period change
(7,833 )
Ending balance, September 30, 2021
$ 2,608

	(Dollars in thousands)
	Unrealized gain/(loss)
Ending balance, December 31, 2021	$	4,276
Current period change		(37,738	)
Ending balance, March 31, 2022	$	(33,462	)

Securities with market values of approximately ~~$43.3~~$34.8 million and ~~$52.4~~$39.5 million were pledged as of ~~September 30, 2021~~March 31, 2022, and December 31, ~~2020,~~2021, respectively, as collateral for repurchase agreements, public funds, and for other purposes as permitted or required by law.

Securities with gross unrealized losses at ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020~~2021, 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					Percentage of
	Estimated					Estimated					Estimated					Estimated					Estimated					Estimated					Total Portfolio
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			in Loss
	Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses			Position
September 30, 2021
March 31, 2022
U.S. government sponsored entities	$	8,753	$	(130	)	$	0	$	0		$	8,753	$	(130	)	$	0	$	0		$	8,202	$	(681	)	$	8,202	$	(681	)		100.0	%
Collateralized mortgage obligations and residential mortgage-backed securities		133,551		(2,693	)		2,740		(130	)		136,291		(2,823	)		99,994		(7,368	)		60,792		(6,985	)		160,786		(14,353	)		98.0	%
Municipal securities		133,340		(2,655	)		0		0			133,340		(2,655	)		232,220		(27,678	)		2,594		(225	)		234,814		(27,903	)		80.7	%
Collateralized debt obligations		0		0			1,011		(1,162	)		1,011		(1,162	)		0		0			972		(1,201	)		972		(1,201	)		100.0	%
Total temporarily impaired	$	275,644	$	(5,478	)	$	3,751	$	(1,292	)	$	279,395	$	(6,770	)	$	332,214	$	(35,046	)	$	72,560	$	(9,092	)	$	404,774	$	(44,138	)		87.2	%
Number of securities				211					3					214					384					33					417

(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

	(Dollars in thousands)
	Less than 12 months					12 months or longer					Total					Percentage of
	Estimated					Estimated					Estimated					Total Portfolio
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			in Loss
	Value		Losses			Value		Losses			Value		Losses			Position
December 31, 2021
U.S. government sponsored entities	$	8,669	$	(214	)	$	0	$	0		$	8,669	$	(214	)		100.0	%
Collateralized mortgage obligations and residential mortgage-backed securities		126,373		(3,175	)		8,109		(364	)		134,482		(3,539	)		72.8	%
Municipal securities		70,309		(527	)		0		0			70,309		(527	)		21.2	%
Collateralized debt obligations		0		0			992		(1,181	)		992		(1,181	)		100.0	%
Total temporarily impaired	$	205,351	$	(3,916	)	$	9,101	$	(1,545	)	$	214,452	$	(5,461	)		40.7	%
Number of securities				133					5					138

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 45 - Loans Receivable

The Bancorp’s current lending programs are described below:

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.

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 15 ~~year mortgage loan program has gained wide acceptance in the 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~~ 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~~ 15 ~~year mortgage loan portfolio to consist, to a significant extent, of~~ ~~second~~ ~~time home buyers whose underwriting qualifications tend to be above average.~~

~~The~~ 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 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 if economic conditions so warrant. Commercial real estate loans include loans secured by 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 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 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.

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.

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 not owner occupied, these types of loans require proof of intent to lease and a confirmed end-loan takeout. In general, loans made do 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.

Commercial ~~Business and Farmland Loans.~~Business. 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.

~~Loans receivable are summarized below:~~

(Dollars in thousands)

September 30, 2021

December 31, 2020

Loans secured by real estate:

Residential real estate
$ 268,798 $ 286,048
Home equity
35,652 39,233
Commercial real estate
309,905 298,257
Construction and land development
110,289 93,562
Multifamily
56,869 50,571
Farmland
205 215
Total loans secured by real estate
781,718 767,886
Commercial business
125,922 158,140
Consumer
650 1,025
Manufactured homes
32,857 24,232
Government
9,841 10,142
Subtotal
950,988 961,425
Less:

Net deferred loan origination fees
5,579 3,871
Undisbursed loan funds
(215 ) (150 )
Loans receivable
$ 956,352 $ 965,146

(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 September 30, 2021:

Allowance for loan losses:

Residential real estate
$ 2,294 $ (28 ) $ 21 $ 188 $ 2,475
Home equity
371 0 0 3 374
Commercial real estate
5,939 0 0 413 6,352
Construction and land development
1,798 0 0 90 1,888
Multifamily
740 0 0 47 787
Farmland
0 0 0 0 0
Commercial business
2,474 0 6 (594 ) 1,886
Consumer
23 (4 ) 1 (8 ) 12
Manufactured homes
0 0 0 0 0
Government
0 0 0 0 0
Total
$ 13,639 $ (32 ) $ 28 $ 139 $ 13,774

Loans receivable are summarized below:

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

(Dollars in thousands)
	March 31, 2022		December 31, 2021
Loans secured by real estate:
Residential real estate	$	444,753	$	260,134
Home equity		34,284		34,612
Commercial real estate		408,375		317,145
Construction and land development		150,810		123,822
Multifamily		234,267		61,194
Total loans secured by real estate		1,272,489		796,907
Commercial business		112,396		115,772
Consumer		924		582
Manufactured homes		38,636		37,887
Government		8,176		8,991
Loans receivable		1,432,621		960,139
Add (less):
Net deferred loan origination costs		6,700		6,810
Undisbursed loan funds		407		(229	)
Loans receivable, net of deferred fees and costs	$	1,439,728	$	966,720

(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 March 31, 2022:													The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended March 31, 2022:

Allowance for loan losses:
Residential real estate	$	1,708	$	0		$	5	$	170		$	1,883		$	2,480	$	-		$	21	$	(8	)	$	2,493
Home equity		231		0			0		(19	)		212			357		-			-		(3	)		354
Commercial real estate		3,712		0			0		675			4,387			5,515		-			-		15			5,530
Construction and land development		1,201		0			0		(29	)		1,172			2,119		-			-		16			2,135
Multifamily		609		0			0		(59	)		550			848		-			-		41			889
Farmland		0		0			0		0			0
Commercial business		2,375		0			0		113			2,488			2,009		-			31		(99	)		1,941
Consumer		30		(9	)		3		(2	)		22			15		(10	)		2		38			45
Manufactured homes		0		0			0		0			0			-		-			-		-			0
Government		0		0			0		0			0			-		-			-		-			0
Total	$	9,866	$	(9	)	$	8	$	849		$	10,714		$	13,343	$	(10	)	$	54	$	-		$	13,387

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

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended March 31, 2021:

Allowance for loan losses:

Residential real estate
$ 2,211 $ (32 ) $ 46 $ 250 $ 2,475
Home equity
276 (1 ) 0 99 374
Commercial real estate
5,406 0 0 946 6,352
Construction and land development
1,405 0 0 483 1,888
Multifamily
626 0 0 161 787
Farmland
0 0 0 0 0
Commercial business
2,508 0 25 (647 ) 1,886
Consumer
26 (21 ) 6 1 12
Manufactured homes
0 0 0 0 0
Government
0 0 0 0 0
Total
$ 12,458 $ (54 ) $ 77 $ 1,293 $ 13,774

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

Allowance for loan losses:
Residential real estate	$	1,812	$	(2	)	$	15	$	58		$	1,883	$	2,211	$	(4	)	$	10	$	(41	)	$	2,176
Home equity		223		0			0		(11	)		212		276		(1	)		-		34			309
Commercial real estate		3,773		(80	)		0		694			4,387		5,406		-			-		320			5,726
Construction and land development		1,098		(17	)		0		91			1,172		1,405		-			-		182			1,587
Multifamily		529		0			0		21			550		626		-			-		54			680
Farmland		0		0			0		0			0
Commercial business		1,504		(78	)		17		1,045			2,488		2,508		-			8		36			2,552
Consumer		43		(22	)		11		(10	)		22		26		(6	)		4		(7	)		17
Manufactured homes		0		0			0		0			0		-		-			-		-			-
Government		17		0			0		(17	)		0		-		-			-		-			-
Total	$	8,999	$	(199	)	$	43	$	1,871		$	10,714	$	12,458	$	(11	)	$	22	$	578		$	13,047

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 ~~expectations,~~expectation, the deferred cost reserve is paid as ~~a premium~~an origination cost to the third party originator of the loan. The unamortized balance of the deferred cost reserve totaled ~~$5.0~~$5.5 million and ~~$3.8~~$5.8 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, and is included in net deferred loan origination ~~costs~~fees and ~~purchase premiums.~~costs.

The Bancorp's impairment analysis is summarized below:

	Ending Balances													Ending Balances

(Dollars in thousands)	Individually evaluated for impairment reserves		Collectively evaluated for impairment reserves		Loan receivables		Individually evaluated for impairment		Purchased credit impaired individually evaluated for impairment		Collectively evaluated for impairment			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 September 30, 2021:
The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at March 31, 2022:													The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at March 31, 2022:

Residential real estate	$	12	$	2,463	$	268,798	$	538	$	1,063	$	267,197		$	17	$	2,476	$	444,753	$	753	$	2,908	$	441,092
Home equity		4		370		35,652		156		141		35,355			4		350		34,284		135		134		34,015
Commercial real estate		1,579		4,773		309,905		7,021		0		302,884			440		5,090		408,375		1,496		2,965		403,914
Construction and land development		0		1,888		110,289		0		0		110,289			-		2,135		150,810		-		804		150,006
Multifamily		0		787		56,869		0		577		56,292			-		889		234,267		-		3,302		230,965
Farmland		0		0		205		0		0		205
Commercial business		309		1,577		125,922		830		1,103		123,989			259		1,682		112,396		501		1,061		110,834
Consumer		0		12		650		0		0		650			-		45		924		-		21		903
Manufactured homes		0		0		32,857		0		0		32,857			-		-		38,636		-		-		38,636
Government		0		0		9,841		0		0		9,841			-		-		8,176		-		-		8,176
Total	$	1,904	$	11,870	$	950,988	$	8,545	$	2,884	$	939,559		$	720	$	12,667	$	1,432,621	$	2,885	$	11,195	$	1,418,541

~~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, 2021:

Residential real estate	$	173	$	2,038	$	286,048	$	868	$	1,297	$	283,883	$	17	$	2,463	$	260,134	$	755	$	1,016	$	258,363
Home equity		1		275		39,233		216		137		38,880		4		353		34,612		147		137		34,328
Commercial real estate		1,089		4,317		298,257		6,190		151		291,916		386		5,129		317,145		1,600		-		315,545
Construction and land development		0		1,405		93,562		0		0		93,562		-		2,119		123,822		0		0		123,822
Multifamily		0		626		50,571		95		621		49,855		0		848		61,194		-		556		60,638
Farmland		0		0		215		0		0		215
Commercial business		512		1,996		158,140		1,086		1,160		155,894		277		1,732		115,772		524		1,073		114,175
Consumer		0		26		1,025		0		0		1,025		0		15		582		-		-		582
Manufactured homes		0		0		24,232		0		0		24,232		-		-		37,887		-		-		37,887
Government		0		0		10,142		0		0		10,142		-		-		8,991		-		-		8,991
Total	$	1,775	$	10,683	$	961,425	$	8,455	$	3,366	$	949,604	$	684	$	12,659	$	960,139	$	3,026	$	2,782	$	954,331

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

The Bancorp's credit quality indicators are summarized below at March 31, 2022 and December 31, 2021:

	Credit Exposure - Credit Risk Portfolio By Creditworthiness Category										Credit Exposure - Credit Risk Portfolio By Creditworthiness Category
	September 30, 2021										March 31, 2022
(Dollars in thousands)		1-5		6		7		8			1-6		7		8

Loan Segment	Pass		Pass/monitor		Special mention		Substandard		Total		Pass		Special mention		Substandard		Total
Residential real estate	$	227,505	$	34,285	$	3,282	$	3,726	$	268,798	$	435,814	$	2,308	$	6,631	$	444,753
Home equity		33,844		728		616		464		35,652		33,234		415		635		34,284
Commercial real estate		230,839		57,388		13,615		8,063		309,905		390,533		11,391		6,451		408,375
Construction and land development		88,574		18,072		3,643		0		110,289		146,407		4,403		0		150,810
Multifamily		50,652		5,570		253		394		56,869		229,705		1,532		3,030		234,267
Farmland		0		205		0		0		205
Commercial business		103,791		20,013		1,407		711		125,922		108,605		3,395		396		112,396
Consumer		650		0		0		0		650		924		0		0		924
Manufactured homes		32,063		734		60		0		32,857		38,577		59		0		38,636
Government		9,841		0		0		0		9,841		8,176		0		0		8,176
Total	$	777,759	$	136,995	$	22,876	$	13,358	$	950,988	$	1,391,975	$	23,503	$	17,143	$	1,432,621

December 31, 2020

(Dollars in thousands)
1-5 6 7 8

Loan Segment

Pass

Pass/monitor

Special mention

Substandard

Total

Residential real estate
$ 234,317 $ 41,805 $ 3,539 $ 6,387 $ 286,048
Home equity
37,044 933 761 495 39,233
Commercial real estate
222,892 55,202 11,983 8,180 298,257
Construction and land development
77,855 12,055 3,652 0 93,562
Multifamily
43,594 5,065 1,408 504 50,571
Farmland
0 215 0 0 215
Commercial business
135,671 20,067 1,341 1,061 158,140
Consumer
1,025 0 0 0 1,025
Manufactured homes
23,501 731 0 0 24,232
Government
10,142 0 0 0 10,142
Total
$ 786,041 $ 136,073 $ 22,684 $ 16,627 $ 961,425

	December 31, 2021
(Dollars in thousands)	1-6		7		8

Loan Segment	Pass		Special mention		Substandard		Total
Residential real estate	$	253,472	$	2,940	$	3,722	$	260,134
Home equity		33,565		415		632		34,612
Commercial real estate		301,572		12,011		3,562		317,145
Construction and land development		120,192		3,630		0		123,822
Multifamily		60,657		153		384		61,194
Commercial business		113,470	��	1,915		387		115,772
Consumer		582		0		0		582
Manufactured homes		37,828		59		0		37,887
Government		8,991		0		0		8,991
Total	$	930,329	$	21,123	$	8,687	$	960,139

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 – Superior Quality

Loans in this category are substantially risk free. Loans fully collateralized by a Bank certificate of deposit or Bank deposits with a hold are substantially risk free.

2 – Excellent Quality

The borrower generates 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 tangible net worth ratios are excellent. Loan to value is substantially below policy and collateral condition is excellent.

3 – Great Quality

The borrower generates more than sufficient cash flow to fund debt service and cash flow is improving. Average credit scores are very strong. Operators are reputable with significant years of experience. Liquidity, net worth, current and debt to tangible net worth ratios are very strong. Loan to value is significantly below policy and collateral condition is significantly above average.

4 – Above Average Quality

The borrower generates more than sufficient cash flow to fund debt service but cash flow trends may be 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 tangible net worth ratios are strong. Loan to value is below policy and collateral condition is above average.

5 – Average Quality

Borrowers are considered creditworthy and can repay the debt in the normal course of business, however, cash flow trends may be 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 declining annually. Average credit scores may be low but remain acceptable. Borrower has limited years of experience. Liquidity, net worth, current and debt to tangible net worth ratios are below average. Loan to value is nearing policy limits and 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 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.

Loans in this category 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. Loan to value may be at policy limits or may exceed policy limits. Collateral condition may be 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.

9– Doubtful

Such loans have been placed on nonaccrual status and may be heavily dependent upon collateral possessing a value that is difficult to determine or based upon some near-term event which lacks clear certainty. These loans have all of the weaknesses of those classified as Substandard; however, based on existing conditions, these weaknesses make full collection of the principal balance highly improbable.

10– Loss

Loans that are considered uncollectible and of such little value that continuing to carry them as assets is not warranted.

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 ~~nine~~three months ending ~~September 30,~~March 31, 2022, 4 residential real estate loans totaling $194 thousand and 1 home equity loan totaling $7 thousand, were modified to include deferral of principal resulting troubled debt restructuring classification. During the three months ending March 31, 2021, 2 residential real estate loans to ~~one~~1 customer totaling ~~$148~~$150 thousand were modified to ~~include~~included deferral of principal ~~and interest~~ resulting in troubled debt restructuring classification. One ~~commercial real estate loan totaling $835 thousand was restructured with a reduced interest rate and extended amortization resulting in troubled debt restructuring classification.~~ ~~One~~ ~~commercial business loan totaling $601 thousand was provided a short-term renewal and a pending long term restructure resulting in troubled debt restructuring classification.~~ ~~One~~ residential real estate trouble debt restructuring loan totaling ~~$37~~$39 thousand had subsequently defaulted during the ~~nine~~three months ending ~~September 30,~~March 31, 2021. ~~During the~~ ~~nine~~ ~~months ending~~ ~~September 30, 2020,~~ ~~1 commercial real estate loan totaling $145 thousand,~~ ~~one~~ ~~residential loan totaling $51 thousand and~~ ~~one~~ home equity loan totaling $23 thousand were renewed as a troubled debt restructuring. One commercial business trouble debt restructuring loan totaling $287 thousand has subsequently defaulted during the periods presented. All of the loans classified as troubled debt restructurings are also considered impaired. The valuation basis for the Bancorp’s troubled debt restructurings is based on the present value of cash flows, unless consistent cash flows are not present, then the fair value of the collateral securing the loan is the basis for valuation.

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

(Dollars in thousands)																						For the three months ended
(unaudited)																As of March 31, 2022						March 31, 2022
							For the nine months ended				For the three months ended					Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	As of September 30, 2021						September 30, 2021				September 30, 2021
(Dollars in thousands)	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	$	1,558	$	2,917	$	-	$	1,691	$	83	$	1,565	$	41		$	3,575	$	5,070	$	-	$	2,629	$	30
Home equity		275		288		-		307		7		273		2			248		263		-		255		7
Commercial real estate		1,185		1,185		-		1,268		39		1,362		13			3,610		3,722		-		2,188		10
Construction and land development		0		0		-		0		0		0		0			804		920		-		460		0
Multifamily		577		665		-		647		20		587		9			3,302		4,241		-		2,036		0
Farmland		0		0		-		0		0		0		0
Commercial business		1,299		1,435		-		1,410		33		1,354		(3	)		1,247		1,363		-		1,226		15
Consumer		0		0		-		0		0		0		0			21		21		-		11		0
Manufactured homes		0		0		-		0		0		0		0			0		0		-		0		0
Government		0		0		-		0		0		0		0			0		0		-		0		0

With an allowance recorded:
Residential real estate	$	43	$	43	$	12	$	159	$	1	$	102	$	(4	)	$	86	$	86	$	17	$	87	$	3
Home equity		22		22		4		17		1		22		1			21		21		4		22		1
Commercial real estate		5,836		5,836		1,579		5,700		145		5,852		32			851		852		440		843		0
Construction and land development		0		0		0		0		0		0		0			0		-		-		0		0
Multifamily		0		0		0		0		0		0		0			0		-		-		0		0
Farmland		0		0		0		0		0		0		0
Commercial business		634		634		309		698		15		659		(7	)		315		377		259		354		16
Consumer		0		0		0		0		0		0		0			0		-		-		0		0
Manufactured homes		0		0		0		0		0		0		0			0		-		-		0		0
Government		0		0		0		0		0		0		0			0		-		-		0		0

Total:
Residential real estate	$	1,601	$	2,960	$	12	$	1,850	$	84	$	1,667	$	37		$	3,661	$	5,156	$	17	$	2,716	$	33
Home equity	$	297	$	310	$	4	$	324	$	8	$	295	$	3		$	269	$	284	$	4	$	277	$	8
Commercial real estate	$	7,021	$	7,021	$	1,579	$	6,968	$	184	$	7,214	$	45		$	4,461	$	4,574	$	440	$	3,031	$	10
Construction & land development	$	0	$	0	$	0	$	0	$	0	$	0	$	0		$	804	$	920	$	-	$	460	$	0
Multifamily	$	577	$	665	$	0	$	647	$	20	$	587	$	9		$	3,302	$	4,241	$	-	$	2,036	$	0
Farmland	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Commercial business	$	1,933	$	2,069	$	309	$	2,108	$	48	$	2,012	$	(10	)	$	1,562	$	1,740	$	259	$	1,580	$	31
Consumer	$	0	$	0	$	0	$	0	$	0	$	0	$	0		$	21	$	21	$	-	$	11	$	0
Manufactured homes	$	0	$	0	$	0	$	0	$	0	$	0	$	0		$	-	$	-	$	-	$	0	$	0
Government	$	0	$	0	$	0	$	0	$	0	$	0	$	0		$	-	$	-	$	-	$	0	$	0

							For the nine months ended				For the three months ended										For the three months ended
	As of December 31, 2020						September 30, 2020				September 30, 2020				As of December 31, 2021						March 31, 2021
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	1,895	$	3,228	$	-	$	2,061	$	81	$	2,000	$	32	$	1,683	$	3,017	$	-	$	1,817	$	22
Home equity		352		363		-		378		13		366		4		262		275		-		341		4
Commercial real estate		1,177		1,761		-		1,338		65		1,155		18		765		765		-		1,174		12
Construction & land development		0		0		-		0		0		0		0		-		-		-		-		-
Multifamily		716		798		-		775		23		758		9		556		647		-		708		5
Farmland		0		0		-		0		0		0		0
Commercial business		1,497		1,514		-		1,614		61		1,578		21		1,205		1,324		-		1,467		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	$	270	$	314	$	173	$	151	$	4	$	234	$	3	$	88	$	88	$	17	$	217	$	5
Home equity		1		9		1		4		0		1		0		22		22		4		12		-
Commercial real estate		5,164		5,164		1,089		1,346		1		2,673		0		835		835		386		5,549		50
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		749		749		512		736		19		855		0		392		392		277		737		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	$	2,165	$	3,542	$	173	$	2,212	$	85	$	2,234	$	35	$	1,771	$	3,105	$	17	$	2,034	$	27
Home equity	$	353	$	372	$	1	$	382	$	13	$	367	$	4	$	284	$	297	$	4	$	353	$	4
Commercial real estate	$	6,341	$	6,925	$	1,089	$	2,684	$	66	$	3,828	$	18	$	1,600	$	1,600	$	386	$	6,723	$	62
Construction & land development	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	-	$	-	$	-	$	-	$	-
Multifamily	$	716	$	798	$	0	$	775	$	23	$	758	$	9	$	556	$	647	$	0	$	708	$	5
Farmland	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Commercial business	$	2,246	$	2,263	$	512	$	2,350	$	80	$	2,433	$	21	$	1,597	$	1,716	$	277	$	2,204	$	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	$	-	$	-	$	-	$	-	$	-

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
March 31, 2022
Residential real estate	$	3,056	$	1,388	$	3,528	$	7,972	$	436,781	$	444,753	$	117
Home equity		37		18		534		589		33,695		34,284		0
Commercial real estate		1,665		805		1,015		3,485		404,890		408,375		163
Construction and land development		2,513		0		0		2,513		148,297		150,810		0
Multifamily		55		18		111		184		234,083		234,267		0
Commercial business		970		0		583		1,553		110,843		112,396		214
Consumer		0		0		0		0		924		924		0
Manufactured homes		316		204		0		520		38,116		38,636		0
Government		0		0		0		0		8,176		8,176		0
Total	$	8,612	$	2,433	$	5,771	$	16,816	$	1,415,805	$	1,432,621	$	494

December 31, 2021
Residential real estate	$	2,507	$	824	$	2,142	$	5,473	$	254,661	$	260,134	$	31
Home equity		169		67		565		801		33,811		34,612		34
Commercial real estate		231		1,960		944		3,135		314,010		317,145		91
Construction and land development		5,148		283		0		5,431		118,391		123,822		0
Multifamily		0		0		109		109		61,085		61,194		0
Commercial business		573		1,594		242		2,409		113,363		115,772		49
Consumer		0		3		0		3		579		582		0
Manufactured homes		633		171		0		804		37,083		37,887		0
Government		0		0		0		0		8,991		8,991		0
Total	$	9,261	$	4,902	$	4,002	$	18,165	$	941,974	$	960,139	$	205

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

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

(Dollars in thousands)

30-59 Days Past Due

60-89 Days Past Due

Greater Than 90 Days Past Due

Total Past Due

Current

Total Loans

Recorded Investments Greater than 90 Days Past Due and Accruing

September 30, 2021

Residential real estate
$ 2,057 $ 242 $ 2,422 $ 4,721 $ 264,077 $ 268,798 $ 186
Home equity
332 203 448 983 34,669 35,652 30
Commercial real estate
1,712 931 1,159 3,802 306,103 309,905 55
Construction and land development
0 0 0 0 110,289 110,289 0
Multifamily
77 273 115 465 56,404 56,869 0
Farmland
0 0 0 0 205 205 0
Commercial business
285 250 2,350 2,885 123,037 125,922 2,245
Consumer
4 0 0 4 646 650 0
Manufactured homes
347 241 0 588 32,269 32,857 0
Government
0 0 0 0 9,841 9,841 0
Total
$ 4,814 $ 2,140 $ 6,494 $ 13,448 $ 937,540 $ 950,988 $ 2,516

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:~~

(Dollars in thousands)
	September 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
Residential real estate	$	3,575	$	6,390	$	5,710	$	4,651
Home equity		448		476		620		623
Commercial real estate		6,263		5,390		1,263		940
Construction and land development		0		0		0		0
Multifamily		394		504		447		455
Farmland		0		0
Commercial business		347		1,039		374		387
Consumer		0		0		0		0
Manufactured homes		0		0		0		0
Government		0		0		0		0
Total	$	11,027	$	13,799	$	8,414	$	7,056

As a result of acquisition activity, the Bancorp acquired loans for which there was evidence of credit quality deterioration since origination and it was determined that it was probable that the Bancorp would be unable to collect all contractually required principal and interest payments. At ~~September 30,~~March 31, 2022, total purchased credit impaired loans with unpaid principal balances totaled $13.2 million with a recorded investment of $11.2 million. At December 31, 2021, total purchased credit impaired loans with unpaid principal balances totaled $4.2 million with a recorded investment of ~~$2.9 million. At~~ ~~December 31, 2020,~~ ~~purchased credit impaired loans with unpaid principal balances totaled $5.4~~$2.8 million ~~with a recorded investment of $3.4 million.~~

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

(dollars in thousands)

Total

2020
$ 78
2021
21

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

(dollars in thousands)

Total

2020
$ 21
2021
0

~~The accretable interest portion of the purchase credit impaired portfolio has fully amortized at~~ ~~September 30, 2021.~~

As part of the fair value of loans receivable, there was a net fair value discount for loans acquired of ~~$1.2~~$6.4 million at ~~September 30, 2021,~~March 31, 2022, compared to ~~$2.0~~$1.1 million at December 31, ~~2020.~~ 2021.~~Total unpaid principal balances of acquired non-impaired loans with remaining fair value discount totaled $78.3 million and $106.6 million as of~~ ~~September 30, 2021,~~ ~~and~~ ~~December 31, 2020,~~ ~~respectively.~~

~~Accretable yield, or income recorded for the~~ ~~nine~~ ~~months ended~~ ~~September 30,~~

Accretable yield, or income recorded for the three months ended March 31, is as follows:

(dollars in thousands)

Total

2020
$ 1,352
2021
793

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

(dollars in thousands)

Total

2020
$ 377
2021
188

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

(dollars in thousands)

Total

2021
$ 196
2022
758
2023
271

Total
$ 1,225

~~Note~~ 5 ~~- Foreclosed Real Estate~~

~~Foreclosed real estate at period-end is summarized below:~~

(Dollars in thousands)

September 30, 2021

December 31, 2020

Residential real estate
$ 81 $ 328
Commercial business
0 210
Total
$ 81 $ 538

(dollars in thousands)	Total
2021	$	305
2022		107

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

(dollars in thousands)	Total
Remainder 2022	$	719
2023		804
2024		623
2025		605
2026 and thereafter		3,671
Total	$	6,422

Note 6 – Intangibles and Acquisition Related Accounting

The Bancorp established a goodwill balance totaling $11.7 million with the acquisition of Royal, and also maintains goodwill balances totaling $11.1 million from ~~past~~prior acquisitions. Goodwill is tested annually for impairment. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. The Bancorp’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of the Bancorp to provide quality, cost effective banking services in a competitive marketplace. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. ~~Additionally, as part of the Bancorp’s annual impairment test of goodwill as of~~ ~~December 31, 2020,~~ ~~the Bancorp enlisted a~~ ~~third~~ party expert to assist with the evaluation of goodwill for impairment. The evaluation involved the 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 impairment testing exceeded its carrying value as of ~~December 31, 2020~~ ~~and therefore, 0 impairment was recognized.~~ There has not been any impairment of goodwill identified or recorded. Goodwill totaled ~~$11.1~~$22.8 million and $11.1 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021, respectively.

In addition to goodwill, a core deposit ~~intangibles were~~intangible was established with the acquisition of Royal and from ~~past acquisitions and are subject to amortization. As of~~ ~~September 30, 2021,~~ ~~the~~previous acquisitons. The Bancorp had core deposit intangible balances of ~~$3.6 million.~~$6.0 million and $3.1 million as of March 31, 2022, and December 31, 2021, respectively. The table below summarizes the annual amortization:

~~Amortization recorded for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2021~~

The amortization recorded for the three months ended March 31, is as follows:

(dollars in thousands)	Total		Total
Current period	$	745
2021			$	248
2022			$	347

~~Amortization recorded for the~~ ~~three~~ ~~months ended~~ ~~September 30, 2021~~

Amortization to be recorded in future periods, is as follows:


(dollars in thousands)	Total		Total
Current period	$	248
Current year				1,205
2023				1,522
2024				1,411
2025				688
5 years and thereafter				1,172
Total			$	5,998

~~Amortization to be recorded in future periods, is as follows:~~

(dollars in thousands)

Total

Remainder 2021
249
2022
983
2023
962
2024
919
2025
261
Total
$ 3,374

For the Royal acquisition, as part of the fair value of certificates of deposit, a fair value premium was established of $1.0 million. Approximately $129 thousand of amortization was taken as income during the three months ended March 31, 2022. It is estimated amortization to be recorded in future periods is as follows, an additional $412 thousand in 2022, $217 thousand in 2023, $124 thousand in 2024, $72 thousand in 2025, and $55 thousand thereafter.

Note 7 - 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 8 - Earnings per Share

Earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding. A reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations for the three ~~and~~ ~~nine~~months ended ~~September 30, 2021,~~March 31, 2022, and ~~2020,~~2021 are as follows:

	Three Months Ended				Nine Months Ended
(Dollars in thousands, except per share data)	September 30,				September 30,
(dollars in thousands except per share data)									Period ended March 31,
	2021		2020		2021		2020		2022		2021
Basic earnings per common share:
Net income as reported	$	3,538	$	4,687	$	11,652	$	12,651	$	2,135	$	4,543
Weighted average common shares outstanding		3,479,139		3,463,136		3,476,406		3,461,598		4,020,815		3,471,604
Basic earnings per common share	$	1.02	$	1.35	$	3.35	$	3.65	$	0.53	$	1.31

Diluted earnings per common share:						-
Net income as reported	$	3,538	$	4,687	$	11,652	$	12,651	$	2,135	$	4,543
Weighted average common shares outstanding		3,479,139		3,463,136		3,476,406		3,461,598		4,020,815		3,471,604
Weighted average common and dilutive potential common shares outstanding		3,479,139		3,463,136		3,476,406		3,461,598		4,020,815		3,471,604
Diluted earnings per common share	$	1.02	$	1.35	$	3.35	$	3.65	$	0.53	$	1.31

Note 9 - 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 ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, stock based compensation expense of ~~$428~~$169 thousand was recorded, compared to ~~$309~~$146 thousand for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. It is anticipated that current outstanding unvested awards will result in additional compensation expense of approximately ~~$950 thousand~~$1.6 million through ~~2024~~2025 with an ~~additional $142 thousand in~~ ~~2021,~~ ~~$464 thousand in~~ ~~2022,~~ ~~$291 thousand in~~ ~~2023,~~ ~~and $53 thousand in~~ ~~2024.~~weighted average life of 1.9 years.

There were ~~19,693~~18,891 shares of restricted stock granted during the first ~~nine~~three months of ~~2021~~2022 compared to ~~13,243~~17,716 shares granted during the first ~~nine~~three months of ~~2020.~~2021. 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, 2020,~~ ~~and~~ ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, follows:

Non-vested Shares	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Non-vested at January 1, 2020		30,205		$	35.63
Non-vested at January 1, 2022							44,235		$	42.33
Granted		13,243			44.30		18,891			47.96
Vested		(6,400	)		27.50		(10,863	)		41.56
Forfeited		(220	)		43.65		(513	)		44.17
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 September 30, 2021		42,673		$	42.16
Non-vested at March 31, 2022							51,750		$	44.53

Note 10 – 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 was effective for the 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.~~

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 December 2019, the FASB issued ASU 2019-12 which remove specific exceptions to the 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 subject to tax; and enacts changes in tax laws in interim periods. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Bancorp adopted ASU 2019-12 on January 1, 2021 and it did not have a material impact on its accounting and disclosures.

Note 11 - 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 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~~as of ~~December 31,~~January 1, 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 and finalizing a method or methods of adoption in time for the effective date.

2321

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.

In October 2021, the FASB issued ASU 2021-08 related to accounting for acquired revenue contracts with customers in a business combination. The amendments in this update address diversity in practice and inconsistency related to recognition of an acquired contract liability and the effect of payment terms on subsequent revenue recognition for the acquirer. This update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We plan to adopt this pronouncement for our fiscal year beginning January 1, 2023, and we do not expect it to have a material effect on our consolidated financial statements.

In March 2022, the FASB issued ASU 2022-01 related to the portfolio layer method of hedge accounting. The amendments in this update clarify the accounting and promote consistency in reporting for hedges where the portfolio layer method is applied. This update is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. As we currently do not have items accounted for under the portfolio layer method of hedge accounting, we do not expect the update to have an effect on our consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which addresses and amends areas identified by the FASB as part of its post-implementation review of the accounting standard that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by companies that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross writeoffs for financing receivables and net investment in leases by year of origination in the vintage disclosures. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for entities that have adopted the CECL accounting standard. Early adoption, however, is permitted if an entity has adopted the CECL accounting standard. The Bancorp is assessing ASU 2022-02 and its impact on its accounting and disclosures.

Note 12 – 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:

September 30, 2021
(Unaudited)	Notational or		Asset derivatives			Liability derivatives
March 31, 2022										March 31, 2022
	contractual		Statement of Financial Condition			Statement of Financial Condition							Asset derivatives			Liability derivatives
(Dollars in thousands)	amount		classification	Fair value		classification		Fair value			Notational or contractual amount		Statement of Financial Condition classification	Fair value		Statement of Financial Condition classification		Fair value
Interest rate swap contracts	$	98,855	Other assets	$	2,945	Other liabilties		$	2,945		$	93,890	Other assets	$	4,990	Other liabilties		$	4,990
Interest rate lock commitments		12,342	Other assets		222		N/A		0			8,738	Other assets		166		N/A		0
Total	$	111,197		$	3,167			$	2,945		$	102,628		$	5,156			$	4,990

December 31, 2020
	Notational or		Asset derivatives			Liability derivatives
December 31, 2021										December 31, 2021
	contractual		Statement of Financial Condition			Statement of Financial Condition							Asset derivatives			Liability derivatives
(Dollars in thousands)	amount		classification	Fair value		classification		Fair value			Notational or contractual 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		$	94,154	Other assets	$	2,686	Other liabilties		$	2,686
Interest rate lock commitments		26,443	Other assets		374		N/A		0			7,837	Other assets		141		N/A		-
Total	$	99,150		$	4,012			$	3,638		$	101,991		$	2,827			$	2,686

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

		Nine Months Ended					Three Months Ended						Three Months Ended
(Unaudited)		September 30,					September 30,
													March 31,
(Dollars in thousands)	Statement of Income Classification	2021			2020		2021			2020		Statement of Income Classification	2022		2021
Interest rate swap contracts	Fees and service charges	$	379		$	512	$	161		$	281	Fees and service charges	$	-	$	(13	)
Interest rate lock commitments	Gain on sale of loans held-for-sale, net		(152	)		309		(24	)		11	Gain on sale of loans held-for-sale, net		25		23
Total		$	227		$	821	$	137		$	292	Total	$	25	$	10

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

							Gross Amounts not Offset in the Statement of Financial Condition						Gross Amounts of		Gross Amounts Offset in the Statement of		Net Amounts of Assets Presented in the Statement		Gross Amounts not Offset in the Statement of Financial Condition
(Unaudited) (Dollars in thousands)	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Assets Presented in the Statement of Financial Condition		Financial Instruments		Cash Collateral Received		Net Amount
September 30, 2021
(Dollars in thousands)													Recognized Assets		Financial Condition		of Financial Condition		Financial Instruments		Cash Collateral Received		Net Amount
March 31, 2022
Interest rate swap contracts	$	2,945	$	0	$	2,945	$	0	$	0	$	2,945	$	4,990	$	0	$	4,990	$	0	$	0	$	4,990
Interest rate lock commitments		222		0		222		0		0		222		166		0		166		0		0		166
Total	$	3,167	$	0	$	3,167	$	0	$	0	$	3,167	$	5,156	$	0	$	5,156	$	0	$	0	$	5,156

							Gross Amounts not Offset in the Statement of Financial Condition						Gross Amounts of		Gross Amounts Offset in the Statement of		Net Amounts of Liabilities Presented in the Statement		Gross Amounts not Offset in the Statement of Financial Condition
(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		Recognized Liabilities		Financial Condition		of Financial Condition		Financial Instruments		Cash Collateral Received		Net Amount
December 31, 2020
December 31, 2021
Interest rate swap contracts	$	3,638	$	0	$	3,638	$	0	$	0	$	3,638	$	2,686	$	-	$	2,686	$	-	$	-	$	2,686
Interest rate lock commitments		374		0		374		0		0		374		141		-		141		-		-		141
Total	$	4,012	$	0	$	4,012	$	0	$	0	$	4,012	$	2,827	$	-	$	2,827	$	-	$	-	$	2,827

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

							Gross Amounts not Offset in the Statement of Financial Condition							Gross Amounts of		Gross Amounts Offset in the Statement of		Net Amounts of Liabilities Presented in the Statement of		Gross Amounts not Offset in the Statement of Financial Condition
(Unaudited) (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
September 30, 2021
(Dollars in thousands)														Recognized Liabilities		Financial Condition		Financial Condition		Financial Instruments		Cash Collateral Pledged		Net Amount
March 31, 2022
Interest rate swap contracts	$	2,945	$	0	$	2,945	$	0	$	3,930	$	(985	)	$	4,990	$	0	$	4,990	$	0	$	3,930	$	1,060
Total	$	2,945	$	0	$	2,945	$	0	$	3,930	$	(985	)	$	4,990	$	0	$	4,990	$	0	$	3,930	$	1,060

							Gross Amounts not Offset in the Statement of Financial Condition							Gross Amounts of		Gross Amounts Offset in the Statement of		Net Amounts of Liabilities Presented in the Statement of		Gross Amounts not Offset in the Statement of Financial Condition
(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			Recognized Liabilities		Financial Condition		Financial Condition		Financial Instruments		Cash Collateral Pledged		Net Amount
December 31, 2020
December 31, 2021
Interest rate swap contracts	$	3,638	$	0	$	3,638	$	0	$	3,930	$	(292	)	$	2,686	$	-	$	2,686	$	-	$	3,930	$	(1,244	)
Total	$	3,638	$	0	$	3,638	$	0	$	3,930	$	(292	)	$	2,686	$	-	$	2,686	$	-	$	3,930	$	(1,244	)

Note 13 - Fair Value

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

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

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

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

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

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

The Bancorp’s management utilizes a specialist to perform an other-than-temporary impairment analysis for each of its pooled trust preferred securities. The analysis is performed annually during December and utilizes analytical models used to project future cash flows for the pooled trust preferred securities based on current assumptions for prepayments, default and deferral rates, and recoveries. The projected cash flows are then tested for impairment consistent with GAAP. The other-than-temporary impairment testing compares the present value of the cash flows from quarter to quarter to determine if there is a “favorable” or “adverse” change. Other-than-temporary impairment is recorded if the projected present value of cash flows is lower than the book value of the security. To perform the annual other-than-temporary impairment analysis, management utilizes current reports issued by the trustee, which contain principal and interest tests, waterfall distributions, note valuations, collection detail and credit ratings for each pooled trust preferred security. In addition, a detailed review of the performing collateral was performed. Based on current market conditions and a review of the trustee reports, management performed an analysis of the pooled trust preferred securities and 0 additional impairment was taken at December 31, ~~2020.~~2021. A specialist will be used to review all pooled trust preferred securities again at December 31, ~~2021.~~2022.

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)

Collateralized

debt obligations

other-than-temporary

(Dollars in thousands)

impairment

Ending balance, December 31, 2020
$ 173
Additions not previously recognized
0
Ending balance, September 30, 2021
$ 173

	(Dollars in thousands)
	Collateralized debt obligations
	other-than-temporary impairment
Ending balance, December 31, 2021	$	173
Additions not previously recognized		0
Ending balance,March 31, 2022	$	173

At ~~September 30, 2021,~~March 31, 2022, 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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

There were no transfers to or from Levels 1 and 2 during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. Assets measured at fair value on a recurring basis are summarized below:

											(Dollars in thousands)
			Fair Value Measurements at September 30, 2021 Using								Fair Value Measurements at March 31, 2022 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)
Assets:
Interest rate swap contracts									$	4,990	$	0	$	4,990	$	0
Interest rate lock commitments										166		0		166		0
Available-for-sale debt securities:
U.S. government sponsored entities		10,761		0		10,761		0		8,202		0		8,202		0
U.S. treasury securities		401		0		401		0		199		0		199		0
Collateralized mortgage obligations and residential mortgage-backed securities		198,485		0		198,485		0		164,123		0		164,123		0
Municipal securities		320,352		0		320,352		0		290,824		0		290,824		0
Collateralized debt obligations		1,011		0		0		1,011		972		0		0		972
Total securities available-for-sale	$	531,010	$	0	$	529,999	$	1,011	$	464,320	$	0	$	463,348	$	972

Liabilities:
Interest rate swap contracts									$	4,990	$	0	$	4,990	$	0

											(Dollars in thousands)
			Fair Value Measurements at December 31, 2020 Using								Fair Value Measurements at December 31, 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)
Assets:
Interest rate swap contracts									$	2,686	$	0	$	2,686	$	0
Interest rate lock commitments										141		0		141		0
Available-for-sale debt securities:
Money market fund	$	52,941	$	52,941	$	0	$	0
U.S. government sponsored entities		7,860		0		7,860		0		8,669		0		8,669		0
Collateralized mortgage obligations and residential mortgage-backed securities....		154,736		0		154,736		0
U.S. treasury securities										400		0		400		0
Collateralized mortgage obligations and residential mortgage-backed securities										184,701		0		184,701		0
Municipal securities		194,203		0		194,203		0		332,127		0		332,127		0
Collateralized debt obligations		929		0		0		929		992		0		0		992
Total securities available-for-sale	$	410,669	$	52,941	$	356,799	$	929	$	526,889	$	0	$	525,897	$	992

Liabilities:
Interest rate swap contracts									$	2,686	$	0	$	2,686	$	0

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

(Dollars in thousands)

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

Available-for-
sale securities

Beginning balance, January 1, 2020
$ 1,076
Principal payments
(20 )
Total unrealized losses, included in other comprehensive income..
(127 )
Ending balance, December 31, 2020
$ 929

Beginning balance, January 1, 2021
$ 929
Principal payments
(9 )
Total unrealized gains, included in other comprehensive income....
91
Ending balance, September 30, 2021
$ 1,011

	(Dollars in thousands)
	Estimated Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Available-for- sale securities
Beginning balance, January 1, 2021	$	929
Principal payments		(5	)
Total unrealized losses, included in other comprehensive income		20
Ending balance, March 31, 2021	$	944

Beginning balance, January 1, 2022	$	992
Principal payments		0
Total unrealized gains, included in other comprehensive income		(20	)
Ending balance, March 31, 2022	$	972

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

			(Dollars in thousands)								(Dollars in thousands)
			Fair Value Measurements at September 30, 2021 Using								Fair Value Measurements at March 31, 2022 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	$	9,525	$	0	$	0	$	9,525	$	151	$	0	$	0	$	151
Foreclosed real estate		81		0		0		81

			(Dollars in thousands)								(Dollars in thousands)
			Fair Value Measurements at December 31, 2020 Using								Fair Value Measurements at December 31, 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	$	10,046	$	0	$	0	$	10,046	$	896	$	0	$	0	$	896
Foreclosed real estate		538		0		0		538

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 $11.4 million and the related specific reserves totaled approximately $1.9 million, resulting in a fair value of impaired loans totaling approximately $9.5 million, at ~~September 30, 2021.~~ The recorded investment of impaired loans was approximately $11.8 million and the related specific reserves totaled approximately $1.8 million, resulting in a fair value of impaired loans totaling approximately $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.

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

	September 30, 2021				Estimated Fair Value Measurements at September 31, 2021 Using						March 31, 2022				Estimated Fair Value Measurements at March 31, 2022 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	$	31,765	$	31,765	$	31,765	$	0	$	0	$	54,501	$	54,501	$	54,501	$	0	$	0
Certificates of deposit in other financial institutions		977		962		0		962		0		1,731		1,650		0		1,650		0
Securities available-for-sale		531,010		531,010		0		529,999		1,011
Loans held-for-sale		3,868		3,968		3,968		0		0		1,420		1,445		0		1,445		0
Loans receivable, net		942,578		943,571		0		0		943,571		1,426,341		1,382,030		0		0		1,382,030
Federal Home Loan Bank stock		3,247		3,247		0		3,247		0		3,038		3,038		0		3,038		0
Interest rate swap agreements		2,945		2,945		0		2,945		0
Accrued interest receivable		5,259		5,259		0		5,259		0		7,427		7,427		0		7,427		0

Financial liabilities:
Non-interest bearing deposits		287,376		287,376		287,376		0		0		380,515		380,515		380,515		0		0
Interest bearing deposits		1,118,824		1,119,137		854,927		264,210		0		1,514,696		1,513,699		1,084,309		429,390		0
Repurchase agreements		23,844		23,853		22,106		1,747		0		23,239		23,150		12,939		10,211		0
Interest rate swap agreements		2,945		2,945		0		2,945		0
Borrowed funds												5		5		5		0		0
Accrued interest payable		36		36		0		36		0		42		42		0		42		0

	December 31, 2020				Estimated Fair Value Measurements at December 31, 2020 Using						December 31, 2021				Estimated Fair Value Measurements at December 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	$	19,922	$	19,922	$	19,922	$	0	$	0	$	33,176	$	33,176	$	33,176	$	0	$	0
Certificates of deposit in other financial institutions		1,897		1,868		0		1,868		0		1,709		1,737		0		1,737		0
Securities available-for-sale		410,669		410,669		52,941		356,799		929
Loans held-for-sale		11,329		11,660		11,660		0		0		4,987		5,065		0		5,065		0
Loans receivable, net		952,688		982,793		0		0		982,793		953,377		951,744		0		0		951,744
Federal Home Loan Bank stock		3,918		3,918		0		3,918		0		3,247		3,247		0		3,247		0
Interest rate swap agreements		3,638		3,638		0		3,638		0
Accrued interest receivable		4,713		4,713		0		4,713		0		5,444		5,444		0		5,444		0

Financial liabilities:
Non-interest bearing deposits		241,620		241,620		241,620		0		0		295,294		295,294		295,294		0		0
Interest bearing deposits		1,060,719		1,061,294		775,891		285,403		0		1,138,907		1,139,126		899,690		239,436		0
Repurchase agreements		13,711		13,713		11,976		1,737		0		14,581		14,579		12,842		1,737		0
Borrowed funds		6,149		6,018		0		6,018		0		0		0		0		0		0
Interest rate swap agreements		3,638		3,638		0		3,638		0
Accrued interest payable		54		54		0		54		0		22		22		0		22		0

The following methods were used to estimate the fair value of financial instruments presented in the preceding table for the periods ended ~~September 30, 2021~~March 31, 2022, and December 31, ~~2020:~~2021:

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.

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 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.

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. 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.~~

~~Robert W. Youman, a current director of 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

Finward Bancorp (the “Bancorp” ~~or “Finward”~~) is a financial holding company registered with the Board of Governors of the Federal Reserve System. Peoples Bank ~~(“the Bank”~~(the “Bank”), an Indiana commercial bank, and NWIN Risk Management, Inc., a captive insurance company, are wholly-owned subsidiaries of the Bancorp. The Bancorp has no other business activity other than being a holding company for the Bank and NWIN Risk Management, Inc. The following management’s discussion and analysis presents information concerning our financial condition as of ~~September 30, 2021,~~March 31, 2022, as compared to December 31, ~~2020,~~2021, and the results of operations for the ~~quarter and nine~~three months ending ~~September 30, 2021,~~March 31, 2022, and ~~September 30, 2020.~~March 31, 2021. 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, ~~2020.~~2021.

At ~~September 30, 2021,~~March 31, 2022, the Bancorp had total assets of ~~$1.6~~$2.1 billion, total loans receivable, net of ~~$956.4 million~~deferred fees and costs of $1.4 billion and total deposits of ~~$1.4~~$1.9 billion. Stockholders' equity totaled ~~$152.6~~$157.6 million or ~~9.5%~~7.51% of total assets, with a book value per share of ~~$43.85.~~$36.71. Net income for the ~~quarter~~three months ended ~~September 30, 2021,~~March 31, 2022, was ~~$3.5~~$2.1 million, or ~~$1.02~~$0.53 earnings per common share for both basic and diluted calculations. For the ~~quarter~~three months ended ~~September 30, 2021,~~March 31, 2022, the return on average assets (ROA) was ~~0.87%~~0.44%, while the return on average stockholders’ equity (ROE) was 8.90%. Net income for the nine months ended September 30, 2021, was $11.7 million, or $3.35 earnings per common share for both basic and diluted calculations. For the nine months ended September 30, 2021, the ROA was 0.89%, while the ROE was 9.96%5.01%.

~~Revision of Previously Issued Financial Statements~~Recent Developments

~~This information should be read in conjunction with the condensed consolidated financial statements and the notes thereto included in “Part I, Item 1”~~Acquisition 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 entered into~~January 31, 2022, the Bancorp completed its acquisition of Royal Financial, Inc. (“RYFL”) pursuant to an Agreement and Plan of Merger dated July 28, 2021 (the “Merger Agreement”) ~~with Royal Financial, Inc., a Delaware corporation (“RYFL”).~~between the Bancorp and RYFL. Pursuant to the terms of the Merger Agreement, RYFL ~~will merge~~merged with and into ~~Finward,~~the Bancorp, with ~~Finward~~the Bancorp as the surviving corporation (the ~~“Merger”~~“RYFL Merger”). ~~At a time to be determined at or following~~Simultaneous with the RYFL Merger, Royal Savings Bank, an Illinois ~~state chartered~~state-chartered savings bank and wholly-owned subsidiary of RYFL, ~~(“Royal Bank”), will merge~~merged with and into ~~Peoples~~the Bank, ~~the wholly-owned Indiana state chartered commercial bank subsidiary of Finward,~~ with ~~Peoples~~the Bank as the surviving ~~bank.~~institution.

~~Subject to~~Under the ~~approval~~terms of the Merger ~~by Finward’s and RYFL’s respective~~Agreement, RYFL stockholders ~~regulatory approvals, and other customary closing conditions, the parties anticipate completing the Merger during the first quarter~~who owned 101 or more shares of ~~2022.~~

~~Upon completion of the Merger, each~~ RYFL ~~stockholder will have the right~~common stock were permitted to elect to receive ~~at the stockholder’s election,~~either 0.4609 shares of Finward common stock or $20.14 in cash, or a combination of both, for each share of ~~RYFL’s~~RYFL common stock owned, subject to proration and allocation provisions ~~and adjustment, as described below. Stockholders holding less than 101~~such that 65% of the 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~~outstanding immediately prior to the ~~merger consideration. The Merger Agreement provides that, in the aggregate, 65%~~closing of the ~~outstanding shares of RYFL common stock will be~~merger were converted into the right to receive shares of Finward common stock and the remaining 35% of the outstanding RYFL shares ~~of RYFL common stock will be~~were converted into the right to receive cash. ~~All outstanding options to purchase~~Stockholders holding less than 101 shares of RYFL common stock ~~whether or not vested, will be converted into the right to receive at the effective time~~received fixed consideration of ~~the Merger, an amount of~~$20.14 in cash ~~equal to $20.14 minus the per share exercise price~~and no stock consideration for each share of RYFL common stock.

As a result of RYFL stockholder stock ~~subject to an option, less applicable tax withholdings. In addition, at~~and cash elections and the ~~effective time~~related allocation and proration provisions of the Merger ~~each award~~Agreement, Finward issued 795,423 shares of its common stock and paid cash consideration of approximately $18.7 million in the RYFL ~~restricted stock, whether or not vested, that is outstanding immediately prior to~~Merger. Based on the ~~effective time will fully vest and be cancelled and converted into the right to receive the merger consideration, less applicable tax withholdings.~~

~~Robert W. Youman, a current director~~January 28, 2022 closing price of ~~RYFL, will be appointed to the boards of directors~~$47.75 per share of Finward common stock, the transaction had an implied valuation of approximately $56.7 million. The acquisition further expanded the Bank’s banking center network in Cook County and ~~Peoples Bank effective as of~~DuPage County, Illinois, expanding the ~~closing of the Merger.~~

~~COVID-19~~

We continue to monitor the impact COVID-19 is having on the markets in which we operate in and the uncertainty of the long-term ramifications to our customers and operations. Within our markets, vaccinations have become readily available, infection positivity rates are at moderate levels, and the restrictions on businesses have generally been fully lifted. However, the lasting effects of government aid programs are uncertain as stimulus packages taper, and the ultimate long-term impact of the business shutdowns that occurred as a result of COVID-19 remains uncertain in many sectors of the economy. In the third quarter of 2021, COVID-19 positivity rates and hospitalizations in our markets rose due to the impact of the Delta variant, but have now been falling for the last several weeks.

The Federal Reserve, in response to the economic risks resulting from the COVID-19 pandemic, returned to a zero-interest rate policy in March 2020. This was after most broader market rates decreased significantly in response to evolving news about the COVID-19 pandemic. Many areas of consumer and business spending have rebounded in recent months, but there remains uncertainty about the longer lasting impact on local businesses as well as the travel, hospitality and entertainment industries resulting from the COVID-19 pandemic. This could cause a longer recovery time for all sectors of the economy and could make it challenging for sectors that have had better recoveries to maintain those recoveries in the long run. Inflation and supply shortages also pose risks to the economic recovery.

While positive economic indicators exist, we recognize that some of our commercial and individual customers are continuing to experience varying degrees of financial distress, which we expect to continue, though to a lesser degree, through the end of 2021 and into early 2022. Commercial activity has improved, but has not returned to the levels existing prior to the outbreak of the COVID-19 pandemic, which may result in some customers’ inability to meet their loan obligations to us or seek deferrals on their obligations. In addition, the economic pressures and uncertainties related to the COVID-19 pandemic have seemingly resulted in changes in consumer spending behaviors, which may negatively impact the demand for loans and other services we offer. Our borrowing base includes customers in industries such as hotel/lodging, restaurants,Bank’s full-service retail and commercial real estate, which have been significantly impacted by the COVID-19 pandemic. We recognize that these industries may take longer to recover as consumers may be hesitant to return to full social interaction or may change their spending habits on a more permanent basis as a result of the COVID-19 pandemic. We continue to monitor these customers closely.

~~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”), a program initiated to help small businesses maintain their workforces during the pandemic. As of September 30, 2021, the Bancorp approved 782 applications totaling $91.5 million for the first round, with an average loan size of approximately $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 September 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 4,410 employees based on the borrowers’ applications. The Bancorp’s SBA lender fee is averaging approximately 5.32% for this program, and fees will be earned over the life of the associated loans. As of September 30, 2021, the Bancorp had remaining loan balances under the Paycheck Protection Program totaling $32.9 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 deferring or modifying a loan customer’s repayment obligation if the customer’s cash flow has been negatively impacted by the pandemic. Outstanding borrower deferrals and modifications continue to decline. Loans modified to interest only payment or full payment deferral as part of the effects of COVID-19 as of September 30, 2021 and June 30, 2021, are as follows:

(Dollars in thousands)

(Unaudited)

As of September 30, 2021

Mortgage loans

Commercial Loans

Number of Loans

Recorded Investment

Number of Loans

Recorded Investment

Interest only
11 $ 1,485 - $ -
Total $
11 $ 1,485 - $ -
31

(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
●
As the Bancorp continues to monitor the borrowers that are in and outside of deferral status, some loan relationships may be deemed non-performing. As of September 30, 2021, a single large commercial real estate loan relationship, which operates a hotel, with a carrying balance of $5.0 million, continued to be 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 loan relationship, a specific reserve within the allowance for loan losses was allocated as of September 30, 2021. As of September 30, 2021, the customer is currently in compliance with all modified loan terms. No other material COVID-19 impacted loans that are in deferral status have been deemed non-performing at this time. As of September 30, 2021, a total of 236 loans have come out of COVID-19 related deferral status with carrying balances of $85.9 million. All of these loans continue to be performing, except one commercial real estate loan with a carrying balance of $835 thousand and several residential real estate loans with total carrying balances of $964 thousand.
~~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 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 September 30, 2021, the Bancorp had 2 loans eligible for the program, with an aggregate principal amount of $106 thousand. 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.banking network.

Financial Condition
During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, total assets increased by ~~$113.6~~$477.1 million ~~(7.6%~~(29.4%), with interest-earning assets increasing by ~~$110.6~~$419.5 million ~~(7.9%~~(27.5%). ~~At September 30, 2021, interest-earning~~Interest-earning assets totaled ~~$1.5~~$1.9 billion ~~compared to $1.4~~at March 31, 2022, and $1.5 billion at December 31, ~~2020.~~2021. Earning assets represented ~~93.7%~~92.6% of total assets at ~~September 30, 2021~~March 31, 2022, and ~~93.5%~~94.0% of total assets at December 31, ~~2020.~~2021. The increase in total assets and interest earning assets for the ~~nine~~three months was primarily the result of ~~increased cash balances related to strong core deposit growth.~~the acquisition of Royal.

~~Loans~~Net loans receivable totaled ~~$956.4 million~~$1.4 billion at ~~September 30, 2021,~~March 31, 2022, compared to ~~$965.1~~$966.7 million at December 31, ~~2020.~~2021. 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 connection with the 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.

3228

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

September 30,

(unaudited)

2021

December 31,

March 31,

December 31,

(Dollars in thousands)

(unaudited)

2020

2022

2021

Balance

% Loans

Balance

% Loans

Balance

% Loans

Balance

% Loans

Residential real estate
$ 268,798 28.3 % $ 286,048 29.8 % $ 444,753 31.0 % 260,134 33.0 %
Home equity
35,652 3.7 % 39,233 4.1 % 34,284 2.4 % 34,612 5.4 %
Commercial real estate
309,905 32.6 % 298,257 31.0 % 408,375 28.5 % 317,145 31.2 %
Construction and land development
110,289 11.6 % 93,562 9.7 % 150,810 10.5 % 123,822 9.7 %
Multifamily
56,869 6.0 % 50,571 5.3 % 234,267 16.4 % 61,194 5.7 %
Farmland
205 0.0 % 215 0.0 %
Consumer
924 0.1 % 582 0.1 %
Manufactured Homes
38,636 2.7 % 37,887 1.8 %
Commercial business
125,922 13.2 % 158,140 16.4 % 112,396 7.8 % 115,772 11.4 %
Consumer
650 0.1 % 1,025 0.1 %
Manufactured homes
32,857 3.5 % 24,232 2.5 %
Government
9,841 1.0 % 10,142 1.1 % 8,176 0.6 % 8,991 1.7 %
Loans receivable
$ 950,988 100.0 % $ 961,425 100.0 % 1,432,621 100.0 % 960,139 100.0 %
Plus

Net deferred loans origination costs
6,700 6,810
Undisbursed loan funds 407 (229 )
Loans receivable, net of deferred fees and costs
$ 1,439,728 $ 966,720

Adjustable rate loans / loans receivable
$ 534,482 56.2 % $ 491,860 51.2 % $ 654,902 45.7 % $ 542,975 56.6 %

September 30,

(unaudited)

2021

December 31,

March 31,

December 31,

(unaudited)

2020

2022

2021

Loans receivable to total assets
59.4 % 64.5 % 68.6 % 59.6 %
Loans receivable to earning assets
63.4 % 69.0 % 74.1 % 63.4 %
Loans receivable to total deposits
67.6 % 73.8 % 76.0 % 67.4 %
The following table sets forth certain information at March 31, 2022, regarding the dollar amount of loans in the Bancorp’s portfolio based on their contractual terms to maturity. Demand loans, loans having no schedule of repayment and no stated maturity, and overdrafts are reported as due in one year or less. Contractual principal repayments of loans do not necessarily reflect the actual term of the loan portfolio. The average life of mortgage loans is substantially less than their contractual terms because of loan prepayments and because of enforcement of due-on-sale clauses, which give the Bancorp the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells the property subject to the mortgage. The amounts are stated in thousands (000’s).

Maturing

After one

After five

within

but within

but within

After

one year

five years

fifteen years

fifteen years

Total

Residential real estate
$ 9,363 $ 34,561 $ 107,164 $ 293,665 444,753
Home equity
3,767 21,328 8,826 363 34,284
Commercial real estate
22,631 111,991 270,678 3,075 408,375
Construction and land development
29,207 41,187 63,310 17,106 150,810
Multifamily
16,915 104,713 110,556 2,083 234,267
Farmland
- - - - -
Consumer
35 861 28 - 924
Manufactured Homes
- 59 10,760 27,817 38,636
Commercial business
44,914 51,377 15,585 520 112,396
Government
195 3,211 4,770 - 8,176
Total loans receivable
$ 127,027 $ 369,288 $ 591,677 $ 344,629 $ 1,432,621

The Bancorp is primarily a portfolio lender. Mortgage banking activities historically have been limited to the sale of fixed rate mortgage loans with contractual maturities greater than 15 years. These loans are identified as held for sale when originated and sold, on a loan-by-loan basis, in the secondary market. The Bancorp will also retain fixed rate mortgage loans with a contractual maturity greater than 15 years on a limited basis. During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, the Bancorp originated ~~$120.1~~$15.7 million in new fixed rate mortgage loans for sale, compared to ~~$171.2~~$49.1 million during the ~~nine~~three months ended ~~September 30, 2020. The decrease in originations of these fixed rate mortgage loans is due to significant refinance activity in the prior year due to the low interest rate environment.~~March 31, 2021. Net gains realized from the mortgage loan sales totaled ~~$4.4~~$607 thousand for the three months ended March 31, 2022, compared to $2.0 million for the ~~nine~~three months ended ~~September 30, 2021, compared to $6.0 million for the nine months ended September 30, 2020.~~March 31, 2021. At ~~September 30, 2021,~~March 31, 2022, the Bancorp had ~~$3.9~~$1.4 million in loans that were classified as held for sale, compared to ~~$11.3~~$5.0 million at December 31, ~~2020.~~2021.

Non-performing loans include those loans that are 90 days or more past due and those loans that have been placed on non-accrual status. At ~~September 30, 2021,~~March 31, 2022, all non-performing loans are also accounted for on a non-accrual basis, except for two commercial business loans totaling $213 thousand, two commercial real estate loans totaling $163 thousand, and two residential real estate loans totaling $117 thousand that remained accruing and more than 90 days past due include six commercial business loans totaling $2.2 million, two residential real estate loans totaling $186 thousand, one commercial real estate loan totaling $55 thousand, and one home equity loan totaling $30 thousand.due. The Bancorp ~~will~~ at times ~~leave notes~~will continue to classify loans as 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.~~collected.
~~The Bancorp's nonperforming loans are summarized below:~~
(Dollars in thousands)

Loan Segment

September 30,
2021

December 31,
2020

Residential real estate
$ 3,761 $ 6,470
Home equity
478 505
Commercial real estate
6,318 5,827
Construction and land development
- 20
Multifamily
394 504
Farmland
- -
Commercial business
2,592 1,039
Consumer
- -
Manufactured homes
- -
Government
- -
Total
$ 13,543 $ 14,365
Nonperforming loans to total loans
1.42 % 1.49 %
Nonperforming loans to total assets
0.84 % 0.96 %

3329

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

(unaudited)

Loan Segment

March 31, 2022

December 31, 2021

Residential real estate
$ 5,827 $ 4,682
Home equity
620 657
Commercial real estate
1,426 1,031
Construction and land development
- -
Multifamily
447 455
Commercial business
588 436
Consumer
- -
Manufactured homes
- -
Government
- -
Total
$ 8,908 $ 7,261
Nonperforming loans to total loans
0.62 % 0.75 %
Nonperforming loans to total assets
0.42 % 0.45 %
Substandard loans include non-performing loans and potential problem loans, where information about possible credit issues or other conditions causes management to question the ability of such borrowers to comply with loan covenants or repayment terms. No loans were internally classified as doubtful or loss at ~~September 30, 2021~~March 31, 2022 or December 31, ~~2020.~~2021.

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

(unaudited)

Loan Segment

March 31, 2022

December 31, 2021

Residential real estate
$ 6,631 $ 3,722
Home equity
635 632
Commercial real estate
6,451 3,562
Construction and land development
- -
Multifamily
3,030 384
Commercial business
396 387
Consumer
- -
Manufactured homes
- -
Government
- -
Total.
$ 17,143 $ 8,687

(Dollars in thousands)

Loan Segment

September 30,
2021

December 31,
2020

Residential real estate
$ 3,726 $ 6,387
Home equity
464 495
Commercial real estate
8,063 8,180
Construction and land development
- -
Multifamily
394 504
Farmland
- -
Commercial business
711 1,061
Consumer
- -
Manufactured homes
- -
Government
- -
Total
$ 13,358 $ 16,627
The increase in substandard loans is the result of loans acquired pursuant to the RYFL acquisition.

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

~~The Bancorp's special mention loans are summarized below:~~
The Bancorp's special mention loans are summarized below:
(Dollars in thousands)

(unaudited)

Loan Segment

March 31, 2022

December 31, 2021

Residential real estate
$ 2,308 $ 2,940
Home equity
415 415
Commercial real estate
11,391 12,011
Construction and land development
4,403 3,630
Multifamily
1,532 153
Commercial business
3,395 1,915
Consumer
- -
Manufactured homes
59 59
Government
- -
Total
$ 23,503 $ 21,123

(Dollars in thousands)

Loan Segment

September 30,
2021

December 31,
2020

Residential real estate
$ 3,282 $ 3,539
Home equity
616 761
Commercial real estate
13,615 11,983
Construction and land development
3,643 3,652
Multifamily
253 1,408
Farmland
- -
Commercial business
1,407 1,341
Consumer
- -
Manufactured homes
60 -
Government
- -
Total
$ 22,876 $ 22,684
30

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

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

34

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

(Dollars in thousands)

(unaudited)

Loan Segment

March 31, 2022

December 31, 2021

Residential real estate
$ 3,661 $ 1,771
Home equity
269 284
Commercial real estate
4,461 1,600
Construction and land development
804 -
Multifamily
3,302 556
Commercial business
1,562 1,597
Consumer
21 -
Manufactured homes
- -
Government
- -
Total
$ 14,080 $ 5,808

~~The Bancorp's impaired loans, including purchased credit impaired loans, are summarized below:~~
The increase in impaired loans is the result of purchase credit impaired loans acquired pursuant to the RYFL acquisition.
(Dollars in thousands)

Loan Segment

September 30,
2021

December 31,
2020

Residential real estate
$ 1,601 $ 2,165
Home equity
297 353
Commercial real estate
7,021 6,341
Construction and land development
- -
Multifamily
577 716
Farmland
- -
Commercial business
1,933 2,246
Consumer
- -
Manufactured homes
- -
Government
- -
Total
$ 11,429 $ 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:~~
(Dollars in thousands)

Loan Segment

September 30,
2021

December 31,
2020

Residential real estate
$ 276 $ 614
Home equity
99 187
Commercial real estate
1,592 872
Construction and land development
- -
Multifamily
- -
Farmland
- -
Commercial business
688 448
Consumer
- -
Manufactured homes
- -
Government
- -
Total
$ 2,655 $ 2,121
The decrease in nonperforming loans as of September 30, 2021, is the due to the removal from nonaccrual status for various residential real estate loans totaling $2,816 thousand which was offset by the addition of six commercial business customers with loans totaling $2,244 thousand to the 90 days or more past due loans. The decrease in substandard loans as of September 30, 2021, is the result of the removal of various residential real estate loans totaling $2,579 thousand. The increase in special mention loans as of September 30, 2021, is due to the addition of four commercial real estate customers with loans totaling $3,048 thousand, which was offset by the movement of one multifamily customer with loans totaling $1,072 thousand to a pass rating. one commercial real estate customer with loans totaling $835 thousand to substandard, and one commercial real estate customer with loans totaling $189 thousand to a pass rating. The decrease in impaired loans as of September 30, 2021, is the due primarily to the removal of six commercial business customers with loans totaling $445 thousand due to pay off or liquidation of collateral.
The Bancorp's troubled debt restructured loans are summarized below:

(Dollars in thousands)

(unaudited)

Loan Segment

March 31, 2022

December 31, 2021

Residential real estate
$ 532 $ 342
Home equity
88 83
Commercial real estate
645 747
Construction and land development
- -
Multifamily
- -
Commercial business
681 694
Consumer
- -
Manufactured homes
- -
Government
- -
Total
$ 1,946 $ 1,866

At ~~September 30, 2021,~~March 31, 2022, 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.

3531

The allowance for loan losses (ALL) is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses, and decreased by charge-offs net of recoveries. A loan is charged‑off against the allowance by management as a loss when deemed uncollectible, although collection efforts continue and future recoveries may occur. The determination of the amounts of the ALL and provisions for loan losses is based on management’s current judgments about the credit quality of the loan portfolio with consideration given to all known relevant internal and external factors that affect loan collectability as of the reporting date. The appropriateness of the current period provision and the overall adequacy of the ALL are determined through a disciplined and consistently applied quarterly process that reviews the Bancorp’s current credit risk within the loan portfolio and identifies the required allowance for loan losses given the current risk estimates.

~~The Bancorp's provision for loan losses for the nine months ended are summarized below:~~
~~(Dollars in thousands)~~
The Bancorp's provision for loan losses for the three months ended are

summarized below:

(Dollars in thousands)

(unaudited)

Loan Segment

March 31, 2022

March 31, 2021

Residential real estate
$ (8 ) $ (41 )
Home equity
(3 ) 34
Commercial real estate
15 320
Construction and land development
16 182
Multifamily
41 54
Commercial business
(99 ) 36
Consumer
38 (7 )
Manufactured homes
- -
Government
- -
Total
$ - $ 578

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

(Dollars in thousands)

(unaudited)

As of March 31, 2022

Loan Segment

September 30,
2021

September 30,
2020

Charge-off

Recoveries

Net Charge-offs

Residential real estate
$ 250 $ 58 $ - $ 21 $ 21
Home equity
99 (11 ) - - -
Commercial real estate
946 694 - - -
Construction and land development
483 91 - - -
Multifamily
161 21 - - -
Farmland
- -
Commercial business
(647 ) 1,045 - 31 31
Consumer
1 (10 ) (10 ) 2 (8 )
Manufactured homes
- - - -
Government
- (17 ) - - -
Total
$ 1,293 $ 1,871 $ (10 ) $ 54 $ 44

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)

For nine months ending September 30, 2021

As of March 31, 2021

Loan Segment

Charge-off

Recoveries

Net Charge-offs

Charge-off

Recoveries

Net Charge-offs

Residential real estate
$ (32 ) $ 46 $ 14 $ (4 ) $ 10 $ 6
Home equity
(1 ) - (1 ) (1 ) - (1 )
Commercial real estate
- - - - - -
Construction and land development
- - - - - -
Multifamily
- - - - - -
Farmland
- - - - - -
Commercial business
- 25 25 - 8 8
Consumer
(21 ) 6 (15 ) (6 ) 4 (2 )
Manufactured homes
- - - - -
Government
- - - - - -
Total
$ (54 ) $ 77 $ 23 $ (11 ) $ 22 $ 11

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

(Dollars in thousands)

(unaudited)

For nine months ending September 30, 2020

Loan Segment

Charge-off

Recoveries

Net Charge-offs

Residential real estate
$ (2 ) $ 15 $ 13
Home equity
- - -
Commercial real estate
(80 ) - (80 )
Construction and land development
(17 ) - (17 )
Multifamily
- - -
Farmland
- - -
Commercial business
(78 ) 17 (61 )
Consumer
(22 ) 11 (11 )
Manufactured homes
- -
Government
- - -
Total
$ (199 ) $ 43 $ (156 )
32
The Bancorp's allowance to total loans and non-performing loans are

summarized below:

(Dollars in thousands)

(unaudited)

March 31, 2022

December 31, 2021

Allowance for loan losses
$ 13,387 $ 13,343
Total loans
$ 1,439,728 $ 966,720
Non-performing loans
$ 8,908 $ 7,261
ALL-to-total loans
0.93 % 1.38 %
ALL-to-non-performing loans (coverage ratio)
150.3 % 183.8 %

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

In addition, management considers additional reserves ~~that 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 ~~September 30, 2021,~~March 31, 2022, total purchased credit impaired ~~loans~~loan reserves totaled ~~$1.3~~$2.0 million compared to ~~$2.1~~$1.4 million at December 31, ~~2020.~~2021. Additionally, the Bancorp has acquired loans where there was ~~not~~no 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 $1.2~~and totaled $6.4 million at ~~September 30, 2021,~~March 31, 2022, compared to ~~$2.0~~$1.1 million at December 31, ~~2020.~~2021. Details on these fair value marks and the additional reserves created can be found in Note 5, Loans Receivable.
36

~~The Bancorp's allowance to total loans and non-performing loans are summarized below:~~
(Dollars in thousands)

September 30,
2021

December 31,
2020

Allowance for loan losses
$ 13,774 $ 12,458
Total loans
$ 956,352 $ 961,425
Non-performing loans
$ 13,543 $ 14,365
ALL-to-total loans
1.44 % 1.30 %
ALL-to-non-performing loans (coverage ratio)
101.7 % 86.7 %
The September 30, 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 September 30, 2021, foreclosed real estate totaled $81 thousand, which was comprised of two properties, compared to $538 thousand and ten properties at December 31, 2020. Net gains from the sale of foreclosed real estate totaled $27 thousand for the nine months ended September 30, 2021. At the end of September 2021, all of the Bancorp’s foreclosed real estate is located within its primary market area.

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 ~~$531.0~~$464.3 million at ~~September 30, 2021,~~March 31, 2022, compared to ~~$410.7~~$526.9 million at December 31, ~~2020,~~2021, an increase of ~~$120.3~~$62.6 million ~~(29.3%~~(11.9%). The ~~increase in~~decrease is attributable to increased unrealized losses within the portfolio and a return of liquidity from the securities ~~portfolio during the year is a result of investment in the security~~ portfolio. At ~~September 30, 2021,~~March 31, 2022, the securities portfolio represented ~~35.2%~~23.9% of interest-earning assets and ~~33.0%~~22.1% of total assets compared to ~~29.4%~~34.6% of interest-earning assets and ~~27.4%~~32.5% of total assets at December 31, ~~2020.~~2021.

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

September 30,

(unaudited)

2021

December 31,

March 31,

December 31,

(Dollars in thousands)

(unaudited)

2020

2022

2021

Balance

% Securities

Balance

% Securities

Balance

% Securities

Balance

% Securities

Money market fund
$ - 0.0 % $ 52,941 12.9 %
U.S. government sponsored entities
10,761 2.0 % 7,860 1.9 % $ 8,202 1.8 % $ 8,669 1.6 %
U.S. treasury securities
401 0.1 % - 0.0 % 199 0.1 % 400 0.1 %
Collateralized mortgage obligations and residential mortgage-backed securities
198,485 37.4 % 154,736 37.7 % 164,123 35.3 % 184,701 35.1 %
Municipal securities
320,352 60.3 % 194,203 47.3 % 290,824 62.6 % 332,127 63.0 %
Collateralized debt obligations
1,011 0.2 % 929 0.2 % 972 0.2 % 992 0.2 %
Total securities available-for-sale
$ 531,010 100.0 % $ 410,669 100.0 % $ 464,320 100.0 % $ 526,889 100.0 %

September 30,

(unaudited)

2021

December 31,

YTD

March 31,

December 31,

YTD

(Dollars in thousands)

(unaudited)

2020

Change

2022

2021

Change

Balance

Balance
$
%

Balance

Balance
$
%

Interest bearing deposits in other financial institutions
$ 12,132 $ 5,908 $ 6,224 105.3 % $ 31,420 $ 19,987 $ 11,433 57.2 %
Fed funds sold
1,918 - 1,918 100.0 % 1,819 464 1,355 292.0 %
Certificates of deposit in other financial institutions
977 1,897 (920 ) -48.5 % 1,731 1,709 22 1.3 %
Federal Home Loan Bank stock
3,247 3,918 (671 ) -17.1 % 3,038 3,247 (209 ) -6.4 %

The net increase in interest bearing deposits in other financial institutions and fed funds sold is primarily the result of ~~deposit growth.~~the RYFL acquisition.

3733

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

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

September 30,

(unaudited)

2021

December 31,

YTD

March 31,

December 31,

YTD

(Dollars in thousands)

(unaudited)

2020

Change

2022

2021

Change

Balance

Balance
$
%

Balance

Balance
$
%

Checking
$ 602,951 $ 516,487 $ 86,464 16.7 % $ 731,340 $ 629,038 $ 102,302 16.3 %
Savings
284,681 254,108 30,573 12.0 % 425,634 293,976 131,658 44.8 %
Money market
254,671 246,916 7,755 3.1 % 307,850 271,970 35,880 13.2 %
Certificates of deposit
263,897 284,828 (20,931 ) -7.3 % 430,387 239,217 191,170 79.9 %
Total deposits
$ 1,406,200 $ 1,302,339 $ 103,861 8.0 % $ 1,895,211 $ 1,434,201 $ 461,010 32.1 %
The following table presents the average daily amount of deposits and average rates paid on such deposits for the periods indicated. The amounts are stated inthousands (000’s).

March 31, 2022

(unaudited)

December 31, 2021

Amount

Rate %

Amount

Rate %

Noninterest bearing demand deposits
$ 343,176 - $ 280,900 -
Interest bearing demand deposits
336,441 0.06 297,012 0.08
MMDA accounts
308,377 0.11 253,468 0.13
Savings accounts
388,087 0.05 277,839 0.06
Certificates of deposit
361,539 0.16 271,882 0.46
Total deposits
$ 1,737,620 0.08 $ 1,381,101 0.18
As of March 31, 2022, and December 31, 2021, approximately $549.7 million and $452.0 million, respectively, of our deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.

The overall increase in total deposits is ~~primarily~~ a result of the RYFL acquisition, as well as management’s sales efforts along with customer preferences for 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:

September 30,

(unaudited)

2021

December 31,

YTD

March 31,

December 31,

YTD

(Dollars in thousands)

(unaudited)

2020

Change

2022

2021

Change

Balance

Balance
$
%

Balance

Balance
$
%

Repurchase agreements
$ 23,844 $ 13,711 $ 10,133 73.9 % $ 23,239 $ 14,581 $ 8,658 59.4 %
Borrowed funds
- 6,149 (6,149 ) -100.0 % 5 - 5 100.0 %
Total borrowed funds
$ 23,844 $ 19,860 $ 3,984 20.1 % $ 23,244 $ 14,581 $ 8,663 59.4 %

Repurchase agreements increased as part of normal account fluctuations within that product line. ~~The decrease in borrowings was the result of paydowns on the Bancorp’s outstanding borrowed funds.~~

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.

34
During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, cash and cash equivalents increased by ~~$11.8~~$21.3 million compared to a ~~$37.2~~$48.1 million increase for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. The primary sources of cash and cash equivalents were cash and cash equivalents from acquisition activity, the sale of loans originated for sale, proceeds from the ~~maturity and paydown of securities, proceeds from the~~ sale of securities, ~~growth of deposits,~~ and proceeds from the maturity and paydown of ~~loans receivable.~~securities. The primary uses of cash and cash equivalents were ~~origination of loans for sale and~~the purchase of ~~securities.~~securities, loan originations, and change in deposits. Cash provided by operating activities totaled ~~$16.6 million~~$722 thousand for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, compared to cash provided of ~~$19.3~~$16.4 million for the ~~nine month period~~three months ended ~~September 30, 2020.~~March 31, 2021. Cash provided from operating activities was primarily a result of net income and sale of loans originated for sale, offset by loans originated for ~~sale.~~sale and net change in accrued expenses and other liabilites. Cash ~~outflows~~inflows from investing activities totaled ~~$109.2~~$27.2 million for the current period, compared to cash outflows of ~~$110.7~~$27.6 million for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. Cash ~~outflows~~inflows from investing activities for the current ~~nine~~three months were primarily related to the ~~purchase~~cash and cash equivalents from acquisition activity, net, and proceeds from the sales and maturities of securities, offset against ~~proceeds from sales~~the net change in loans receivable and purchase of ~~securities, and proceeds from maturities and paydowns of securities and loans. Cash provided~~securiites. Net cash outflows from financing activities totaled ~~$104.5~~$6.6 million during the current period compared to net cash provided of ~~$128.6~~$59.3 million for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. The net cash ~~inflows~~outflows from financing activities were primarily a result of net change in deposits, ~~and~~offset against the change in other borrowed ~~funds, offset against repayment of FHLB advances and payment of quarterly dividends.~~funds. On a cash basis, the Bancorp paid dividends on common stock of ~~$3.2~~$1.1 million for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022 and ~~$3.2 million for the nine months ended September 30, 2020.~~March 31, 2021.
38

At ~~September 30, 2021,~~March 31, 2022, outstanding commitments to fund loans totaled ~~$219.9~~$241.7 million. Approximately ~~52.1%~~53.0% 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 ~~$11.2~~$11.5 million at ~~September 30, 2021.~~March 31, 2022. Management believes that the Bancorp has sufficient cash flow and borrowing capacity to fund all outstanding commitments and letters of credit, while maintaining proper levels of liquidity.

Management strongly believes that maintaining a high level of capital enhances safety and soundness. During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, stockholders' equity increased by ~~$880 thousand (0.6%~~$1.0 million (0.7%). During the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, stockholders’ equity was primarily increased by additional paid in capital related to the RYFL acquisition, offset against increased unrealized losses on available for sale securities. Increasing stockholders’ equity was net income of ~~$11.7~~$2.1 million. ~~Decreasing stockholders’ equity was decreased unrealized gains on available securities of $7.8 million and the declaration of $3.2 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 ~~nine~~three months of ~~2021~~2022 or ~~2020.~~2021. During ~~2021, 13,493~~2022, 10,863 restricted stock shares vested under the Bancorp’s 2015 Stock Option and Incentive Plan outlined in Note 9 of the financial statements, of which ~~3,115~~2,336 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~~The 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%.

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.
35

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 ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, 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 ~~$9.2~~$8.6 million of risk-based assets are generated by the trust preferred securities in the Bancorp’s and Bank’s total risk based capital calculation.

~~The following table shows that, at September 30, 2021, and December 31, 2020, the Bancorp’s capital exceeded all applicable regulatory capital requirements. The dollar amounts are in millions.~~
(Dollars in millions)

Actual

Capital Adequacy Purposes

Corrective Action Regulations

At June 30, 2021

Amount

Ratio

Amount

Ratio

Amount

Ratio

Common equity tier 1 capital to risk-weighted assets
$ 133.8 13.1 % $ 45.9 4.5 % N/A N/A
Tier 1 capital to risk-weighted assets
$ 133.8 13.1 % $ 61.3 6.0 % N/A N/A
Total capital to risk-weighted assets
$ 146.6 14.4 % $ 81.7 8.0 % N/A N/A
Tier 1 capital to adjusted average assets
$ 133.8 8.4 % $ 64.6 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, 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 ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020,~~2021, 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, 2021

Amount

Ratio

Amount

Ratio

Amount

Ratio

At March 31, 2022

Amount

Ratio

Amount

Ratio

Amount

Ratio

Common equity tier 1 capital to risk-weighted assets
$ 130.5 12.8 % $ 45.7 4.5 % $ 66.1 6.5 % $ 156.8 10.9 % $ 65.0 4.5 % $ 93.9 6.5 %
Tier 1 capital to risk-weighted assets
$ 130.5 12.8 % $ 61.0 6.0 % $ 81.3 8.0 % $ 156.8 10.9 % $ 86.7 6.0 % $ 115.6 8.0 %
Total capital to risk-weighted assets
$ 143.2 14.1 % $ 81.3 8.0 % $ 101.6 10.0 % $ 170.2 11.8 % $ 115.6 8.0 % $ 144.5 10.0 %
Tier 1 capital to adjusted average assets
$ 130.5 8.2 % $ 64.4 4.0 % $ 80.5 5.0 % $ 156.8 8.2 % $ 77.7 4.0 % $ 97.2 5.0 %

(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
$ 122.0 12.6 % $ 43.8 4.5 % $ 63.2 6.5 %
Tier 1 capital to risk-weighted assets
$ 122.0 12.6 % $ 58.4 6.0 % $ 77.8 8.0 %
Total capital to risk-weighted assets
$ 134.2 13.8 % $ 77.8 8.0 % $ 97.3 10.0 %
Tier 1 capital to adjusted average assets
$ 122.0 8.3 % $ 59.1 4.0 % $ 73.9 5.0 %
(Dollars in millions)

Minimum Required To Be

Minimum Required For

Well Capitalized Under Prompt

Actual

Capital Adequacy Purposes

Corrective Action Regulations

At December 31, 2021

Amount

Ratio

Amount

Ratio

Amount

Ratio

Common equity tier 1 capital to risk-weighted assets
$ 136.6 13.0 % $ 47.4 4.5 % N/A N/A
Tier 1 capital to risk-weighted assets
$ 136.6 13.0 % $ 63.3 6.0 % N/A N/A
Total capital to risk-weighted assets
$ 149.8 14.2 % $ 84.3 8.0 % N/A N/A
Tier 1 capital to adjusted average assets
$ 136.6 8.6 % $ 64.2 4.0 % N/A N/A

The Bancorp’s ability to pay dividends to its shareholders is 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 ~~2021,~~2022, without the need for qualifying for an exemption or prior DFI approval, is its ~~2021~~2022 net profits plus ~~$4.7~~$21.4 million. Moreover, the FDIC and the ~~FRB~~Federal Reserve Board may prohibit the payment of dividends if it determines that the payment of dividends would constitute an unsafe or unsound practice in light of the financial condition of the Bank. On ~~August 27, 2021,~~February 25, 2022, the Board of Directors of the Bancorp declared a ~~third~~first quarter dividend of $0.31 per share. The Bancorp’s ~~third~~first quarter dividend was paid to shareholders on ~~October~~April 4, ~~2021.~~2022.
40

Results of Operations - Comparison of the ~~Quarter~~Three Months Ended ~~September 30, 2021~~March 31, 2022, to the ~~Quarter~~Three Months Ended ~~September 30, 2020~~March 31, 2021
For the ~~quarter~~three months ended ~~September 30, 2021,~~March 31, 2022, the Bancorp reported net income of ~~$3.5~~$2.1 million, compared to net income of ~~$4.7~~$4.5 million for the ~~quarter~~three months ended ~~September 30, 2020,~~March 31, 2021, a decrease of ~~$1.1~~$2.4 million ~~(24.5%~~(53.0%). For the ~~quarter,~~three months ended March 31, 2022, the ROA was ~~0.87%~~0.44%, compared to ~~1.27%~~1.18% for the ~~quarter~~three months ended ~~September 30, 2020.~~March 31, 2021. The ROE was ~~8.90%~~5.01% for the ~~quarter~~three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~12.83%~~11.94% for the ~~quarter~~three months ended ~~September 30, 2020.~~March 31, 2021.
36

Net interest income for the ~~quarter~~three months ended ~~September 30, 2021~~March 31, 2022, was ~~$12.2~~$15.5 million, an increase of ~~$512 thousand (4.4%~~$3.5 million (29.0%), compared to ~~$11.7~~$12.0 million for the ~~quarter~~three months ended ~~September 30, 2020.~~March 31, 2021. The weighted-average yield on interest-earning assets was ~~3.36%~~3.49% for the ~~quarter~~three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~3.75%~~3.59% for the ~~quarter~~three months ended ~~September 30, 2020.~~March 31, 2021. The weighted-average cost of funds for the ~~quarter~~three months ended ~~September 30, 2021~~March 31, 2022 was ~~0.13%~~0.08% compared to ~~0.35%~~0.20% for the ~~quarter~~three months ended ~~September 30, 2020.~~March 31, 2021. The impact of the ~~3.36%~~3.49% return on interest earning assets and the ~~0.13%~~0.08% cost of funds resulted in an interest rate spread of ~~3.23%~~3.41% for the current ~~quarter, a decrease~~three months, an increase from the ~~3.40%~~3.39% spread for the ~~quarter~~three months ended ~~September 30, 2020.~~March 31, 2021. The net interest margin on earning assets was ~~3.24% for the quarter ended September 30, 2021 and~~ 3.41% for the ~~quarter~~three months ended ~~September 30, 2020.~~March 31, 2022, and 3.40% for the three months ended March 31, 2021. On a tax equivalent basis, the Bancorp’s net interest margin was ~~3.46%~~3.63% for the ~~quarter~~three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~3.58%~~3.59% for the ~~quarter~~three months ended ~~September 30, 2020. Comparing~~March 31, 2021. The Bancorp believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a ~~tax~~fully-taxable equivalent basis, ~~more accurately compares~~as these measures provide useful information to make peer comparisons. Tax adjusted net interest margin represents a non-GAAP financial measure. See the ~~returns on tax-exempt loans~~non-GAAP reconciliation table immediately below and ~~securities to those on taxable interest-earning assets.~~the section captioned “Non-GAAP Financial Measures” for further disclosure regarding non-GAAP financial measures.
(Dollars in thousands)

Three Months Ended

(unaudited)

March 31, 2022

March 31, 2021

Calculation of tax adjusted net interest margin

Net interest income
$ 15,535 $ 12,046
Tax adjusted interest on securities and loans
966 677
Adjusted net interest income
16,501 12,723
Total average earning assets
1,820,588 1,417,462
Tax adjusted net interest margin
3.63 % 3.59 %

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

Average Balances, Interest, and Rates

(unaudited)

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Average
Balance

Interest

Rate (%)

Average
Balance

Interest

Rate (%)

Average
Balance

Interest

Rate (%)

Average
Balance

Interest

Rate (%)

ASSETS

`

Interest bearing deposits in other financial institutions
$ 53,786 $ 12 0.09 $ 72,920 $ 22 0.12 $ 22,295 $ 8 0.14 $ 51,688 $ 12 0.09
Federal funds sold
1,112 - - 719 7 3.89 8,015 - - 788 - -
Certificates of deposit in other financial institutions
1,262 6 1.90 1,877 10 2.13 1,725 3 0.70 1,598 8 2.00
Securities available-for-sale
486,993 2,363 1.94 315,090 1,506 1.91 510,119 2,575 2.02 383,877 1,941 2.02
Loans receivable
960,274 10,270 4.28 975,794 11,263 4.62
Loans receivable*
1,274,407 13,286 4.17 975,593 10,746 4.41
Federal Home Loan Bank stock
3,247 15 1.85 3,918 28 2.86 4,027 22 2.19 3,918 20 2.04
Total interest earning assets
1,506,674 $ 12,666 3.36 1,370,318 $ 12,836 3.75 1,820,588 $ 15,894 3.49 1,417,462 $ 12,727 3.59
Cash and non-interest bearing deposits in other financial institutions
41,378 15,814 20,183 33,719
Allowance for loan losses
(13,688 ) (9,917 ) (13,367 ) (12,662 )
Other noninterest bearing assets
97,290 98,879 127,943 98,316
Total assets
$ 1,631,654 $ 1,475,094 $ 1,955,347 $ 1,536,835

LIABILITIES AND STOCKHOLDERS' EQUITY

Total deposits
$ 1,436,125 $ 452 0.13 $ 1,282,698 $ 1,050 0.33 $ 1,737,620 $ 337 0.08 $ 1,348,160 $ 651 0.19
Repurchase agreements
20,970 13 0.25 16,246 15 0.37 19,390 16 0.33 14,479 10 0.28
Borrowed funds
41 1 9.76 12,000 83 2.77 6,091 6 0.39 2,967 20 2.70
Total interest bearing liabilities
1,457,136 $ 466 0.13 1,310,944 $ 1,148 0.35 1,763,101 $ 359 0.08 1,365,606 $ 681 0.20
Other noninterest bearing liabilities
15,508 18,034 21,872 19,049
Total liabilities
1,472,644 1,328,978 1,784,973 1,384,655
Total stockholders' equity
159,010 146,116 170,374 152,180
Total liabilities and stockholders' equity
$ 1,631,654 $ 1,475,094 $ 1,955,347 $ 1,536,835

Net intrest spread
3.41 % 3.39 %
Net interest margin**
3.41 % 3.40 %
Ratio of interest-earning assets to interest-bearing liabilities

1.03
x
1.04
x
* Non-accruing loans have been included in the average balances. ** Net interest income divided by average interest-earning assets.

The ~~decrease~~increase in interest earning asset income for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to the three months ended ~~September 30, 2020,~~March 31, 2021, 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.~~RYFL acquisition. 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.

4137

The following table shows the change in noninterest income for the ~~quarter~~three months ending ~~September 30, 2021,~~March 31, 2022, and ~~September 30, 2020.~~March 31, 2021.

Three Months Ended

(Dollars in thousands)

September 30,

Three Months Ended

Quarter Ended March 31,

3/31/2022 vs. 3/31/2021

2021

2020

$ Change

% Change

2022

2021

$ Change

% Change

Noninterest income:

Fees and service charges
1,304 1,066 238 22.3 %
Gain on sale of loans held-for-sale, net
$ 1,229 $ 2,420 $ (1,191 ) -49.2 % 607 2,049 (1,442 ) -70.4 %
Fees and service charges
1,473 1,473 0 0.0 %
Wealth management operations
604 537 67 12.5 % 595 607 (12 ) -2.0 %
Gain on sale of securities, net
590 197 393 199.5 % 381 417 (36 ) -8.6 %
Increase in cash value of bank owned life insurance
180 177 3 1.7 % 252 169 83 49.1 %
Gain on sale of foreclosed real estate, net
0 24 (24 ) -100.0 %
Gain (loss) on sale of foreclosed real estate
- (9 ) 9 -100.0 %
Other
70 27 43 159.3 % 5 14 (9 ) -64.3 %

Total noninterest income
$ 4,146 $ 4,855 $ (709 ) -14.6 % 3,144 4,313 (1,169 ) -27.1 %

The decrease in gain on sale of loans is the result of significant refinance activity which started in 2020 and continued into the ~~prior~~following year due to the economic and low rate environment, which resulted in more loans originated and sold. We anticipate the demand for mortgage loans will continue to revert to normal levels as borrowing rates on loans increase. The increase in fees and service charges for the three-month period ended March 31, 2022 compared to the three-month period ended March 31, 2021 is primarily the result of changes in customer usage of bank ~~services as our customer base continues to recover from the pandemic.~~services.

The following table shows the change in noninterest expense for the ~~quarter~~three months ending ~~September 30, 2021,~~March 31, 2022, and ~~September 30, 2020.~~March 31, 2021.

Three Months Ended

(Dollars in thousands)

September 30,

Three Months Ended

Quarter Ended March 31,

3/31/2022 vs. 3/31/2021

2021

2020

$ Change

% Change

2022

2021

$ Change

% Change

Noninterest expense:

Compensation and benefits
$ 6,042 $ 5,517 $ 525 9.5 % 7,367 5,685 1,682 29.6 %
Data processing
3,054 674 2,380 353.1 %
Occupancy and equipment
1,380 1,150 230 20.0 % 1,500 1,372 128 9.3 %
Data processing
872 583 289 49.6 %
Marketing
334 183 151 82.5 % 651 199 452 227.1 %
Federal deposit insurance premiums
236 209 27 12.9 % 219 180 39 21.7 %
Other
3,537 2,393 1,144 47.8 % 3,478 2,383 1,095 46.0 %

Total noninterest expense
$ 12,401 $ 10,035 $ 2,366 23.6 % 16,269 10,493 5,776 55.0 %

~~The~~For the three months ended March 31, 2022, the increase in compensation and benefits is primarily the result of the RYFL acquisition and management’s continued focus on talent management and retention. The increase in data processing expense in primarily the result of data conversion expenses related to the acquisition of RYFL, increased system utilization due to growth of the Bank, and continued investment in technological advancements such as Salesforce and nCino. The increase in occupancy and equipment expense is primarily related to ~~facilities improvement efforts aimed at enhancing technology~~the RYFL acquisition and ~~efficiency.~~related assets acquired in the transaction. The increase in ~~data processing~~marketing expense is primarily the result of ~~increased system utilization. The increase in marketing expense is~~ the ~~result of increased marketing and rebranding initiatives.~~RYFL acquisition. The increase in other operating expenses is primarily the result of one-time expenses related to the acquisition of RYFL and continued investments in strategic initiatives focusing on ~~technological improvements and~~ growth of the organization. The Bancorp’s efficiency ratio was 75.87% for the quarter ended September 30, 2021, compared to 60.66% for the quarter ended September 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~~three months ended ~~September 30, 2021,~~March 31, 2022, totaled ~~$268~~$275 thousand, compared to income tax expense of ~~$972~~$745 thousand for the ~~quarter~~three months ended ~~September 30, 2020, an~~March 31, 2021, a decrease of ~~$704~~$470 thousand ~~(72.4%~~(63.1%). The combined effective federal and state tax rates for the Bancorp was ~~7.0%~~11.4% for the ~~quarter~~three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~17.2%~~14.1% for the ~~quarter ended September 30, 2020. The decrease in the effective tax rate for the quarter ended September 30, 2021, is the result of higher tax preferred income relative to earnings.~~
~~Results of Operations - Comparison of the Nine Months Ended September 30, 2021 to the Nine Months Ended September 30, 2020~~
~~For the nine~~three months ended September 30, 2021, the Bancorp reported net income of $11.7 million, compared to net income of $12.7 million for the nine months ended September 30, 2020, a decrease of $999 thousand (7.9%). For the nine months ended, the ROA was 0.98%, compared to 1.20% for the nine months ended September 30, 2020. The ROE was 9.96% for the nine months ended September 30, 2021, compared to 11.96% for the nine months ended September 30, 2020.
Net interest income for the nine months ended September 30, 2021, was $36.1 million, an increase of $2.3 million (6.9%), compared to $33.8 million for the nine months ended September 30, 2020. The weighted-average yield on interest-earning assets was 3.44% for the nine months ended September 30, 2021, compared to 3.96% for the nine months ended September 30, 2020. The weighted-average cost of funds for the nine months ended September 30, 2021, was 0.16% compared to 0.52% for the nine months ended September 30, 2020. The impact of the 3.44% return on interest earning assets and the 0.16% cost of funds resulted in an interest rate spread of 3.28% for the current nine months, which is a decrease from the spread of 3.44% as of September 30, 2020. The net interest margin on earning assets was 3.29% for the nine months ended September 30, 2021, and 3.46% for the nine months ended September 30, 2020. On a tax equivalent basis, the Bancorp’s net interest margin was 3.49% for the nine months ended September 30, 2021, compared to 3.62% for the nine months ended September 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.
42

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

September 30, 2021

September 30, 2020

Average
Balance

Interest

Rate (%)

Average
Balance

Interest

Rate (%)

ASSETS

Interest bearing deposits in other financial institutions
$ 53,774 $ 33 0.08 $ 42,025 $ 91 0.29
Federal funds sold
1,064 - - 2,716 92 4.52
Certificates of deposit in other financial institutions
1,443 21 1.94 1,859 35 2.51
Securities available-for-sale
435,119 6,428 1.97 295,073 4,708 2.13
Loans receivable
970,740 31,291 4.30 954,985 33,589 4.69
Federal Home Loan Bank stock
3,535 55 2.07 3,916 95 3.23
Total interest earning assets
1,465,675 $ 37,828 3.44 1,300,574 $ 38,610 3.96
Cash and non-interest bearing deposits in other financial institutions
37,186 17,530
Allowance for loan losses
(13,205 ) (9,508 )
Other noninterest bearing assets
97,674 98,611
Total assets
$ 1,587,330 $ 1,407,207

LIABILITIES AND STOCKHOLDERS' EQUITY

Total deposits
$ 1,395,883 $ 1,652 0.16 $ 1,222,497 $ 4,494 0.49
Repurchase agreements
17,458 35 0.27 13,959 72 0.69
Borrowed funds
992 23 3.09 13,386 270 2.69
Total interest bearing liabilities
1,414,333 $ 1,710 0.16 1,249,842 $ 4,836 0.52
Other noninterest bearing liabilities
17,052 16,270
Total liabilities
1,431,385 1,266,112
Total stockholders' equity
155,945 141,095
Total liabilities and stockholders' equity
$ 1,587,330 $ 1,407,207
The decrease in interest earning asset income for the nine months ended September 30, 2021, compared to the nine months ended September 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.~~
43

~~The following table shows the change in noninterest income for the nine months ending September 30, 2021, and September 30, 2020.~~

Nine Months Ended

(Dollars in thousands)

September 30,

Nine Months Ended

2021

2020

$ Change

% Change

Noninterest income:

Gain on sale of loans held-for-sale, net
$ 4,394 $ 6,037 $ (1,643 ) -27.2 %
Fees and service charges
4,010 3,673 337 9.2 %
Wealth management operations
1,787 1,605 182 11.3 %
Gain on sale of securities, net
1,276 1,374 (98 ) -7.1 %
Increase in cash value of bank owned life insurance
537 534 3 0.6 %
Gain on sale of foreclosed real estate, net
27 127 (100 ) -78.7 %
Other
108 97 11 11.3 %
Total noninterest income
$ 12,139 $ 13,447 $ (1,308 ) -9.7 %
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 increase in wealth management income is the result of the Bancorp’s continued focus on expanding its wealth management line of business.
~~The following table shows the change in noninterest expense for the nine months ending September 30, 2021, and September 30, 2020.~~

Nine Months Ended

(Dollars in thousands)

September 30,

Nine Months Ended

(unaudited)
2021

2020

$ Change

% Change

Noninterest expense:

Compensation and benefits
17,624 16,447 $ 1,177 7.2 %
Occupancy and equipment
4,076 3,854 222 5.8 %
Data processing
1,997 1,671 326 19.5 %
Marketing
728 571 157 27.5 %
Federal deposit insurance premiums
620 564 56 9.9 %
Other
8,859 7,033 1,826 26.0 %
Total noninterest expense
$ 33,904 $ 30,140 $ 3,764 12.5 %
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 efficiency. The increase in data processing expense is primarily the result of increased system utilization. The increase in marketing expense is the result of increased marketing and rebranding initiatives. The increase in other operating expenses is primarily the result of investments in strategic initiatives focusing on technological improvements and the growth of the organization. The Bancorp’s efficiency ratio was 70.26% for the nine months ended September 30, 2021, compared to 63.83% for the nine months ended September 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 nine months ended September 30, 2021, totaled $1.4 million, compared to income tax expense of $2.6 million for the nine months ended September 30, 2020, a decrease of $1.2 million (45.0%). The combined effective federal and state tax rates for the Bancorp was 10.8% for the nine months ended September 30, 2021, compared to 16.8% for the nine months ended September 30, 2020.31, 2021. The Bancorp’s lower current period effective tax rate is a result of ana greater increase into tax preferred income ~~in relation~~relative to ~~income.~~earnings.
~~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 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 results as reported under GAAP. This supplemental information should not be considered in isolation or as a substitute for the related GAAP measures.
44

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, ~~2020,~~2021 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 ~~2020~~2021 Form 10-K.
38
Non-GAAP Financial Measures
This filing includes certain financial measures that are identified as non-GAAP, including adjusted net interest income and tax adjusted net interest margin. The Bancorp provides these non-GAAP performance measures because they are used by management to evaluate and measure the Bancorp’s performance, which the Bancorp believes also is useful to assist investors in assessing the Bancorp’s operating performance. Where non-GAAP financial measures are used in this report, the most comparable GAAP measure, as well as the reconciliation to the most comparable GAAP measure, can be found in the tables referenced herein.
The adjusted net interest income and tax-adjusted net interest margin measures recognize the income tax savings when comparing taxable and tax-exempt assets. Interest income and yields on tax-exempt securities and loans are presented using the current federal income tax rate of 21%. Management believes that it is standard practice in the banking industry to present net interest income and net interest margin on a fully tax-equivalent basis and that it may enhance comparability for peer comparison purposes.
Although these non-GAAP financial measures are frequently used by investors to evaluate a financial institution’s business and performance, they have limitations as analytical tools and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. In addition, these non-GAAP financial measures may differ from those used by other financial institutions to assess their business operations and performance.

Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.

Item 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 ~~September 30, 2021,~~March 31, 2022, 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.
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 ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, that has materially affected, or is reasonably likely to materially affect, the Bancorp's internal control over financial reporting.

PART II ‑ Other Information
Item 1.
Legal Proceedings
The Bancorp and its subsidiaries, from time to time, are involved in legal proceedings in the ordinary course of business against its debtors and are defendants in legal actions arising from normal business activities. Management, after consultation with legal counsel believes that the ultimate liabilities, if any, resulting from these actions will not have a material adverse effect on the financial position of the Bank or on the consolidated financial position of the Bancorp.

Item 1A.
Risk Factors
Not Applicable.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
On April 24, 2014, the Bancorp’s Board of Directors authorized a stock repurchase program to repurchase up to 50,000 shares of the Bancorp’s outstanding common stock, from time to time and subject to market conditions, on the open market or in privately negotiated transactions. The stock repurchase program does not expire and is only limited by the number of shares that can be purchased. The stock repurchase program will be reviewed annually by the Board of Directors. No shares were repurchased during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022, 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, ~~2021~~2022 – January 31, ~~2021~~2022
- N/A - 48,828
February 1, ~~2021~~2022 – February 28, ~~2021~~2022
- N/A - 48,828
March 1, ~~2021~~2022 – March 31, ~~2021~~2022
- ~~N/A~~ - ~~48,828~~
~~April 1, 2021 – April 30, 2021~~
- ~~N/A~~ - ~~48,828~~
~~May 1, 2021 – May 31, 2021~~
- ~~N/A~~ - ~~48,828~~
~~June 1, 2021 – June 30, 2021~~
- ~~N/A~~ - ~~48,828~~
~~July 1, 2021 – July 31, 2021~~
- ~~N/A~~ - ~~48,828~~
~~August 1, 2021 – August 31, 2021~~
- ~~N/A~~ - ~~48,828~~
~~September 1, 2021 – September 30, 2021~~
- ~~N/A~~ - ~~48,828~~
- 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
3.1

~~2.1~~
~~Agreement and Plan~~Restated Articles of ~~Merger by and among~~Incorporation of Finward Bancorp ~~and Royal Financial, Inc. dated July 28, 2021~~ (incorporated ~~herein~~ by reference to Exhibit ~~2.1~~3.1 of the ~~Bancorp’s~~registrant’s Current Report on Form 8-K ~~dated July 29, 2021)~~filed with the SEC on March 2, 2022).
10.1
~~Voting Agreement dated July 28, 2021~~Amended and Restated Finward Bancorp 2015 Stock Option and Equity Incentive Plan (incorporated ~~herein~~ by reference to Exhibit 10.1 toof the ~~Bancorp’s~~registrant’s Current Report on Form 8-K ~~dated July 29, 2021)~~filed with the SEC on March 2, 2022).
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.1
Section 1350 Certifications.
101
The following materials from the Bancorp’s Form 10-Q for the quarterly period ended ~~September 30, 2021,~~March 31, 2022, 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
~~104~~
Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

4640

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.

FINWARD BANCORP
Date: ~~November 9, 2021~~May 16, 2022
/s/ Benjamin J. Bochnowski
Benjamin J. Bochnowski
President and Chief Executive Officer
Date: ~~November 9, 2021~~
May 16, 2022
/s/ Peymon S. Torabi
Peymon S. Torabi
Executive Vice President, Chief Financial
Officer and Treasurer

4741

Three months ended September 30, 2020	As Reported		Adjustment			As Revised
Compensation and benefits	$	5,263	$	254		$	5,517
Total noninterest expense		9,781		254			10,035
Income before income tax expense		5,913		(254	)		5,659
Income tax expenses		1,010		(38	)		972
Net income		4,903		(216	)		4,687
Earnings per common share:
Basic		1.42		(0.07	)		1.35
Diluted		1.42		(0.07	)		1.35

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 nine months ending September 30, 2020*
Net income		13,158		(507	)		12,651
Retained earnings		110,122		(1,068	)		109,054
Total equity		148,941		(1,068	)		147,873

For the quarter ending June 30, 2020
Retained earnings		106,293		(852	)		105,441
Total equity		145,181		(852	)		144,329

*For the quarter ending September 30, 2020*
Net income		4,903		(216	)		4,687
Retained earnings		110,122		(1,068	)		109,054
Total equity		148,941		(1,068	)		147,873

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

	(Dollars in thousands)
	Unrealized gain/(loss)
Ending balance, December 31, 2020	$	10,441
Current period change		(7,833	)
Ending balance, September 30, 2021	$	2,608

	(Dollars in thousands)
	September 30, 2021		December 31, 2020
Residential real estate	$	81	$	328
Commercial business		0		210
Total	$	81	$	538


(dollars in thousands)	Total
Remainder 2021		249
2022		983
2023		962
2024		919
2025		261
Total	$	3,374

	(Dollars in Thousands)
	Collateralized
	debt obligations
	other-than-temporary
(Dollars in thousands)	impairment
Ending balance, December 31, 2020	$	173
Additions not previously recognized		0
Ending balance, September 30, 2021	$	173

(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

	Maturing		After one		After five
	within		but within		but within		After
	one year		five years		fifteen years		fifteen years		Total
Residential real estate	$	9,363	$	34,561	$	107,164	$	293,665		444,753
Home equity		3,767		21,328		8,826		363		34,284
Commercial real estate		22,631		111,991		270,678		3,075		408,375
Construction and land development		29,207		41,187		63,310		17,106		150,810
Multifamily		16,915		104,713		110,556		2,083		234,267
Farmland		-		-		-		-		-
Consumer		35		861		28		-		924
Manufactured Homes		-		59		10,760		27,817		38,636
Commercial business		44,914		51,377		15,585		520		112,396
Government		195		3,211		4,770		-		8,176
Total loans receivable	$	127,027	$	369,288	$	591,677	$	344,629	$	1,432,621

The Bancorp's impaired loans, including purchased credit impaired loans, are summarized below:
(Dollars in thousands)	(unaudited)
Loan Segment	March 31, 2022		December 31, 2021
Residential real estate	$	3,661	$	1,771
Home equity		269		284
Commercial real estate		4,461		1,600
Construction and land development		804		-
Multifamily		3,302		556
Commercial business		1,562		1,597
Consumer		21		-
Manufactured homes		-		-
Government		-		-
Total	$	14,080	$	5,808

The Bancorp's troubled debt restructured loans are summarized below:
(Dollars in thousands)	(unaudited)
Loan Segment	March 31, 2022		December 31, 2021
Residential real estate	$	532	$	342
Home equity		88		83
Commercial real estate		645		747
Construction and land development		-		-
Multifamily		-		-
Commercial business		681		694
Consumer		-		-
Manufactured homes		-		-
Government		-		-
Total	$	1,946	$	1,866

The Bancorp's provision for loan losses for the three months ended are
summarized below:
(Dollars in thousands)
	(unaudited)
Loan Segment	March 31, 2022			March 31, 2021
Residential real estate	$	(8	)	$	(41	)
Home equity		(3	)		34
Commercial real estate		15			320
Construction and land development		16			182
Multifamily		41			54
Commercial business		(99	)		36
Consumer		38			(7	)
Manufactured homes		-			-
Government		-			-
Total	$	-		$	578

The Bancorp's charge-off and recovery information is summarized below:							The Bancorp's charge-off and recovery information is summarized below:
(Dollars in thousands)								(unaudited)
								As of March 31, 2022
Loan Segment	September 30, 2021			September 30, 2020				Charge-off			Recoveries		Net Charge-offs
Residential real estate	$	250		$	58			$	-		$	21	$	21
Home equity		99			(11	)			-			-		-
Commercial real estate		946			694				-			-		-
Construction and land development		483			91				-			-		-
Multifamily		161			21				-			-		-
Farmland		-			-
Commercial business		(647	)		1,045				-			31		31
Consumer		1			(10	)			(10	)		2		(8	)
Manufactured homes		-			-				-			-
Government		-			(17	)			-			-		-
Total	$	1,293		$	1,871			$	(10	)	$	54	$	44

The Bancorp's allowance to total loans and non-performing loans are
summarized below:
(Dollars in thousands)	(unaudited)
	March 31, 2022			December 31, 2021

Allowance for loan losses	$	13,387		$	13,343
Total loans	$	1,439,728		$	966,720
Non-performing loans	$	8,908		$	7,261
ALL-to-total loans		0.93	%		1.38	%
ALL-to-non-performing loans (coverage ratio)		150.3	%		183.8	%

(Dollars in millions)
	Actual					Capital Adequacy Purposes					Corrective Action Regulations
At June 30, 2021	Amount		Ratio			Amount		Ratio			Amount		Ratio
Common equity tier 1 capital to risk-weighted assets	$	133.8		13.1	%	$	45.9		4.5	%		N/A		N/A
Tier 1 capital to risk-weighted assets	$	133.8		13.1	%	$	61.3		6.0	%		N/A		N/A
Total capital to risk-weighted assets	$	146.6		14.4	%	$	81.7		8.0	%		N/A		N/A
Tier 1 capital to adjusted average assets	$	133.8		8.4	%	$	64.6		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, 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

Quarter-to-Date
(Dollars in thousands)	Average Balances, Interest, and Rates														Average Balances, Interest, and Rates
(unaudited)	September 30, 2021							September 30, 2020							March 31, 2022							March 31, 2021
	Average Balance			Interest		Rate (%)		Average Balance			Interest		Rate (%)		Average Balance			Interest		Rate (%)		Average Balance			Interest		Rate (%)
ASSETS																		`
Interest bearing deposits in other financial institutions	$	53,786		$	12		0.09	$	72,920		$	22		0.12	$	22,295		$	8		0.14	$	51,688		$	12		0.09
Federal funds sold		1,112			-		-		719			7		3.89		8,015			-		-		788			-		-
Certificates of deposit in other financial institutions		1,262			6		1.90		1,877			10		2.13		1,725			3		0.70		1,598			8		2.00
Securities available-for-sale		486,993			2,363		1.94		315,090			1,506		1.91		510,119			2,575		2.02		383,877			1,941		2.02
Loans receivable		960,274			10,270		4.28		975,794			11,263		4.62
Loans receivable*																1,274,407			13,286		4.17		975,593			10,746		4.41
Federal Home Loan Bank stock		3,247			15		1.85		3,918			28		2.86		4,027			22		2.19		3,918			20		2.04
Total interest earning assets		1,506,674		$	12,666		3.36		1,370,318		$	12,836		3.75		1,820,588		$	15,894		3.49		1,417,462		$	12,727		3.59
Cash and non-interest bearing deposits in other financial institutions		41,378							15,814							20,183							33,719
Allowance for loan losses		(13,688	)						(9,917	)						(13,367	)						(12,662	)
Other noninterest bearing assets		97,290							98,879							127,943							98,316
Total assets	$	1,631,654						$	1,475,094						$	1,955,347						$	1,536,835

LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits	$	1,436,125		$	452		0.13	$	1,282,698		$	1,050		0.33	$	1,737,620		$	337		0.08	$	1,348,160		$	651		0.19
Repurchase agreements		20,970			13		0.25		16,246			15		0.37		19,390			16		0.33		14,479			10		0.28
Borrowed funds		41			1		9.76		12,000			83		2.77		6,091			6		0.39		2,967			20		2.70
Total interest bearing liabilities		1,457,136		$	466		0.13		1,310,944		$	1,148		0.35		1,763,101		$	359		0.08		1,365,606		$	681		0.20
Other noninterest bearing liabilities		15,508							18,034							21,872							19,049
Total liabilities		1,472,644							1,328,978							1,784,973							1,384,655
Total stockholders' equity		159,010							146,116							170,374							152,180
Total liabilities and stockholders' equity	$	1,631,654						$	1,475,094						$	1,955,347						$	1,536,835

Net intrest spread																3.41	%						3.39	%
Net interest margin**																3.41	%						3.40	%
Ratio of interest-earning assets to interest-bearing liabilities															1.03		x					1.04		x

Year-to-Date
(Dollars in thousands)	Average Balances, Interest, and Rates
	September 30, 2021							September 30, 2020
	Average Balance			Interest		Rate (%)		Average Balance			Interest		Rate (%)
ASSETS
Interest bearing deposits in other financial institutions	$	53,774		$	33		0.08	$	42,025		$	91		0.29
Federal funds sold		1,064			-		-		2,716			92		4.52
Certificates of deposit in other financial institutions		1,443			21		1.94		1,859			35		2.51
Securities available-for-sale		435,119			6,428		1.97		295,073			4,708		2.13
Loans receivable		970,740			31,291		4.30		954,985			33,589		4.69
Federal Home Loan Bank stock		3,535			55		2.07		3,916			95		3.23
Total interest earning assets		1,465,675		$	37,828		3.44		1,300,574		$	38,610		3.96
Cash and non-interest bearing deposits in other financial institutions		37,186							17,530
Allowance for loan losses		(13,205	)						(9,508	)
Other noninterest bearing assets		97,674							98,611
Total assets	$	1,587,330						$	1,407,207

LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits	$	1,395,883		$	1,652		0.16	$	1,222,497		$	4,494		0.49
Repurchase agreements		17,458			35		0.27		13,959			72		0.69
Borrowed funds		992			23		3.09		13,386			270		2.69
Total interest bearing liabilities		1,414,333		$	1,710		0.16		1,249,842		$	4,836		0.52
Other noninterest bearing liabilities		17,052							16,270
Total liabilities		1,431,385							1,266,112
Total stockholders' equity		155,945							141,095
Total liabilities and stockholders' equity	$	1,587,330						$	1,407,207

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, ~~2021~~2022 – January 31, ~~2021~~2022		-		N/A		-		48,828
February 1, ~~2021~~2022 – February 28, ~~2021~~2022		-		N/A		-		48,828
March 1, ~~2021~~2022 – March 31, ~~2021~~2022		-		~~N/A~~		-		~~48,828~~
~~April 1, 2021 – April 30, 2021~~		-		~~N/A~~		-		~~48,828~~
~~May 1, 2021 – May 31, 2021~~		-		~~N/A~~		-		~~48,828~~
~~June 1, 2021 – June 30, 2021~~		-		~~N/A~~		-		~~48,828~~
~~July 1, 2021 – July 31, 2021~~		-		~~N/A~~		-		~~48,828~~
~~August 1, 2021 – August 31, 2021~~		-		~~N/A~~		-		~~48,828~~
~~September 1, 2021 – September 30, 2021~~		-		~~N/A~~		-		~~48,828~~
		-		N/A		-		48,828

	101		The following materials from the Bancorp’s Form 10-Q for the quarterly period ended ~~September 30, 2021,~~March 31, 2022, 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	~~104~~	Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

		FINWARD BANCORP



Date: ~~November 9, 2021~~May 16, 2022		/s/ Benjamin J. Bochnowski
		Benjamin J. Bochnowski
		President and Chief Executive Officer




Date: ~~November 9, 2021~~ May 16, 2022		/s/ Peymon S. Torabi
		Peymon S. Torabi
		Executive Vice President, Chief Financial
		Officer and Treasurer