Finward Bancorp 10-K

Item 8. Financial Statements   Report of Independent Registered Public Accounting Firm     To the Stockholders and Board of Directors  NorthWest Indiana Bancorp and Subsidiaries     Opinion on the consolidated financial statements   We have audited the accompanying consolidated balance sheets of NorthWest Indiana Bancorp and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.   Basis for Opinion   The Company's management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.   Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.   Critical Audit Matters   The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.   Page 66 of 117     Qualitative Factors used in the Allowance for Loan Losses – Refer to Notes 1 and 4 to the Consolidated Financial Statements   Critical Audit Matter Description   As described in Notes 1 and 4 to the Company’s consolidated financial statements, the Company had a gross loan portfolio of approximately $966.6 million and related allowance for loan losses of approximately $12.5 million as of December 31, 2020. The allowance for loan losses includes a reserve for loans collectively evaluated for impairment of approximately $10.7 million and loans individually evaluated for impairment of approximately $1.8 million. The estimate of the collectively evaluated component of the allowance for loan losses considers the Company’s historical loss experience by loan segment, adjusted for qualitative factors based on general economic conditions and other qualitative risk factors. These qualitative factors include changes in trends in volume and terms of loans, changes in loan concentrations, changes in the trends and severity of problem loans, current local and national economic conditions and trends including unemployment, changes in the banking industry including legal and regulatory requirements, changes in lending staff, policies and procedures, changes in the trends and severity of findings and downgrades from independent loan reviews. These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in the Company’s historic loss experience.   We identified the qualitative factors used in the allowance for loan losses as a critical audit matter because of the necessary judgement applied by us to evaluate management’s significant estimates and subjective assumptions in determining qualitative adjustments.    How the Critical Audit Matter was Addressed in the Audit   Our audit procedures related to the qualitative factors used in the allowance for loan losses included the following, among others:     ● We obtained an understanding of management’s processes for identifying relevant qualitative factors and quantifying related adjustments.   ● We evaluated the design of controls over management’s evaluation of the allowance related to the qualitative factors used in the allowance for loan losses, including controls addressing management’s review of the qualitative and quantitative analysis related to the qualitative risk factors.   ● We evaluated the of reasonableness of management’s judgments related to qualitative adjustments in comparison to management’s policies.   ● We considered whether qualitative factors were consistently applied period over period, where applicable.   ● We evaluated whether management factors were supported by evidence from internal and external sources and loan portfolio performance.   ● We analytically evaluated the allowance related to loans collectively evaluated for impairment by loan segment year over year for reasonableness against overall trends in the economy, industry, and loan portfolio performance.   Goodwill Impairment Analysis – Refer to Notes 1 and 7 to the Consolidated Financial Statements   Critical Audit Matter Description   The Company’s goodwill totaled $11.1 million as of December 31, 2020. As described in Note 1 and 7 to the Company’s consolidated financial statements, goodwill is evaluated for impairment on an annual basis, or more often if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. During 2020 the Company’s market value fell below book value and the Company performed a quantitative assessment of goodwill for impairment with the assistance of a third-party valuation specialist as of June 30, 2020. This evaluation resulted in the conclusion that the Company’s fair value exceeded the carrying value and no goodwill impairment was recorded. With the assistance of another third-party valuation specialist, the Company performed another quantitative assessment as of December 31, 2020, the Company’s annual goodwill impairment evaluation date, which reached the same conclusion.   Page 67 of 117     We identified the evaluation of goodwill for impairment as a critical audit matter due to the subjective nature of the assumptions used to estimate the Company’s fair value. The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of the Company to its carrying value. The Company, with the assistance of its third-party valuation specialists, determines its fair value using a blend of the income approach (discounted cash flow model) and market approach (guideline public company method or guideline transaction method). The determination of the fair value using the discounted cash flow model requires management to make significant estimates and assumptions related to forecasts of future income, provision for credit losses, and discount rates, which are sensitive to changes in expectations about future market or economic conditions, including uncertainty resulting from the COVID-19 pandemic. The determination of the fair value using the guideline public company method requires 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 requires management to review the value of the business based on pricing multiples derived from the sale of companies that are similar to the Company.   How the Critical Audit Matter Was Addressed in the Audit   Our audit procedures related to the estimated fair value of the Company, with the support of our internal valuation specialists, included the following, among others:     ● We obtained an understanding of the controls over management’s goodwill impairment evaluation   ● We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) external information.   ● We assessed the appropriateness of methodologies selected by management and tested the reasonableness of significant assumptions by comparing to external sources.   ● We performed sensitivity analysis of significant assumptions to evaluate changes in the fair value estimate of the Company resulting from changes in the related assumptions.   /s/ Plante & Moran, PLLC Plante & Moran, PLLC   We have served as the Company’s auditor since 2009.   Chicago, Illinois March 22, 2021   Page 68 of 117       Consolidated Balance Sheets       December 31,   (Dollars in thousands)   2020     2019                     ASSETS                                   Cash and non-interest bearing deposits in other financial institutions   $ 14,014     $ 20,964   Interest bearing deposits in other financial institutions     5,908       10,750   Federal funds sold     -       15,544                     Total cash and cash equivalents     19,922       47,258                     Certificates of deposit in other financial institutions     1,897       2,170                     Securities available-for-sale     410,669       277,219   Loans held-for-sale     11,329       6,091   Loans receivable     966,578       906,869   Less: allowance for loan losses     ( 12,458 )     ( 8,999 ) Net loans receivable     954,120       897,870   Federal Home Loan Bank stock     3,918       3,912   Accrued interest receivable     4,713       4,029   Premises and equipment     30,785       29,407   Foreclosed real estate     538       1,083   Cash value of bank owned life insurance     30,725       30,017   Goodwill     11,109       11,109   Other assets     17,800       18,557                     Total assets   $ 1,497,525     $ 1,328,722                     LIABILITIES AND STOCKHOLDERS' EQUITY                                   Deposits:                 Non-interest bearing   $ 241,620     $ 172,094   Interest bearing     1,060,719       982,276   Total     1,302,339       1,154,370   Repurchase agreements     13,711       11,499   Borrowed funds     6,149       14,000   Accrued expenses and other liabilities     22,404       14,750                     Total liabilities     1,344,603       1,194,619                     Stockholders' Equity:                 Preferred stock, no par or stated value; 10,000,000 shares authorized, none outstanding     -       -   Common stock, no par or stated value; 10,000,000 shares authorized; shares issued and outstanding: December 31, 2020 - 3,462,916 December 31, 2019 - 3,451,797     -       -   Additional paid-in capital     29,987       29,657   Accumulated other comprehensive income     10,441       4,261   Retained earnings     112,494       100,185                     Total stockholders' equity     152,922       134,103                     Total liabilities and stockholders' equity   $ 1,497,525     $ 1,328,722     See accompanying notes to consolidated financial statements.   Page 69 of 117       Consolidated Statements of Income   (Dollars in thousands, except per share data)   Year Ended December 31,       2020     2019   Interest income:                 Loans receivable                 Real estate loans   $ 35,875     $ 37,574   Commercial loans     8,162       6,451   Consumer loans     830       430   Total loan interest     44,867       44,455   Securities     6,512       6,948   Other interest earning assets     242       847                     Total interest income     51,621       52,250                     Interest expense:                 Deposits     5,321       8,359   Repurchase agreements     87       233   Borrowed funds     332       500                     Total interest expense     5,740       9,092                     Net interest income     45,881       43,158   Provision for loan losses     3,687       2,584                     Net interest income after provision for loan losses     42,194       40,574                     Noninterest income:                 Gain on sale of loans held-for-sale, net     7,588       2,071   Fees and service charges     5,161       4,737   Gain on sale of securities, net     2,348       621   Wealth management operations     2,138       1,915   Increase in cash value of bank owned life insurance     708       688   Gain on sale of foreclosed real estate     78       78   Benefit from bank owned life insurance     -       205   Other     127       355                     Total noninterest income     18,148       10,670                     Noninterest expense:                 Compensation and benefits     22,065       19,617   Occupancy and equipment     4,933       4,548   Data processing     2,267       2,967   Federal deposit insurance premiums     788       300   Marketing     732       926   Professional services     640       803   Other     9,421       8,227                     Total noninterest expense     40,846       37,388                     Income before income tax expenses     19,496       13,856   Income tax expenses     2,892       1,759                     Net income   $ 16,604     $ 12,097                     Earnings per common share:                 Basic   $ 4.80     $ 3.53   Diluted   $ 4.80     $ 3.53                     Dividends declared per common share   $ 1.24     $ 1.23     See accompanying notes to consolidated financial statements.   Page 70 of 117       Consolidated Statements of Comprehensive Income   (Dollars in thousands)   Year Ended December 31,       2020     2019                     Net income   $ 16,604     $ 12,097                     Net change in net unrealized gains and losses on securities available-for-sale:                 Unrealized gain arising during the period     10,169       9,547   Less: reclassification adjustment for gains included in net income     ( 2,348 )     ( 621 ) Net securities gain during the period     7,821       8,926   Tax effect     ( 1,641 )     ( 1,869 ) Net of tax amount     6,180       7,057                     Comprehensive income, net of tax   $ 22,784     $ 19,154     See accompanying notes to consolidated financial statements.     Consolidated Statements of Changes in Stockholders’ Equity                       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, 2019   $ -     $ 11,927     $ ( 2,796 )   $ 92,333     $ 101,464                                             Comprehensive income:                                         Net income     -       -       -       12,097       12,097   Net unrealized loss on securities available-for- sale, net of reclassification and tax effects     -       -       7,057       -       7,057   Comprehensive income                             19,154   Net surrender value of 1,245 restricted stock awards           ( 63 )                 ( 63 ) Stock-based compensation expense     -       301       -       -       301   Issuance of 416,478 shares at $42.00 per share, for acquisition of AJS Bancorp, Inc           17,492                   17,492   Cash dividends, $1.23 per share     -       -       -       ( 4,245 )     ( 4,245 )                                           Balance at December 31, 2019   $ -     $ 29,657     $ 4,261     $ 100,185     $ 134,103                                             Comprehensive income:                                         Net income     -       -       -       16,604       16,604   Net unrealized gain on securities available-for- sale, net of reclassification and tax effects     -       -       6,180       -       6,180   Comprehensive income                             22,784   Net surrender value of 1,904 restricted stock awards           ( 85 )                 ( 85 ) Stock-based compensation expense     -       415       -       -       415   Cash dividends, $1.24 per share     -       -       -       ( 4,295 )     ( 4,295 )                                           Balance at December 31, 2020   $ -     $ 29,987     $ 10,441     $ 112,494     $ 152,922     See accompanying notes to consolidated financial statements.   Page 71 of 117       Consolidated Statements of Cash Flows   NorthWest Indiana Bancorp Consolidated Statements of Cash Flows     (Dollars in thousands)   Year ended December 31,       2020     2019   CASH FLOWS FROM OPERATING ACTIVITIES:                 Net income   $ 16,604     $ 12,097   Adjustments to reconcile net income to net cash provided by operating activities:                 Origination of loans for sale     ( 224,945 )     ( 78,175 ) Sale of loans originated for sale     226,447       77,018   Depreciation and amortization, net of accretion     3,094       1,888   Deferred tax expense     690       1,172   Amortization of mortgage servicing rights     107       60   Stock based compensation expense     415       301   Net surrender value of restricted stock awards     ( 85 )     ( 63 ) Gain on sale of securities, net     ( 2,348 )     ( 621 ) Gain on sale of loans held-for-sale, net     ( 7,400 )     ( 1,885 ) Gain on sale of premises and equipment, net     -       ( 133 ) Gain on sale of foreclosed real estate     ( 78 )     ( 78 ) Gain on derivatives     ( 188 )     ( 186 ) Benefit from bank owned life insurance     -       ( 205 ) Provision for loan losses     3,687       2,584   Net change in:                 Interest receivable     ( 684 )     ( 397 ) Other assets     ( 1,817 )     ( 5,407 ) Accrued expenses and other liabilities     7,650       2,987   Total adjustments     4,545       ( 1,140 ) Net cash - operating activities     21,149       10,957                     CASH FLOWS FROM INVESTING ACTIVITIES:                 Proceeds from maturities of certificates of deposit in other financial institutions     795       739   Purchase of certificates of deposit in other financial institutions     ( 522 )     ( 885 ) Proceeds from maturities and pay downs of securities available-for-sale     67,014       31,595   Proceeds from sales of securities available-for-sale     51,350       37,939   Purchase of securities available-for-sale     ( 243,351 )     ( 93,205 ) Loan participations purchased     ( 9,054 )     -   Net change in loans receivable     ( 49,196 )     ( 54,838 ) Purchase of Federal Home Loan Bank Stock     ( 6 )     60   Purchase of premises and equipment, net     ( 3,735 )     ( 3,041 ) Proceeds from sale of premises and equipment     -       243   Proceeds from sale of foreclosed real estate     809       1,227   Write down of foreclosed real estate     46       120   Cash and cash equivalents from acquisition activity, net     -       52,560   Change in cash value of bank owned life insurance     ( 708 )     ( 688 ) Net cash - investing activities     ( 186,558 )     ( 28,174 )                   CASH FLOWS FROM FINANCING ACTIVITIES:                 Change in deposits     148,003       80,550   Proceeds from FHLB advances     -       -   Repayment of FHLB advances     ( 8,000 )     ( 29,000 ) Repayment of trust preferred security related to First Personal Merger     -       -   Change in other borrowed funds     2,361       ( 129 ) Dividends paid     ( 4,291 )     ( 4,085 ) Net cash - financing activities     138,073       47,336   Net change in cash and cash equivalents     ( 27,336 )     30,119   Cash and cash equivalents at beginning of period     47,258       17,139   Cash and cash equivalents at end of period   $ 19,922     $ 47,258                     SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                 Cash paid during the period for:                 Interest   $ 5,865     $ 9,099   Income taxes     1,025       1,605   Acquisition activity:                 Fair value of assets acquired, including cash and cash equivalents   $ -     $ 172,925   Value of goodwill and other intangible assets     -       5,856   Fair value of liabilities assumed     -       145,546   Cash paid for acquisition     -       15,743   Issuance of common stock for acquisition     -       17,492   Noncash activities:                 Transfers from loans to foreclosed real estate   $ 233     $ 639     See accompanying notes to consolidated financial statements.   Page 72 of 117     Notes to Consolidated Financial Statements Years ended December 31, 2020 and 2019     NOTE 1 - Summary of Significant Accounting Policies Principles of Consolidation – The consolidated financial statements include NorthWest Indiana Bancorp (the “Bancorp” or “NWIN”), its wholly-owned subsidiaries NWIN Risk Management, Inc. (a captive insurance subsidiary) and Peoples Bank (the “Bank”), and the Bank’s wholly owned subsidiaries, Peoples Service Corporation, NWIN, LLC, NWIN Funding, Incorporated, and Columbia Development Company, LLC. 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 dependent upon the earnings of the Bank. Peoples Service Corporation provides insurance and annuity investments to the Bank’s wealth management customers. NWIN, LLC is located in Las Vegas, Nevada and serves as the Bank’s investment subsidiary and parent of a real estate investment trust, NWIN Funding, Inc. NWIN Funding, Inc. was formed as an Indiana Real Estate Investment Trust. The formation of NWIN Funding, Inc. provides the Bancorp with a vehicle that may be used to raise capital utilizing portfolio mortgages as collateral, without diluting stock ownership. In addition, NWIN Funding, Inc. receives favorable state tax treatment for income generated by its operations. Columbia Development Company is a limited liability company that serves to hold certain real estate properties that are acquired through foreclosure. All significant inter-company accounts and transactions have been eliminated in consolidation.   Use of Estimates – Preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period, as well as the disclosures provided. Actual results could differ from those estimates. Estimates associated with the allowance for 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.   Concentrations of Credit Risk – The Bancorp grants residential, commercial real estate, commercial business and installment loans to customers primarily in Lake County, in northwest Indiana, and Cook County, in northeast Illinois. 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.   Cash Flow Reporting – For purposes of the statements of cash flows, the Bancorp considers cash on hand, noninterest bearing deposits in other financial institutions, all interest bearing deposits in other financial institutions with original maturities of 90 days or less, and federal funds sold to be cash and cash equivalents. The Bancorp reports net cash flows for customer loan and deposit transactions and short-term borrowings with maturities of 90 days or less.   Certificates of deposits in other financial institutions – Certificates of deposits in other financial institutions generally mature within 5 years and are carried at cost.   Securities – The Bancorp classifies securities into held-to-maturity, available-for-sale, or trading categories. Held-to-maturity securities are those which management has the positive intent and the Bancorp has the ability to hold to maturity, and are reported at amortized cost. Available-for-sale securities are those the Bancorp may decide to sell if needed for liquidity, asset-liability management or other reasons. Available-for-sale securities are reported at fair value, with unrealized gains and losses reported in other comprehensive income, net of tax. At December 31, 2020, and 2019, all of the Bancorp’s securities were classified as available-for-sale. The Bancorp does not have a held to maturity or trading portfolio. Realized gains and losses resulting from the sale of securities recorded on the trade date are computed by the specific identification method. Interest and dividend income, adjusted by amortization of premiums or discounts on a level yield method, are included in earnings. Securities are reviewed for other-than-temporary impairment on a quarterly basis.   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; and an assessment of whether the Bancorp has ( 1 ) the intent to sell the debt security or ( 2 ) it is more likely than not that the Bancorp will be required to sell the debt security before its anticipated market recovery. If either of these conditions are 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 credit loss will be transferred from accumulated other comprehensive loss as an immediate reduction of current earnings.   Page 73 of 117     Loans Held-for-Sale – Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair market value, as determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.   Mortgage loans held-for-sale can be sold with servicing rights retained or released. The carrying value of mortgage loans sold is reduced by the amount allocated to the servicing rights. Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.   Loans and Loan Interest Income – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, and net deferred loan fees and costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. The accrual of interest income on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Consumer loans are typically charged-off no later than when they reach 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on non-accrual or charged-off status at an earlier date if collection of principal or interest is considered doubtful.   Generally, interest accrued but not received for loans placed on non-accrual status is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.   Allowance for Loan Losses – The allowance for loan losses (“allowance”) is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off.   A loan is considered impaired when, based on current information and events, it is probable that the Bancorp will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case by case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are normally collectively evaluated for impairment, unless part of a larger relationship or a trouble debt restructuring.   Troubled Debt Restructures – A troubled debt restructuring of a loan is undertaken to improve the likelihood that the loan will be repaid in full under the modified terms in accordance with a reasonable repayment schedule. All modified loans are evaluated to determine whether the loan should be reported as a troubled debt restructure (TDR). A loan is a TDR when the Bancorp, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower by modifying or renewing a loan under terms that the Bancorp would not otherwise consider. To make this determination, the Bancorp must determine whether (a) the borrower is experiencing financial difficulties and (b) the Bancorp granted the borrower a concession. This determination requires consideration of all of the facts and circumstances surrounding the modification. An overall general decline in the economy or some level of deterioration in a borrower's financial condition does not inherently mean the borrower is experiencing financial difficulties.   Page 74 of 117     On March 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which provides entities with optional temporary relief from certain accounting and financial reporting requirements under U.S. GAAP. Section 4013 of the CARES Act allows financial institutions to suspend application of certain TDR accounting guidance for loan and lease modifications related to the COVID- 19 pandemic made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the COVID- 19 national emergency, provided certain criteria are met. Section 4013 of the CARES Act was amended on December 27, 2020 to extend this relief until January 1, 2022. The relief can be applied to loan and lease modifications for borrowers that were not more than 30 days past due as of December 31, 2019 and to loan and lease modifications that defer or delay the payment of principal or interest, or change the interest rate on the loan. The Company chose to apply this relief to eligible loan and lease modifications. At December 31, 2020, loan and lease modification balances related to the COVID- 19 pandemic were $ 14.9 million.   Some of the factors considered by management when determining whether a borrower is experiencing financial difficulties are: ( 1 ) is the borrower currently in default on any of its debts, ( 2 ) has the borrower declared or is the borrower in the process of declaring bankruptcy, and ( 3 ) absent the current modification, the borrower would likely default.   Federal Home Loan Bank Stock – The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.   Transfers of Financial Assets – Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when ( 1 ) the assets have been isolated from the Bancorp, ( 2 ) the transferee obtains the right (free of conditions that constrain it from taking advantage of the right) to pledge or exchange the transferred assets, and ( 3 ) the Bancorp does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.   Premises and Equipment – Land is carried at cost. Premises and equipment are carried at cost less accumulated depreciation. Premises and related components are depreciated using the straight-line method with useful lives ranging from 15 to 39 years. Furniture and equipment are depreciated using the straight-line method with useful lives ranging from 2 to 10 years.   Foreclosed Real Estate – Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated costs to sell when acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.   Long-term Assets – Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.   Bank Owned Life Insurance – The Bancorp has purchased life insurance policies on certain key executives. In accordance with accounting for split-dollar life insurance, Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.   Goodwill and Intangibles – The Bancorp records the assets acquired, including identified intangible assets, and the liabilities assumed in acquisitions at their fair values. These fair values often involve estimates based on third -party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques that may include estimates of attrition, inflation, asset growth rates or other relevant factors. In addition, the determination of the useful lives over which an intangible asset will be amortized is subjective. Under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 350, goodwill and indefinite-lived assets recorded are reviewed for impairment on an annual basis, as well as on an interim basis if events or changes indicate that the asset might be impaired. An impairment loss is recognized for any excess of carrying value over fair value of the goodwill or the indefinite-lived intangible asset.   Page 75 of 117     Repurchase Agreements – Substantially, all repurchase agreement liabilities represent amounts advanced by various customers that are not covered by federal deposit insurance and are secured by securities owned by the Bancorp.               Income Taxes – Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.   At December 31, 2020 and 2019, the Bancorp evaluated tax positions taken for filing with the Internal Revenue Service and all state jurisdictions in which it operates. The Bancorp believes that income tax filing positions will be sustained under examination and does not anticipate any adjustments that would result in a material adverse effect on the Bancorp's financial condition, results of operations, or cash flows. Accordingly, the Bancorp has not recorded any reserves or related accruals for interest and penalties for uncertain tax positions at December 31, 2020 and 2019.   Loan Commitments and Related Financial Instruments – Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and standby letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.   As part of mortgage banking operations, the Company enters into commitments to originate loans whereby the interest rate on these loans is determined prior to funding (“interest rate lock commitments”). Similar to loans held for sale, the fair value of rate lock commitments is subject to change primarily due to changes in interest rates. The interest rate lock commitments on mortgage loans intended to be sold are recorded at fair value with changes in fair value recorded in current earnings as part of gain on sale of loans held-for-sale, net.   Earnings Per Common Share – Basic earnings per common share is net income divided by the weighted-average number of common shares outstanding during the period. The restricted shares issued provide for dividend and voting rights and are therefore considered participating securities. Accordingly, all restricted stock is included in basic earnings per share.   Comprehensive Income – Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available-for-sale and the unrecognized gains and losses on postretirement benefits.   Loss Contingencies – Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe such matters currently exist that will have a material effect on the financial statements.   Restrictions on Cash –– Cash on hand or on deposit with the Federal Reserve Bank of $2.2 million was required to meet regulatory reserve and clearing requirements at December 31, 2019. As of March 26, 2020, the Federal Reserve Bank eliminated reserve requirements for certain depository institutions, including the Bank. As such, there was no reserve requirement at December 31, 2020. These balances do not earn interest. As part of derivative contracts entered into by the Bancorp, $ 3.9 million and $ 2.3 million was pledged as collateral at December 31, 2020 and 2019, respectively. These balances are included in interest bearing deposits.   Fair Value of Financial Instruments – Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular instruments. Changes in assumptions or in market conditions could significantly affect the estimates.   Page 76 of 117     Operating Segments – While the Bancorp's executive management monitors the revenue streams of the various products and services, the identifiable segments are not material and operations are managed and financial performance is evaluated on a company-wide basis. Accordingly, all of the Bancorp's financial service operations are considered by management to be aggregated in one reportable operating segment.   Reclassification – Certain amounts appearing in the consolidated financial statements and notes thereto for the year ended December 31, 2019, may have been reclassified to conform to the December 31, 2020 presentation.   Trust Assets – Assets of the Bancorp’s wealth management department, other than cash on deposit at the Bancorp, are not included in these consolidated financial statements because they are not assets of the Bancorp.   Adoption of New Accounting Pronouncements – 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 is effective for the Company’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 related to their acquisition activity.   In March 2017, the FASB issued ASU 2017 - 08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310 - 20 ): Premium Amortization on Purchased Callable Debt Securities. This Standard amends the amortization period for certain purchased callable debt securities held at a premium. In particular, the amendments in this ASU require the premium to be amortized to the earliest call date. The amendments do not, however, require an accounting change for securities held at a discount; instead, the discount continues to be amortized to maturity. The amendments in this ASU more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. In fact, in most cases, market participants price securities to the call date that produces the worst yield when the coupon is above current market rates (i.e., the security is trading at a premium), and price securities to maturity when the coupon is below market rates (i.e., the security is trading at a discount), in anticipation that the borrower will act in its economic best interest. The new guidance was effective for the Company’s year ending December 31, 2019, and was adopted on January 1, 2019. The adoption of this ASU has not had a material impact on the consolidated financial statements, management has recognized amortization expense as dictated by the amount of premiums and the differences between maturity and call dates at the time of adoption.   Upcoming Accounting Pronouncements - 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 December 31, 2023. Upon adoption, the ASU will be applied using a modified retrospective transition method to the beginning of the first reporting period in which the guidance is effective. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. Early adoption for all institutions is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management is in the process of evaluating the impact adoption of this update will have on the Bancorp’s consolidated financial statements. This process of evaluation has engaged multiple areas of the Bancorp’s management in discussing loss estimation methods and the application of these methods to specific segments of the loans receivable portfolio. Management has been actively monitoring developments and evaluating the use of different methods allowed. Due to continuing development of understanding of application, additional time is required to understand how this ASU will affect the Bancorp’s financial statements. Management plans on running parallel calculations and finalizing a method or methods of adoption in time for the effective date.   Page 77 of 117       NOTE 2 – Acquisition Activity On January 24, 2019, the Bancorp completed its previously announced acquisition of AJS Bancorp, Inc., a Maryland corporation (“AJSB”), pursuant to an Agreement and Plan of Merger dated July 30, 2018 between the Bancorp and AJSB (the “AJSB Merger Agreement”). Pursuant to the terms of the AJSB Merger Agreement, AJSB merged with and into the Bancorp, with the Bancorp as the surviving corporation. Simultaneously with the AJSB Merger, A.J. Smith Federal Savings Bank, a federally chartered savings bank and wholly-owned subsidiary of AJSB, merged with and into Peoples Bank, with Peoples Bank as the surviving bank.   In connection with the AJSB Merger, each AJSB stockholder holding 100 or more shares of AJSB common stock received fixed consideration of (i) 0.2030 shares of Bancorp common stock, and (ii) $ 7.20 per share in cash for each outstanding share of AJSB’s common stock. Stockholders holding less than 100 shares of AJSB common stock received $ 16.00 in cash and no stock consideration for each outstanding share of AJSB common stock. Any fractional shares of Bancorp common stock that an AJSB stockholder would have otherwise received in the AJSB Merger were cashed out in the amount of such fraction multiplied by $ 43.01 .   The Bancorp issued 416,478 shares of Bancorp common stock to the former AJSB stockholders, and paid cash consideration of approximately $ 15.7 million. Based upon the closing price of the Bancorp’s common stock on January 23, 2019, the transaction had an implied valuation of approximately $ 33.2 million, which includes unallocated shares held by the AJSB Employee Stock Ownership Plan (“ESOP”), some of which were cancelled in connection with the closing to satisfy the ESOP’s outstanding loan balance. Acquisition costs incurred in 2019 related to the AJSB Merger were approximately $ 2.1 million. The acquisition further expanded the Bank’s banking center network in Cook County, Illinois, expanding the Bank’s full-service retail banking network to 22 banking centers.   Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on the valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, the final purchase price for the AJSB acquisition is allocated as follows:   ASSETS         Cash and due from banks   $ 68,303   Investment securities, available for sale     3,432             Commercial     712   Residential mortgage     85,635   Multifamily     1,442   Consumer     57   Total Loans     87,846             Premises and equipment, net     3,542   FHLB stock     512   Goodwill     2,939   Core deposit intangible     2,917   Interest receivable     351   Other assets     8,939   Total assets purchased   $ 178,781   Common shares issued     17,492   Cash paid     15,743   Total purchase price   $ 33,235       LIABILITIES         Deposits         Non-interest bearing   $ 24,502   NOW accounts     10,712   Savings and money market     68,875   Certificates of deposits     40,137   Total Deposits     144,226                       Interest payable     50   Other liabilities     1,270                                                                                   Total liabilities assumed   $ 145,546     Page 78 of 117       NOTE 3 – Securities The estimated fair value of available-for-sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:       (Dollars in thousands)               Gross     Gross     Estimated       Cost     Unrealized     Unrealized     Fair       Basis     Gains     Losses     Value   December 31, 2020                                 Money market fund   $ 52,941     $ -     $ -     $ 52,941   U.S. government sponsored entities     7,881       3       ( 24 )     7,860   Collateralized mortgage obligations and residential mortgage-backed securities     151,355       3,417       ( 36 )     154,736   Municipal securities     183,103       11,102       ( 2 )     194,203   Collateralized debt obligations     2,182       -       ( 1,253 )     929   Total securities available-for-sale   $ 397,462     $ 14,522     $ ( 1,315 )   $ 410,669         (Dollars in thousands)               Gross     Gross     Estimated       Cost     Unrealized     Unrealized     Fair       Basis     Gains     Losses     Value   December 31, 2019                                 Money market fund   $ 9,670     $ -     $ -     $ 9,670   U.S. government sponsored entities     12,994       64       -       13,058   Collateralized mortgage obligations and residential mortgage-backed securities     149,339       1,745       ( 96 )     150,988   Municipal securities     97,628       4,844       ( 45 )     102,427   Collateralized debt obligations     2,202       -       ( 1,126 )     1,076   Total securities available-for-sale   $ 271,833     $ 6,653     $ ( 1,267 )   $ 277,219       Page 79 of 117     The estimated fair value of available-for-sale securities and carrying amount, if different, at December 31, 2020, by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately. Tax-equivalent yields were calculated using the 2020 tax rate.       (Dollars in thousands)       Available-for-sale       Estimated               Fair     Tax-Equivalent   December 31, 2020   Value     Yield (%)   Due in one year or less   $ 52,941       0.03   Due from one to five years     3,779       4.20   Due from five to ten years     23,344       2.67   Due over ten years     175,869       3.37                     Collateralized mortgage obligations and residential mortgage-backed securities     154,736       1.87   Total   $ 410,669       2.34     Sales of available-for-sale securities were as follows:     (Dollars in thousands)       December 31,     December 31,       2020     2019                     Proceeds   $ 51,350     $ 37,939   Gross gains     2,407       888   Gross losses     ( 59 )     ( 267 )   The tax provisions related to these net realized gains were approximately $ 493 thousand for 2020 and $ 130 thousand for 2019.   Accumulated other comprehensive income/(loss) balances, net of tax, related to available-for-sale securities, were as follows:       (Dollars in thousands)       Unrealized gain/(loss)   Ending balance, December 31, 2019   $ 4,261   Current period change     6,180   Ending balance, December 31, 2020   $ 10,441     Securities with carrying values of approximately $ 52.4 million and $ 65.5 million were pledged as of December 31, 2020 and 2019, respectively, as collateral for repurchase agreements, public funds, and for other purposes as permitted or required by law   Securities with unrealized losses at December 31, 2020, and 2019, not recognized in income are as follows:       (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 )   $ -     $ -     $ 4,975     $ ( 24 ) Collateralized mortgage obligations and residential mortgage-backed securities     11,953       ( 36 )     -       -       11,953       ( 36 ) Municipal securities     1,864       ( 2 )     -       -       1,864       ( 2 ) Collateralized debt obligations     -       -       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     Page 80 of 117         (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, 2018                                                 U.S. government sponsored entities   $ -     $ -     $ -     $ -     $ -     $ -   Collateralized mortgage obligations and residential mortgage-backed securities     8,859       ( 31 )     15,065       ( 65 )     23,924       ( 96 ) Municipal securities     4,367       ( 45 )     -       -       4,367       ( 45 ) Collateralized debt obligations     -       -       1,076       ( 1,126 )     1,076       ( 1,126 ) Total temporarily impaired   $ 13,226     $ ( 76 )   $ 16,141     $ ( 1,191 )   $ 29,367     $ ( 1,267 ) Number of securities             11               17               28       Unrealized losses on securities have not been recognized into income because the securities are of high credit quality, have undisrupted cash flows, or have been independently evaluated for other-than-temporary impairment and appropriate write downs taken. Management has the intent and ability to hold the securities for the foreseeable future, and the decline in fair value is largely due to changes in interest rates and volatility in the securities markets. The fair values are expected to recover as the securities approach maturity.     NOTE 4 – Loans Receivable Year end loans are summarized below:   Loans receivable are summarized below:   (Dollars in thousands)                     December 31, 2020     December 31, 2019   Loans secured by real estate:                 Residential real estate   $ 286,048     $ 299,569   Home equity     39,233       49,118   Commercial real estate     298,257       283,108   Construction and land development     93,562       87,710   Multifamily     50,571       51,286   Farmland     215       227   Total loans secured by real estate     767,886       771,018   Commercial business     158,140       103,222   Consumer     1,025       627   Manufactured homes     24,232       13,285   Government     10,142       15,804   Subtotal     961,425       903,956   Plus:                 Net deferred loan origination fees     5,303       2,934   Undisbursed loan funds     ( 150 )     ( 21 ) Loans receivable   $ 966,578     $ 906,869       During 2020, the Bancorp funded loans under the Paycheck Protection Program which was created and designed to provide liquidity to small businesses during the COVID- 19 pandemic. The loans are guaranteed by the SBA and loan proceeds to borrowers are forgivable by the SBA if certain criteria are met. The Company originated PPP loans totaling $ 91.5 million during the year. As of December 31, 2020, there were approximately $ 67.2 million of PPP loans included in the commercial business loan segment.   PPP processing fees received from the SBA totaling $ 3.5 million were deferred along with loan origination costs and recognized as interest income using the effective yield method. Upon forgiveness of a loan and resulting repayment by the SBA, any unrecognized net fee for a given loan is recognized as interest income. $ 1.2 million of the fees were recognized in 2020.   Page 81 of 117     (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 twelve months ended December 31, 2020:                                             Allowance for loan losses:                                         Residential real estate   $ 1,812     $ ( 2 )   $ 27     $ 374     $ 2,211   Home equity     223       -       -       53       276   Commercial real estate     3,773       ( 80 )     -       1,713       5,406   Construction and land development     1,098       ( 17 )     -       324       1,405   Multifamily     529       -       -       97       626   Farmland     -       -       -       -       -   Commercial business     1,504       ( 158 )     17       1,145       2,508   Consumer     43       ( 29 )     14       ( 2 )     26   Manufactured homes     -       -       -       -       -   Government     17       -       -       ( 17 )     -   Total   $ 8,999     $ ( 286 )   $ 58     $ 3,687     $ 12,458                                             The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the twelve months ended December 31, 2019:                                             Allowance for loan losses:                                         Residential real estate   $ 1,715     $ ( 160 )   $ 29     $ 228     $ 1,812   Home equity     202       -       -       21       223   Commercial real estate     3,335       ( 229 )     -       667       3,773   Construction and land development     756       -       -       342       1,098   Multifamily     472       -       -       57       529   Farmland     -       -       -       -       -   Commercial business     1,362       ( 1,178 )     25       1,295       1,504   Consumer     82       ( 54 )     20       ( 5 )     43   Manufactured homes     -       -       -       -       -   Government     38       -       -       ( 21 )     17   Total   $ 7,962     $ ( 1,621 )   $ 74     $ 2,584     $ 8,999     A deferred cost reserve is maintained for the portfolio of manufactured home loans that have been purchased. This reserve is available for use for manufactured home loan nonperformance and costs associated with nonperformance. If the segment performs in line with expectation, the deferred cost reserve is paid as an origination cost to the third party originator of the loan. The unamortized balance of the deferred cost reserve totaled $ 3.8 million and $ 1.9 million as of December 31, 2020 and December 31, 2019, respectively, and is included in net deferred loan origination fees and costs.   Page 82 of 117     The Bancorp's impairment analysis is summarized below:       Ending Balances                                                     (Dollars in thousands)   Individually evaluated for impairment reserves     Collectively evaluated for impairment reserves     Loan receivables     Loans individually evaluated for impairment     Purchased credit impaired loans individually evaluated for impairment     Loans collectively evaluated for impairment                                                     The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2020:                                                     Residential real estate   $ 173     $ 2,038     $ 285,651     $ 868     $ 1,297     $ 283,486   Home equity     1       275       39,286       216       137       38,933   Commercial real estate     1,089       4,317       298,257       6,190       151       291,916   Construction and land development     -       1,405       93,562       -       -       93,562   Multifamily     -       626       50,571       95       621       49,855   Farmland     -       -       215       -       -       215   Commercial business     512       1,996       156,965       1,086       1,160       154,719   Consumer     -       26       1,025       -       -       1,025   Manufactured homes     -       -       30,904       -       -       30,904   Government     -       -       10,142       -       -       10,142   Total   $ 1,775     $ 10,683     $ 966,578     $ 8,455     $ 3,366     $ 954,757                                                                                                       The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2019:                                                     Residential real estate   $ 10     $ 1,802     $ 299,333     $ 642     $ 1,581     $ 297,110   Home equity     4       219       49,181       221       216       48,744   Commercial real estate     -       3,773       283,108       1,078       487       281,543   Construction and land development     -       1,098       87,710       -       -       87,710   Multifamily     -       529       51,286       129       673       50,484   Farmland     -       -       227       -       -       227   Commercial business     152       1,352       103,088       1,041       1,150       100,897   Consumer     -       43       627       -       -       627   Manufactured homes     -       -       16,505       -       -       16,505   Government     -       17       15,804       -       -       15,804   Total   $ 166     $ 8,833     $ 906,869     $ 3,111     $ 4,107     $ 899,651     Page 83 of 117     The Bancorp's credit quality indicators are summarized below at December 31, 2020 and December 31, 2019:       Credit Exposure - Credit Risk Portfolio By Creditworthiness Category               December 31, 2020           (Dollars in thousands)   2       3     4     5     6     7     8                                                               Loan Segment   Moderate     Above average acceptable     Acceptable     Marginally acceptable     Pass/monitor     Special mention     Substandard     Total   Residential real estate   $ 1,202     $ 116,631     $ 100,334     $ 15,753     $ 41,805     $ 3,539     $ 6,387     $ 285,651   Home equity     66       4,949       31,974       108       933       761       495       39,286   Commercial real estate     -       1,847       70,062       150,983       55,202       11,983       8,180       298,257   Construction and land development     -       4,282       31,612       41,961       12,055       3,652       -       93,562   Multifamily     -       709       7,264       35,621       5,065       1,408       504       50,571   Farmland     -       -       -       -       215       -       -       215   Commercial business     7,929       75,783       16,842       33,942       20,067       1,341       1,061       156,965   Consumer     510       1       514       -       -       -       -       1,025   Manufactured homes     6,673       1,864       21,460       176       731       -       -       30,904   Government     -       -       9,202       940       -       -       -       10,142   Total   $ 16,380     $ 206,066     $ 289,264     $ 279,484     $ 136,073     $ 22,684     $ 16,627     $ 966,578         December 31, 2019           (Dollars in thousands)   2     3     4     5     6     7     8                                                               Loan Segment   Moderate     Above average acceptable     Acceptable     Marginally acceptable     Pass/monitor     Special mention     Substandard     Total   Residential real estate   $ 827     $ 119,138     $ 104,153     $ 13,463     $ 53,058     $ 4,203     $ 4,491     $ 299,333   Home equity     100       6,536       40,027       264       934       813       507       49,181   Commercial real estate     -       2,030       82,158       135,058       56,917       5,380       1,565       283,108   Construction and land development...     -       719       26,900       45,751       14,340       -       -       87,710   Multifamily     -       903       18,107       26,800       4,674       -       802       51,286   Farmland     -       -       -       -       227       -       -       227   Commercial business     8,312       13,158       19,638       39,016       20,009       2,228       727       103,088   Consumer     90       -       537       -       -       -       -       627   Manufactured homes     3,221       2,413       9,825       184       862       -       -       16,505   Government     -       1,889       11,505       2,410       -       -       -       15,804   Total   $ 12,550     $ 146,786     $ 312,850     $ 262,946     $ 151,021     $ 12,624     $ 8,092     $ 906,869     Page 84 of 117     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 theses grades by the Bancorp is uniform and conforms to regulatory definitions. The loan grading system is as follows:   1 – Minimal Risk Borrower demonstrates exceptional credit fundamentals, including stable and predictable profit margins, strong liquidity and a conservative balance sheet with superior asset quality. Excellent cash flow coverage of existing and projected debt service. Historic and projected performance indicates borrower is able to meet obligations under almost any economic circumstances.   2 – Moderate risk Borrower consistently internally generates sufficient cash flow to fund debt service, working assets, and some capital expenditures. Risk of default considered low.   3 – Above average acceptable risk Borrower generates sufficient cash flow to fund debt service and some working assets and/or capital expansion needs. Profitability and key balance sheet ratios are at or slightly above peers. Current trends are positive or stable. Earnings may be level or trending down slightly or be erratic; however, positive strengths are offsetting. Risk of default is reasonable but may warrant collateral protection.   4 – Acceptable risk Borrower generates sufficient cash flow to fund debt service, but most working asset and all capital expansion needs are provided from external sources. Profitability ratios and key balance sheet ratios are usually close to peers but one or more ratios (e.g. leverage) may be higher than peer. Earnings may be trending down over the last three years. Borrower may be able to obtain similar financing from other banks with comparable or less favorable terms. Risk of default is acceptable but requires collateral protection.   5 – Marginally acceptable risk Borrower may exhibit excessive growth, declining earnings, strained cash flow, increasing leverage and/or weakening market position that indicate above average risk. Limited additional debt capacity, modest coverage, and average or below average asset quality, margins and market share. Interim losses and/or adverse trends may occur, but not to the level that would affect the Bank’s position. The potential for default is higher than normal but considered marginally acceptable based on prospects for improving financial performance and the strength of the collateral.   6 – Pass/monitor The borrower has significant weaknesses resulting from performance trends or management concerns. The financial condition of the company has taken a negative turn and may be temporarily strained. Cash flow may be weak but cash reserves remain adequate to meet debt service. Management weaknesses are evident. Borrowers in this category will warrant more than the normal level of supervision and more frequent reporting.   7 – Special mention (watch) Special mention credits are considered bankable assets with no apparent loss of principal or interest envisioned but requiring a high level of management attention. Assets in this category are currently protected but are potentially weak. These borrowers are subject to economic, industry, or management factors having an adverse impact upon their prospects for orderly service of debt. The perceived risk in continued lending is considered to have increased beyond the level where such loans would normally be granted. These assets constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of Substandard.   8 – Substandard This classification consists of loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Financial statements normally reveal some or all of the following: poor trends, lack of earnings and cash flow, excessive debt, lack of liquidity, and the absence of creditor protection. Loans are still considered collectible, but due to increased risks and defined weaknesses of the credit, some loss could be incurred in collection if the deficiencies are not corrected.   Page 85 of 117     9 – Doubtful This classification consists of loans where the possibility of loss is high after collateral liquidation based upon existing facts, market conditions, and value. Loss is deferred until certain important and reasonably specific pending factors which may strengthen the credit can be exactly determined. These factors may include proposed acquisitions, liquidation procedures, capital injection and receipt of additional collateral, mergers or refinancing plans.   Performing loans are loans that are paying as agreed and are less than ninety days past due on payments of interest and principal.   During the twelve months ending December 31, 2020, one residential real estate loan totaling $ 108 thousand was a new troubled debt restructuring loan. In addition, during 2020, one commercial real estate loan totaling $ 142 thousand, one residential loan totaling $ 50 thousand and one home equity loan totaling $ 22 thousand were renewed as a troubled debt restructuring. One residential real estate loan totaling $ 108 thousand and one commercial business trouble debt restructuring loan totaling $ 275 thousand, had 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.   In March of 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed into law. Among other things, the CARES Act suspends the requirements related to accounting for TDRs for certain loan modifications related to the COVID- 19 pandemic. As a result of the pandemic, the Company provided a modification program to borrowers that included certain concessions such as interest only or payment deferrals. As of December 31, 2020, there were $ 14.9 million of loans that remained under a modification agreement but are not disclosed as TDRs. Regardless of whether a modification is classified as a TDR, the Company continues to apply policies for risk rating, accruing interest, and classifying loans as impaired. As of December 31, 2020, there were $ 6.5 million and $ 5.2 million of loans outstanding under provisions of the CARES act and rated substandard and special mention, respectively.   Page 86 of 117     The Bancorp's individually evaluated impaired loans are summarized below:                                 For the twelve months ended       As of December 31, 2020     December 31, 2020   (Dollars in thousands)   Recorded Investment     Unpaid Principal Balance     Related Allowance     Average Recorded Investment     Interest Income Recognized   With no related allowance recorded:                                         Residential real estate   $ 1,895     $ 3,228     $ -     $ 2,028     $ 115   Home equity     352       363       -       373       16   Commercial real estate     1,177       1,761       -       1,305       80   Construction and land development     -       -       -       -       -   Multifamily     716       798       -       763       42   Farmland     -       -       -             -   Commercial business     1,497       1,514       -       1,591       80   Consumer     -       -       -       -       -   Manufactured homes     -       -       -       -       -   Government     -       -       -       -       -                                             With an allowance recorded:                                         Residential real estate   $ 270     $ 314     $ 173     $ 174     $ 6   Home equity     1       9       1       5       -   Commercial real estate     5,164       5,164       1,089       2,109       16   Construction and land development     -       -       -       -       -   Multifamily     -       -       -       -       -   Farmland     -       -       -             -   Commercial business     749       749       512       739       30   Consumer     -       -       -       -       -   Manufactured homes     -       -       -       -       -   Government     -       -       -       -       -                                             Total:                                         Residential real estate   $ 2,165     $ 3,542     $ 173     $ 2,202     $ 121   Home equity   $ 353     $ 372     $ 1     $ 378     $ 16   Commercial real estate   $ 6,341     $ 6,925     $ 1,089     $ 3,414     $ 96   Construction & land development   $ -     $ -     $ -     $ -     $ -   Multifamily   $ 716     $ 798     $ -     $ 763     $ 42   Farmland   $ -     $ -     $ -     $ -     $ -   Commercial business   $ 2,246     $ 2,263     $ 512     $ 2,330     $ 110   Consumer   $ -     $ -     $ -     $ -     $ -   Manufactured homes   $ -     $ -     $ -     $ -     $ -   Government   $ -     $ -     $ -     $ -     $ -     Page 87 of 117                                 For the twelve months ended       As of December 31, 2019     December 31, 2019   (Dollars in thousands)   Recorded Investment     Unpaid Principal Balance     Related Allowance     Average Recorded Investment     Interest Income Recognized   With no related allowance recorded:                                         Residential real estate   $ 2,140     $ 3,555     $ -     $ 1,960     $ 85   Home equity     429       451       -       380       10   Commercial real estate     1,547       2,141       -       1,578       52   Construction & land development     -       -       -       -       -   Multifamily     802       884       -       581       20   Farmland     -       -       -       -       -   Commercial business     1,814       1,906       -       1,909       81   Consumer     -       -       -       -       -   Manufactured homes     -       -       -       -       -   Government     -       -       -       -       -                                             With an allowance recorded:                                         Residential real estate   $ 83     $ 83     $ 10     $ 143     $ 3   Home equity     8       8       4       50       -   Commercial real estate     18       18       -       382       -   Construction & land development     -       -       -       -       -   Multifamily     -       -       -       -       -   Farmland     -       -       -       -       -   Commercial business     377       377       152       513       4   Consumer     -       -       -       -       -   Manufactured homes     -       -       -       -       -   Government     -       -       -       -       -                                             Total:                                         Residential real estate   $ 2,223     $ 3,638     $ 10     $ 2,103     $ 88   Home equity   $ 437     $ 459     $ 4     $ 430     $ 10   Commercial real estate   $ 1,565     $ 2,159     $ -     $ 1,960     $ 52   Construction & land development   $ -     $ -     $ -     $ -     $ -   Multifamily   $ 802     $ 884     $ -     $ 581     $ 20   Farmland   $ -     $ -     $ -     $ -     $ -   Commercial business   $ 2,191     $ 2,283     $ 152     $ 2,422     $ 85   Consumer   $ -     $ -     $ -     $ -     $ -   Manufactured homes   $ -     $ -     $ -     $ -     $ -   Government   $ -     $ -     $ -     $ -     $ -     Page 88 of 117     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   December 31, 2020                                                         Residential real estate   $ 2,797     $ 1,119     $ 4,875     $ 8,791     $ 276,860     $ 285,651     $ 80   Home equity     616       323       416       1,355       37,931       39,286       29   Commercial real estate     1,172       237       680       2,089       296,168       298,257       437   Construction and land development     471       -       20       491       93,071       93,562       20   Multifamily     94       266       150       510       50,061       50,571       -   Farmland     -       -       -       -       215       215       -   Commercial business     845       96       269       1,210       155,755       156,965       -   Consumer     2       -       -       2       1,023       1,025       -   Manufactured homes     303       173       -       476       30,428       30,904       -   Government     380       -       -       380       9,762       10,142       -   Total   $ 6,680     $ 2,214     $ 6,410     $ 15,304     $ 951,274     $ 966,578     $ 566                                                             December 31, 2019                                                         Residential real estate   $ 3,486     $ 1,332     $ 3,724     $ 8,542     $ 290,791     $ 299,333     $ 452   Home equity     90       24       388       502       48,679       49,181       19   Commercial real estate     1,461       170       719       2,350       280,758       283,108       61   Construction and land development     143       289       -       432       87,278       87,710       -   Multifamily     140       -       160       300       50,986       51,286       -   Farmland     -       -       -       -       227       227       -   Commercial business     926       583       870       2,379       100,709       103,088       288   Consumer     -       -       -       -       627       627       -   Manufactured homes     63       36       46       145       16,360       16,505       46   Government     -       -       -       -       15,804       15,804       -   Total   $ 6,309     $ 2,434     $ 5,907     $ 14,650     $ 892,219     $ 906,869     $ 866     The Bancorp's loans on nonaccrual status are summarized below:                     (Dollars in thousands)                     December 31,        December 31,          2020     2019   Residential real estate   $ 6,390     $ 4,374   Home equity     476       473   Commercial real estate     5,390       658   Construction and land development.     -       -   Multifamily     504       420   Farmland     -       -   Commercial business     1,039       582   Consumer     -       -   Manufactured homes     -       -   Government     -       -   Total   $ 13,799     $ 6,507     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 December 31, 2020, total purchased credit impaired loans with unpaid principal balances totaled $ 5.4 million with a recorded investment of $ 3.4 million. At December 31, 2019, purchased credit impaired loans with unpaid principal balances totaled $ 6.3 million with a recorded investment of $ 4.1 million.   Page 89 of 117     As the result of the acquisition of First Personal Financial Corp. (“First Personal”), which closed in July 2018, an accretable discount totaling $ 424 thousand was created for the interest component of expected cash flows related to the purchase credit impaired portfolio. The following tables summarize the accretable periods:   Accretable interest taken from the purchase credit impaired portfolio, or income recorded for the twelve months ended December 31, is as follows:   (dollars in thousands)   First Personal   2019   $ 147   2020     99       Accretable interest taken from the purchase credit impaired portfolio, or income expected to be recorded in the future is as follows:   (dollars in thousands)   First Personal   2021     21   Total   $ 21       For the acquisitions of First Federal Savings & Loan of Hammond (“First Federal”), Liberty Savings Bank (“Liberty Savings”), First Personal, and AJSB as part of the fair value of loans receivable, a net fair value discount was established for loans. This discount, or accretable yield, is recognized in interest income over the remaining estimated life of the loan pools. The net fair value discount at the acquisition date and accretable periods are summarized below:   (dollars in thousands)   First Federal     Libery Savings     First Personal     AJSB       Net fair value discount     Accretable period in months     Net fair value discount     Accretable period in months     Net fair value discount     Accretable period in months     Net fair value discount     Accretable period in months   Residential real estate   $ 1,062       59     $ 1,203       44     $ 948       56     $ 3,734       52   Home equity     44       29       5       29       51       50       141       32   Commercial real estate     -       -       -       -       208       56       8       9   Construction and land development     -       -       -       -       1       30       -       -   Multifamily     -       -       -       -       11       48       2       48   Consumer     -       -       -       -       146       50       1       5   Commercial business     -       -       -       -       348       24       -       -   Purchased credit impaired loans     -       -       -       -       424       32       -       -   Total   $ 1,106             $ 1,208             $ 2,137             $ 3,886               Accretable yield, or income recorded for the twelve months ended December 31, is as follows:                       (dollars in thousands)   First Federal     Libery Savings     First Personal     AJSB     Total   2019   $ 22     $ 42     $ 586     $ 1,174     $ 1,824   2020     -       -       534       1,286       1,820       Accretable yield, or income expected to be recorded in the future is as follows:                               (dollars in thousands)     First Personal     AJ Smith     Total   2021     $ 243     $ 536     $ 779   2022       243       536       779   2023       106       355       461   Total     $ 592     $ 1,426     $ 2,018     Page 90 of 117       Note 5 – Premises and Equipment, Net At year end, premises and equipment are summarized as follows:       (Dollars in thousands)       2020     2019   Cost:                 Land   $ 8,933     $ 8,936   Buildings and improvements     33,394       30,863   Furniture and equipment     18,066       16,904   Total cost     60,393       56,703   Less accumulated depreciation     ( 29,608 )     ( 27,296 ) Premises and equipment, net   $ 30,785     $ 29,407     Depreciation expense was approximately $ 2.3 million and $ 1.9 million for 2020 and 2019, respectively.     Note 6 – Foreclosed Real Estate At year end, foreclosed real estate is summarized below:         (Dollars in thousands)       2020     2019   Residential real estate   $ 328     $ 957   Commercial real estate     -       126   Commercial business     210       -   Total   $ 538     $ 1,083     Page 91 of 117       Note 7 – Goodwill and Other Intangible Assets The Bancorp established a goodwill balance totaling $ 11.1 million from past acquisitions. Goodwill of $ 2.9 million, $ 5.4 million, $ 2.0 million, and $ 804 thousand were established with the acquisition of AJSB, First Personal, First Federal, and Liberty Savings, respectively. 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. As a result of the COVID- 19 outbreak, and its broad effects on the economy, the Bancorp deemed it necessary to perform an interim impairment test of goodwill as of June 30, 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 Company determined its fair value using a blend of the income approach (discounted cash flow model) and market approach (guideline public company 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 Bancorp’s estimation of fair value for the quantitative goodwill impairment testing exceeded its carrying value as of June 30, 2020 and therefore, no impairment was recognized.   Additionally, as part of the Bancorp’s annual impairment test of goodwill as of December 31, 2020, the Bancorp enlisted another 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 Company 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, no impairment was recognized. There has not been any impairment of goodwill identified or recorded. Goodwill totaled $ 11.1 million as of December 31, 2020 and December 31, 2019.   Page 92 of 117     In addition to goodwill, a core deposit intangible of $ 93 thousand for the acquisition of First Federal was established and is being amortized over an initial period of 7.9 years on a straight line basis. A core deposit intangible of $ 471 thousand for the acquisition of Liberty Savings was established and is being amortized over an initial period of 8.2 years on a straight line basis. A core deposit intangible of $ 3.0 million for the acquisition of First Personal was established and is being amortized over an initial period of 6.4 years on a straight line basis. A core deposit intangible of $ 2.9 million for the acquisition of AJSB was established and is being amortized over an initial period of 6.5 years on a straight line basis. The table below summarizes the annual amortization:   The annual amortization for the twelve months ended December 31, is as follows:                                                     (dollars in thousands)   First Federal     Liberty Savings     First Personal     AJ Smith     Total   2019   $ 12     $ 58     $ 475     $ 411     $ 545   2020     12       58       475       449       994       The expected future annual amortization for the twelve months ended December 31, as follows:                                                     (dollars in thousands)   First Federal     Liberty Savings     First Personal     AJ Smith     Total   2021     12       58       475       449       994   2022     1       58       475       449       983   2023     -       38       475       449       962   2024     -       -       470       449       919   2025     -       -       -       261       261   Total   $ 13     $ 154     $ 1,895     $ 2,057     $ 4,119     For the First Personal acquisition, as part of the fair value of certificates of deposit, a fair value premium was established of $ 133 thousand that was being amortized over 8 months on a straight line basis. Amortization taken into income was approximately $ 53 thousand during 2019. The premium was fully amortized as of December 31, 2019. For the AJSB acquisition, as part of the fair value of certificates of deposit, a fair value premium was established of $ 174 thousand that was being amortized over 14 months on a straight line basis. Approximately $ 34 thousand and $ 140 thousand of amortization was taken as a reduction to expense during 2020 and 2019, respectively. The fair market premium on the certificates of deposit has fully amortized as of year-ended December 31, 2020.     Note 8 – Income Taxes At year-end, components of income tax expense consist of the following:       (Dollars in thousands)       2020     2019   Federal:                 Current   $ 2,202     $ 587   Deferred     ( 17 )     755   State:                 Deferred, net of valuation allowance     707       417   Income tax expense   $ 2,892     $ 1,759     Effective tax rates differ from the federal statutory rate of 21 % for 2020 and 2019 applied to income before income taxes due to the following:         (Dollars in thousands)       2020     2019   Federal statutory rate     21 %     21 % Tax expense at statutory rate   $ 4,094     $ 2,909   State tax, net of federal effect     559       335   Tax exempt income     ( 887 )     ( 704 ) Bank owned life insurance     ( 149 )     ( 187 ) Captive insurance     ( 188 )     ( 197 ) Tax credit investments     ( 415 )     ( 392 ) Non-deductible transaction costs     -       58   Other     ( 122 )     ( 63 ) Total income tax expense    $ 2,892     $ 1,759     Page 93 of 117     At December 31, the components of the net deferred tax asset recorded in other assets in the consolidated balance sheets are as follows:       (Dollars in thousands)       2020     2019   Deferred tax assets:                 Bad debts   $ 3,090     $ 2,182   Deferred compensation     343       337   Net operating loss     2,553       3,218   Tax credits     70       183   Nonaccrual loan interest income     206       162   Share based compensation     256       202   REO writedowns     23       55   Unqualified deferred compensation plan     60       58   Other-than-temporary impairment     39       40   Accrued vacation     75       35   Impairment on land     -       49   Other     84       93   Total deferred tax assets     6,799       6,614                     Deferred tax liabilities:                 Depreciation     ( 1,147 )     ( 1,067 ) Prepaids     ( 443 )     ( 368 ) Mortgage servicing rights     ( 163 )     ( 49 ) Deferred stock dividends     ( 100 )     ( 101 ) Deferred loan costs, net of fees     ( 288 )     ( 93 ) Unrealized appreciation on securities available-for-sale, net     ( 2,767 )     ( 1,126 ) Purchase accounting     ( 492 )     ( 187 ) Partnership     ( 280 )     ( 173 ) Other     ( 116 )     ( 92 ) Total deferred tax liabilities     ( 5,796 )     ( 3,256 ) Valuation allowance     ( 22 )     ( 92 ) Net deferred tax asset   $ 981     $ 3,266     At December 31, 2020, the Bancorp has an Indiana net operating loss carry forward of approximately $ 1.1 million which will begin to expire in 2026 if not used. The Bancorp also has an Indiana tax credit carry forward of approximately $ 88 thousand which began to expire in 2017 and will continue to expire if not used. Management has concluded that the Indiana net operating loss will be fully utilized and therefore no valuation allowance is necessary on the Indiana net operating loss. A valuation allowance remains in place on the Indiana tax credit carryforward. A valuation allowance of $ 22 thousand and $ 92 thousand was provided at December 31, 2020 and 2019, respectively, for the Indiana tax credits.   The Bancorp acquired $ 3.3 million of federal net operating loss carryforwards and $ 7.2 million of Illinois net operating loss carryforwards with the acquisition of First Personal Financial Corp during 2018 of which $ 2.2 million of the federal losses expire in years ranging from 2028 to 2035, $ 1.1 million of the federal losses do not expire, and the Illinois losses expire in years ranging from 2019 to 2029. Under Section 382 of the Internal Revenue Code, the annual limitation on the use of the federal losses is $ 362 thousand for First Personal while there is no limitation on the use of the Illinois losses. Management has determined that all of the losses are more likely than not to be utilized before expiration.   Page 94 of 117     The Bancorp acquired $ 6.5 million of federal net operating loss carryforwards and $ 11.4 million of Illinois net operating loss carryforwards with the acquisition of AJS Bancorp Inc. during 2019 of which $ 3.6 million of the federal losses expire in years ranging from 2030 to 2037, $ 3.6 million of the federal losses do not expire, and the Illinois losses expire in years ranging from 2020 to 2031. Under Section 382 of the Internal Revenue Code, the annual limitation on the use of the federal losses is $ 825 thousand for AJS, while there is no limitation on the use of the Illinois losses. Management has determined that all of the losses are more likely than not to be utilized before expiration.   At December 31, 2020, $ 8.2 million of the federal loss carryforwards and $ 10.5 million of the Illinois loss carryforward remain; the benefit of which is reflected in deferred tax assets.   The Bancorp qualified under provisions of the Internal Revenue Code, to deduct from taxable income a provision for bad debts in excess of the provision for such losses charged to income in the financial statements, if any. Accordingly, retained earnings at December 31, 2020, and 2019, includes, approximately $ 8.4 million for which no provision for income taxes has been made. If, in the future this portion of retained earnings is used for any purpose other than to absorb bad debt losses, income taxes would be imposed at the then applicable rates. The unrecorded deferred income tax liability on the above amounts was approximately $ 2.2 million at December 31, 2020, and 2019.   The Bancorp had no unrecognized tax benefits at any time during 2020 or 2019 and does not anticipate any significant increase or decrease in unrecognized tax benefits during 2021. Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Bancorp's policy to record such accruals through income tax accounts; no such accruals existed at any time during 2020 or 2019.   The Bancorp and its subsidiaries are subject to US federal income tax as well as income tax of the states of Indiana and Illinois. The Bancorp is no longer subject to examination by taxing authorities for the years before 2017.     Note 9 – Deposits The aggregate amount of certificates of deposit with a balance of $250 thousand or more was approximately $ 46.7 million at December 31, 2020 and $ 56.2 million at December 31, 2019.   At December 31, 2020, scheduled maturities of certificates of deposit were as follows:       (Dollars in thousands)   2021   $ 252,894   2022     22,202   2023     7,201   2024     2,019   2025     401   Thereafter     111   Total   $ 284,828       Note 10 – Borrowed Funds At December 31, 2020, and December 31, 2019, borrowed funds are summarized below:       (Dollars in thousands)       2020     2019   Fixed rate advances from the FHLB   $ 6,000     $ 14,000   Other     149       -   Total   $ 6,149     $ 14,000     Page 95 of 117     At December 31, 2020, scheduled maturities of borrowed funds were as follows:       (Dollars in thousands)   2021   $ 6,000   Total   $ 6,000     Repurchase agreements generally mature within one year and are secured by U.S. government and U.S. agency securities, under the Bancorp’s control. At December 31, information concerning these retail repurchase agreements is summarized below:       (Dollars in thousands)       2020     2019   Ending balance   $ 13,711     $ 11,499   Average balance during the year     16,975       12,928   Maximum month-end balance during the year     21,100       20,628   Securities underlying the agreements at year end:                 Carrying value     23,860       16,961   Fair value     23,860       16,961   Average interest rate during the year     0.58 %     1.80 % Average interest rate at year end     0.32 %     1.51 %   At December 31, advances from the Federal Home Loan Bank were as follows:       (Dollars in thousands)       2020     2019   Fixed rate advances, maturing January 2021 through March 2021 at rates from 2.65% to 2.68%; average rate: 2020 – 2.66%; 2019 – 2.62   $ 6,000     $ 14,000     Fixed rate advances are payable at maturity, with a prepayment penalty. The advances were collateralized by mortgage loans with a carrying value totaling approximately $ 506.4 million and $ 340.0 million at December 31, 2020 and 2019, respectively. In addition to the fixed rate advances, the Bancorp maintains a $ 25.0 million line of credit with the Federal Home Loan Bank of Indianapolis. The Bancorp did not have a balance on the line of credit at December 31, 2020 or December 31, 2019. As of December 31, 2020, the Bancorp had outstanding federal funds purchased of $ 149 thousand, the Bancorp did not have other borrowings at December 31, 2019.     Note 11 – Employees’ Benefit Plans The Bancorp maintains an Employees’ Savings and Profit Sharing Plan and Trust for all employees who meet the plan qualifications. Employees are eligible to participate in the Employees’ Savings and Profit Sharing Plan and Trust on the next January 1 or July 1 following the completion of one year of employment, attaining age 18, and completion of 1,000 hours of service. The Employees’ Savings Plan feature allows employees to make pre-tax contributions to the Employees’ Savings Plan of 1 % to 50 % of Plan Salary, subject to limitations imposed by Internal Revenue Code section 401 (k). Employees are able to begin deferring effective the first of the month following 90 days of employment. The Profit Sharing Plan and Trust feature is non-contributory on the part of the employee. Contributions to the Employees’ Profit Sharing Plan and Trust are made at the discretion of the Bancorp’s Board of Directors. Contributions for the years ended December 31, 2020 and 2019 were based on 6.5 % and 7 % of the participants’ total compensation, excluding incentives, respectively. Profit sharing contributions made by the Bank and earnings credited to the employee’s account vest on the following schedule: two years of service, 40 % of contributions and earnings; three years of service, 60 % of contributions and earnings; four years of service, 80 % of contributions and earnings; and five years of service, 100 % of contributions and earnings. Participants also become 100% vested in the employer contributions and accrued earnings in their account upon their death, approved disability, or attainment of age 65 while employed at the Bank. The benefit plan expense amounted to approximately $ 948 thousand for 2020 and $ 884 thousand for 2019.   Page 96 of 117     The Bancorp maintains an Unqualified Deferred Compensation Plan (the “UDC Plan”). The purpose of the UDC Plan is to provide deferred compensation to key senior management employees of the Bancorp in order to recognize their substantial contributions to the Bank and provide them with additional financial security as inducement to remain with the Bank. The Compensation Committee selects which persons shall be participants in the UDC Plan. Participants’ accounts are credited each year with an amount based on a formula involving the participant’s employer funded contributions under all qualified plans and the limitations imposed by Internal Revenue Code subsection 401 (a)( 17 ) and Code section 415. The unqualified deferred compensation plan liability at December 31, 2020 and 2019 was approximately $ 235 thousand and $ 226 thousand, respectively. The UDC Plan expense amounted to approximately $ 8 thousand for 2020 and $ 10 thousand for 2019.   Directors have deferred some of their fees in consideration of future payments. Fee deferrals, including interest, totaled approximately $ 68 thousand and $ 60 thousand for 2020 and 2019, respectively. The deferred fee liability at December 31, 2020 and 2019 was approximately $ 1.4 million and $ 1.3 million, respectively.     Note 12 – Regulatory Capital The Bancorp and Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet various capital requirements can initiate regulatory action. Prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2020 and 2019, the most recent regulatory notifications categorized the Bancorp and Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bancorp’s or the Bank’s category.   In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions by the institution and certain discretionary bonus payments to management if an institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increased each year until the buffer requirement became fully effective on January 1, 2019.   The following table shows that, at December 31, 2020, and 2019, the Bancorp’s capital exceeded all applicable regulatory capital requirements. The dollar amounts are in millions.   (Dollars in millions)                                   Minimum Required To Be                       Minimum Required 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   $ 125.3       12.8 %   $ 43.9       4.5 %     N/A       N/A   Tier 1 capital to risk-weighted assets   $ 125.3       12.8 %   $ 58.6       6.0 %     N/A       N/A   Total capital to risk-weighted assets   $ 137.5       14.0 %   $ 78.1       8.0 %     N/A       N/A   Tier 1 capital to adjusted average assets   $ 125.3       8.5 %   $ 59.2       4.0 %     N/A       N/A     (Dollars in millions)                                   Minimum Required To Be                       Minimum Required For     Well Capitalized Under Prompt       Actual     Capital Adequacy Purposes     Corrective Action Regulations   At December 31, 2019   Amount     Ratio     Amount     Ratio     Amount     Ratio   Common equity tier 1 capital to risk-weighted assets   $ 110.8       11.8 %   $ 42.4       4.5 %     N/A       N/A   Tier 1 capital to risk-weighted assets   $ 110.8       11.8 %   $ 56.5       6.0 %     N/A       N/A   Total capital to risk-weighted assets   $ 119.8       12.7 %   $ 75.3       8.0 %     N/A       N/A   Tier 1 capital to adjusted average assets   $ 110.8       8.5 %   $ 52.3       4.0 %     N/A       N/A     Page 97 of 117     In addition, the following table shows that, at December 31, 2020, and 2019, 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 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   $ 123.3       12.7 %   $ 43.8       4.5 %   $ 63.2       6.5 % Tier 1 capital to risk-weighted assets   $ 123.3       12.7 %   $ 58.4       6.0 %   $ 77.8       8.0 % Total capital to risk-weighted assets   $ 135.4       13.9 %   $ 77.8       8.0 %   $ 97.3       10.0 % Tier 1 capital to adjusted average assets   $ 123.3       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, 2019   Amount     Ratio     Amount     Ratio     Amount     Ratio   Common equity tier 1 capital to risk-weighted assets   $ 108.9       11.6 %   $ 42.4       4.5 %   $ 61.2       6.5 % Tier 1 capital to risk-weighted assets   $ 108.9       11.6 %   $ 56.5       6.0 %   $ 75.3       8.0 % Total capital to risk-weighted assets   $ 117.9       12.5 %   $ 75.3       8.0 %   $ 94.1       10.0 % Tier 1 capital to adjusted average assets   $ 108.9       8.3 %   $ 52.3       4.0 %   $ 65.3       5.0 %   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, without the need for qualifying for an exemption or prior DFI approval, is its 2021 net profits plus $ 4.7 million. Moreover, the FDIC and the 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 November 20, 2020 the Board of Directors of the Bancorp declared a fourth quarter dividend of $ 0.31 per share. The Bancorp’s fourth quarter dividend was paid to shareholders on January 8, 2021.     Note 13 – Stock Based Compensation The Bancorp’s 2015 Stock Option and Incentive Plan (the “Incentive Plan”), which was adopted by the Bancorp’s Board of Directors on February 17, 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 Incentive Plan may be in the form of incentive stock options, non-qualified stock options, restricted stock, unrestricted stock, performance shares, or performance units. The purposes of the Plan are (i) to align the personal interests of plan participants with those of the shareholders of the Bancorp, (ii) to encourage key individuals to accept or continue employment or service with the Bancorp and its subsidiaries, and (iii) to furnish incentives to such key individuals to improve operations and increase profits by providing such key individuals the opportunity to acquire common stock of the Bancorp or to receive monetary payments based on the value of such common stock. Option awards are generally granted with an exercise price equal to the market price of the Bancorp’s common stock at the date of grant. No expense was charged against income for incentive stock options during 2020 or 2019.   The fair value of each incentive stock option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model. Expected volatilities are based on historical volatilities of the Company’s common stock. No incentive stock options were granted during 2020 or 2019. The Bancorp uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.   Page 98 of 117     At December 31, 2020 and 2019, there were no incentive stock options outstanding.   Restricted stock awards are generally granted with an award price equal to the market price of the Bancorp’s common stock on the award date. Restricted stock awards have been issued with a three to five year cliff-vesting period. Forfeiture provisions exist for personnel that separate employment before the vesting period expires. Compensation expense related to restricted stock awards is recognized over the vesting period. Total compensation cost that has been charged against income for those plans was approximately $ 415 thousand and $ 301 thousand for 2020 and 2019, respectively.   When awarded restricted shares vest, employees of the Bank can elect to surrender a portion of their vested shares back to the Bancorp to cover the tax liability of their awards. Shares were surrendered with a total value of $ 85 thousand and $ 63 thousand in 2020 and 2019, respectively.   A summary of changes in the Bancorp’s non-vested restricted stock for 2020 and 2019 follows:   Non-vested Shares   Shares     Weighted Average Grant Date Fair Value   Non-vested at January 1, 2019     27,423     $ 32.58   Granted     7,407       43.00   Vested     ( 4,625 )     29.37   Forfeited     -       -   Non-vested at December 31, 2019     30,205     $ 35.63                     Non-vested at January 1, 2020     30,205     $ 35.63   Granted     13,243       44.30   Vested     ( 6,400 )     27.50   Forfeited     ( 220 )     43.65   Non-vested at December 31, 2020     36,828     $ 40.11     As of December 31, 2020, there was approximately $ 571 thousand of total unrecognized compensation cost related to non-vested restricted shares granted under the Incentive Plan. The cost is expected to be recognized over a weighted-average period of 1.5 years.   Page 99 of 117       Note 1 4 – Earnings per Common 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 earnings per common share and diluted earnings per common share computations for 2020 and 2019 is presented below.       2020     2019   Basic earnings per common share:                 Net income as reported   $ 16,604     $ 12,097   Weighted average common shares outstanding     3,461,948       3,425,056   Basic earnings per common share   $ 4.80     $ 3.53                     Diluted earnings per common share:                 Net income as reported   $ 16,604     $ 12,097   Weighted average common shares outstanding     3,461,948       3,425,056   Weighted average common and dilutive potential common shares outstanding     3,461,948       3,425,056   Diluted earnings per common share   $ 4.80     $ 3.53       Note 1 5 – Related Party Transactions The Bancorp had aggregate loans outstanding to directors and executive officers (with individual balances exceeding $ 120 thousand) of approximately $ 4.4 million at December 31, 2020, and approximately $ 4.0 million at December 31, 2019. For the year ended December 31, 2020, the following activity occurred on these loans       (Dollars in thousands)   Aggregate balance at the beginning of the year   $ 4,021   New loans     1,042   Repayments     ( 713 ) Aggregate balance at the end of the year   $ 4,350     Deposits from directors and executive officers totaled approximately $ 5.3 million and $ 4.5 million at December 31, 2020 and 2019, respectively.     Note 16 – Commitments and Contingencies The Bancorp is a party to financial instruments in the normal course of business to meet the financing needs of its customers. These financial instruments, which include commitments to make loans and standby letters of credit, are not reflected in the accompanying consolidated financial statements. Such financial instruments are recorded when they are funded.   The Bancorp’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to originate loans and standby letters of credit is represented by the contractual amount of those instruments. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. The Bancorp uses the same credit policy to make such commitments as it uses for on-balance sheet items. Since commitments to make loans may expire without being used, the amount does not necessarily represent future cash commitments.   Page 100 of 117     The Bancorp had outstanding commitments to originate loans as follows:       (Dollars in thousands)       Fixed     Variable               Rate     Rate     Total   December 31, 2020:                         Residential real estate   $ 749     $ 21,961     $ 22,710   Home equity     44,972       7,951       52,923   Commercial real estate     2,955       13,138       16,093   Construction and land development     20,667       30,959       51,626   Multifamily     158       579       737   Consumer     23,020       -       23,020   Commercial business     946       56,744       57,690   Lot     -       87       87   Total   $ 93,467     $ 131,419     $ 224,886                             December 31, 2019:                         Residential real estate   $ 165     $ 10,377     $ 10,542   Home equity     40,429       8,841       49,270   Commercial real estate     5,890       11,537       17,427   Construction and land development     15,797       25,165       40,962   Multifamily     4,093       306       4,399   Consumer     21,677       -       21,677   Commercial business     1,161       52,879       54,040   Total   $ 89,212     $ 109,105     $ 198,317     The approximately $ 93.5 million in fixed rate commitments outstanding at December 31, 2020, had interest rates ranging from 2.25 % to 10.00 %, for a period not to exceed forty-five days. At December 31, 2019, fixed rate commitments outstanding of approximately $ 89.2 million had interest rates ranging from 2.99 % to 10.00 %, for a period not to exceed forty-five days. Mortgage interest rate locks with borrowers which are included with real estate commitments, were treated as derivative transactions.   Standby letters of credit are conditional commitments issued by the Bancorp to guarantee the performance of a customer to a third party. At December 31, 2020 and 2019, the Bancorp had standby letters of credit totaling approximately $ 11.5 million which are not included in the tables above. The Bancorp evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bancorp upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral obtained may include accounts receivable, inventory, property, land or other assets.     Note 17 – Derivative Financial Instruments   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.   Page 101 of 117     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:   December 31, 2020               Notational or   Asset derivatives     Liability derivatives   (Dollars in thousands)   contractual amount   Statement of Financial Condition classification   Fair value     Statement of Financial Condition classification     Fair value   Interest rate swap contracts   $ 72,707   Other assets   $ 3,638     Other liabilties     $ 3,638   Interest rate lock commitments     26,443   Other assets     374       N/A       -   Total   $ 99,150       $ 4,012             $ 3,638     December 31, 2019               Notational or   Asset derivatives     Liability derivatives   (Dollars in thousands)   contractual amount   Statement of Financial Condition classification   Fair value     Statement of Financial Condition classification     Fair value   Interest rate swap contracts   $ 29,466   Other assets   $ 1,358     Other liabilties     $ 1,358   Interest rate lock commitments     12,822   Other assets     186       N/A       -   Total   $ 42,288       $ 1,544             $ 1,358     The following table shows the amounts included in the Statements of Income for non-hedging derivative financial instruments:         Year-ended   (Dollars in thousands) Statement of Income Classification   2020     2019   Interest rate swap contracts Fees and service charges   $ 800     $ 371   Interest rate lock commitments Gain on sale of loans held-for-sale, net     187       186   Total   $ 987     $ 557     Page 102 of 117     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     Net Amounts of Assets Presented             Cash Collateral           (Dollars in thousands)   Recognized Assets     Statement of Financial Condition     in the Statement of Financial Condition     Financial Instruments     Received     Net Amount   December 31, 2020                                                 Interest rate swap contracts   $ 3,638     $ -     $ 3,638     $ -     $ -     $ 3,638   Interest rate lock commitments     374       -       374       -       -       374   Total   $ 4,012     $ -     $ 4,012     $ -     $ -     $ 4,012                                 Gross Amounts not Offset in the                                       Statement of Financial Condition               Gross Amounts of     Gross Amounts Offset in the     Net Amounts of Liabilities Presented             Cash Collateral           (Dollars in thousands)   Recognized Liabilities     Statement of Financial Condition     in the Statement of Financial Condition     Financial Instruments     Received     Net Amount   December 31, 2019                                                 Interest rate swap contracts   $ 1,358     $ -     $ 1,358     $ -     $ -     $ 1,358   Interest rate lock commitments     186       -       186       -       -       186   Total   $ 1,544     $ -     $ 1,544     $ -     $ -     $ 1,544     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     Net Amounts of Liabilities Presented             Cash Collateral           (Dollars in thousands)   Recognized Liabilities     Statement of Financial Condition     in the Statement of Financial Condition     Financial Instruments     Pledged     Net Amount   December 31, 2020                                                 Interest rate swap contracts   $ 3,638     $ -     $ 3,638     $ -     $ 3,930     $ ( 292 ) Total   $ 3,638     $ -     $ 3,638     $ -     $ 3,930     $ ( 292 )                               Gross Amounts not Offset in the                                       Statement of Financial Condition               Gross Amounts of     Gross Amounts Offset in the     Net Amounts of Liabilities Presented             Cash Collateral           (Dollars in thousands)   Recognized Liabilities     Statement of Financial Condition     in the Statement of Financial Condition     Financial Instruments     Pledged     Net Amount   December 31, 2019                                                 Interest rate swap contracts   $ 1,358     $ -     $ 1,358     $ -     $ 2,290     $ ( 932 ) Total   $ 1,358     $ -     $ 1,358     $ -     $ 2,290     $ ( 932 )   Page 103 of 117       Note 1 8 – Fair Values of Financial Instruments The Fair Value Measurements Topic (the “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 lack of market activity or little public disclosure, values may be based on unobservable inputs and classified in Level 3 of the fair value hierarchy.   At the end of each reporting period, securities held in the investment portfolio are evaluated on an individual security level for other-than-temporary impairment in accordance with the Investments – Debt and Equity Securities Topic. Impairment is other-than-temporary if the decline in the fair value of the security 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 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 are 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 two pooled trust preferred securities. The analysis is performed annually on December 31 and utilizes analytical models used to project future cash flows for the pooled trust preferred securities based on current assumptions for prepayments, default and deferral rates, and recoveries. The projected cash flows are then tested for impairment consistent with the Investments – Other Topic and the Investments – Debt and Equity Securities Topic. 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 (which consists of banks and thrifts) was performed. The review of the collateral began with a review of financial information provided by SNL Financial, a comprehensive database, widely used in the industry, which gathers financial data on banks and thrifts from U.S. GAAP financial statements for public companies (annual and quarterly reports on Forms 10 -K and 10 -Q), as well as regulatory reports for private companies, including consolidated financial statements for bank holding companies (FR Y- 9C reports) and parent company-only financial statements for bank holding companies (FR Y- 9LP reports) filed with the Federal Reserve and bank call reports filed with the FDIC and OCC. Using the information sources described above, for each bank and thrift examined, the following items were examined: nature of the issuer’s business, years of operating history, corporate structure, loan composition and loan concentrations, deposit mix, asset growth rates, geographic footprint and local economic environment. The issuers’ historical financial performance was reviewed and their financial ratios were compared to appropriate peer groups of regional banks or thrifts with similar asset sizes. The analysis focused on six broad categories: profitability (revenue streams and earnings quality, return on assets and shareholder’s equity, net interest margin and interest rate sensitivity), credit quality (charge-offs and recoveries, non-current loans and total non-performing assets as a percentage of total loans, loan loss reserve coverage and the adequacy of the loan loss provision), operating efficiency (noninterest expense compared to total revenue), capital adequacy (Tier- 1, total capital and leverage ratios and equity capital growth), leverage (tangible equity as a percentage of tangible assets, short-term and long-term borrowings and double leverage at the holding company) and liquidity (the nature and availability of funding sources, net non-core funding dependence and quality of deposits). In addition, for publicly traded companies, stock price movements were reviewed and the market price of publicly traded debt instruments was examined. The current other-than-temporary impairment analysis indicated that the Bancorp’s two pooled trust preferred securities had no additional other-than-temporary impairment for the years ending December 31, 2020 and 2019.   Page 104 of 117     The table below shows the credit loss roll forward 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 impairment   Ending balance, December 31, 2019   $ 173   Additions not previously recognized     -   Ending balance, December 31, 2020   $ 173     The Bancorp’s subordination for each trust preferred security is calculated by taking the total performing collateral and subtracting the sum of the total collateral within the Bancorp’s class and the total collateral within all senior classes, and then stating this result as a percentage of the total performing collateral. This measure is an indicator of the level of collateral that can default before potential cash flow disruptions may occur. In addition, management calculates subordination assuming future collateral defaults by utilizing the default/deferral assumptions in the Bancorp’s other-than-temporary impairment analysis. Subordination assuming future default/deferral assumptions is calculated by deducting future defaults from the current performing collateral. At December 31, 2020 and 2019, management reviewed the subordination levels for each security in context of the level of current collateral defaults and deferrals within each security; the potential for additional defaults and deferrals within each security; the length of time that the security has been in “payment in kind” status; and the Bancorp’s class position within each security.   Management calculated the other-than-temporary impairment model assumptions based on the specific collateral underlying each individual security. The following assumption methodology was applied consistently to each of the two pooled trust preferred securities: For collateral that has already defaulted, no recovery was assumed; no cash flows were assumed from collateral currently in deferral, with the exception of the recovery assumptions. The default and recovery assumptions were calculated based on the detailed collateral review. The discount rate assumption used in the calculation of the present value of cash flows is based on the discount margin (i.e., credit spread) at the time each security was purchased using the original purchase price. The discount margin is then added to the appropriate 3 -month LIBOR forward rate obtained from the forward LIBOR curve.   At December 31, 2020 and 2019, the trust preferred securities with a cost basis of $ 2.2 million have been placed in “payment in kind” status. The Bancorp’s securities that are classified as “payment in kind” are a result of not receiving the scheduled quarterly interest payments. For the securities in “payment in kind” status, management anticipates to receive the unpaid contractual interest payments from the issuer, because of the self-correcting cash flow waterfall provisions within the structure of the securities. When a tranche senior to the Bancorp’s position fails the coverage test, the Bancorp’s interest cash flows are paid to the senior tranche and recorded as a reduction of principal. The coverage test represents an over collateralization target by stating the balance of the performing collateral as a percentage of the balance of the Bancorp’s tranche, plus the balance of all senior tranches. The principal reduction in the senior tranche continues until the appropriate coverage test is passed. As a result of the principal reduction in the senior tranche, more cash is available for future payments to the Bancorp’s tranche. Consistent with the Investments – Debt and Equity Securities Topic, 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.   Page 105 of 117     Assets and Liabilities Measured at Fair Values on a Recurring Basis   There were no transfers to or from Levels 1 and 2 during the years ended December 31, 2020 and 2019. Changes in Level 3 assets relate to the result of changes in estimated fair values, payments received, and sales of securities that have been classified as Level 3 during all of 2020 and 2019. Assets measured at fair value on a recurring basis are summarized below:               (Dollars in thousands)               Fair Value Measurements at December 31, 2020 Using                   (Dollars in thousands)   Estimated Fair Value     Quoted Prices in Active Markets for Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)   Available-for-sale debt securities:                                 Money market fund   $ 52,941     $ 52,941     $ -     $ -   U.S. government sponsored entities     7,860       -       7,860       -   Collateralized mortgage obligations and residential mortgage-backed securities     154,736       -       154,736       -   Municipal securities     194,203       -       194,203       -   Collateralized debt obligations     929       -       -       929   Total securities available-for-sale   $ 410,669     $ 52,941     $ 356,799     $ 929                 (Dollars in thousands)               Fair Value Measurements at December 31, 2019 Using   (Dollars in thousands)   Estimated Fair Value     Quoted Prices in Active Markets for Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)   Available-for-sale debt securities:                                 Money market fund   $ 9,670     $ 9,670     $ -     $ -   U.S. government sponsored entities     13,058       -       13,058       -   Collateralized mortgage obligations and residential mortgage-backed securities     150,988       -       150,988       -   Municipal securities     102,427       -       102,427       -   Collateralized debt obligations     1,076       -       -       1,076   Total securities available-for-sale   $ 277,219     $ 9,670     $ 266,473     $ 1,076     Page 106 of 117     A reconciliation of available-for-sale securities, which require significant adjustment based on unobservable data, is presented below:         (Dollars in thousands)       Estimated Fair Value Measurements Using Significant Unobservable Inputs (Level 3)       Available-for- sale securities   Beginning balance, January 1, 2019   $ 2,049   Principal payments     ( 38 ) Total unrealized losses, included in other comprehensive income     52   Sale out of Level 3     ( 987 ) Ending balance, December 31, 2019   $ 1,076             Beginning balance, January 1, 2020   $ 1,076   Principal payments     ( 20 ) Total unrealized gains, included in other comprehensive income     ( 127 ) Sale out of Level 3     -   Ending balance, December 31, 2020   $ 929     Assets and Lia bilities Measured at Fair Value on a Non-Recurring Basis   Assets and liabilities measured at fair value on a non-recurring basis are summarized below:               (Dollars in thousands)               Fair Value Measurements at December 31, 2020 Using   (Dollars in thousands)   Estimated Fair Value     Quoted Prices in Active Markets for Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)   Impaired loans   $ 10,046     $ -     $ -     $ 10,046   Foreclosed real estate     538       -       -       538                 (Dollars in thousands)               Fair Value Measurements at December 31, 2019 Using   (Dollars in thousands)   Estimated Fair Value     Quoted Prices in Active Markets for Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)   Impaired loans   $ 7,052     $ -     $ -     $ 7,052   Foreclosed real estate     1,083       -       -       1,083     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 the present value of future 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 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. The recorded investment of impaired loans was approximately $ 7.2 million and the related specific reserves totaled approximately $ 166 thousand, resulting in a fair value of impaired loans totaling approximately $ 7.1 million, at December 31, 2019. 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.   Page 107 of 117     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.       December 31, 2020     Estimated Fair Value Measurements at December 31, 2020 Using   (Dollars in thousands)   Carrying Value     Estimated Fair Value     Quoted Prices in Active Markets for Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)   Financial assets:                                         Cash and cash equivalents   $ 19,922     $ 19,922     $ 19,922     $ -     $ -   Certificates of deposit in other financial institutions     1,897       1,868       -       1,868       -   Securities available-for-sale     410,669       410,669       52,941       356,799       929   Loans held-for-sale     11,329       11,660       11,660       -       -   Loans receivable, net     954,120       984,270       -       -       984,270   Federal Home Loan Bank stock     3,918       3,918       -       3,918       -   Interest rate swap agreements     3,638       3,638       -       3,638       -   Accrued interest receivable     4,713       4,713       -       4,713       -                                             Financial liabilities:                                         Non-interest bearing deposits     241,620       241,620       241,620       -       -   Interest bearing deposits     1,060,719       1,061,294       775,891       285,403       -   Repurchase agreements     13,711       13,713       11,976       1,737       -   Borrowed funds     6,149       6,018       -       6,018       -   Interest rate swap agreements     3,638       3,638       -       3,638       -   Accrued interest payable     54       54       -       54       -         December 31, 2019     Estimated Fair Value Measurements at December 31, 2019 Using   (Dollars in thousands)   Carrying Value     Estimated Fair Value     Quoted Prices in Active Markets for Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)   Financial assets:                                         Cash and cash equivalents   $ 47,258     $ 47,258     $ 47,258     $ -     $ -   Certificates of deposit in other financial institutions     2,170       2,137       -       2,137       -   Securities available-for-sale     277,219       277,219       9,670       266,473       1,076   Loans held-for-sale     6,091       6,204       6,204       -       -   Loans receivable, net     897,870       917,174       -       -       917,174   Federal Home Loan Bank stock     3,912       3,912       -       3,912       -   Interest rate swap agreements     1,358       1,358       -       1,358       -   Accrued interest receivable     4,029       4,029       -       4,029       -                                             Financial liabilities:                                         Non-interest bearing deposits     172,094       172,094       172,094       -       -   Interest bearing deposits     982,276       982,241       654,573       327,668       -   Repurchase agreements     11,499       11,499       9,721       1,778       -   Borrowed funds     14,000       14,108       -       14,108       -   Interest rate swap agreements     1,358       1,358       -       1,358       -   Accrued interest payable     179       179       -       179       -     Page 108 of 117     The following methods were used to estimate the fair value of financial instruments presented in the preceding table for the periods ended December 31, 2020 and 2019:   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 19 – Parent Company Only Statements       (Dollars in thousands)       NorthWest Indiana Bancorp       Condensed Balance Sheets       December 31,     December 31,       2020     2019   Assets                 Cash on deposit with Peoples Bank   $ 805     $ 191   Investment in Peoples Bank     150,928       132,134   Investment in NWIN Risk Management, Inc     1,775       1,736   Dividends receivable from Peoples Bank     1,070       1,070   Other assets     420       610   Total assets   $ 154,998     $ 135,366                     Liabilities and stockholders’ equity                 Dividends payable   $ 1,074     $ 1,070   Other liabilities     1,002       569   Total liabilities     2,076       1,639                     Additional paid in capital     29,987       29,657   Accumulated other comprehensive (loss) income     10,441       4,261   Retained earnings     112,494       100,184   Total stockholders’ equity     152,922       133,727   Total liabilities and stockholders’ equity   $ 154,998     $ 135,366     Page 109 of 117         (Dollars in thousands)       NorthWest Indiana Bancorp       Condensed Statements of Income       Year Ended December 31,       2020     2019                     Dividends from Peoples Bank   $ 3,395     $ 19,388   Operating expenses     414       486   Income before income taxes and equity in undistributed income of Peoples Bank     2,981       18,902   Income tax benefit     ( 86 )     ( 101 ) Income before equity in undistributed income of Peoples Bank     3,067       19,003   Equity in undistributed (distributions in excess of income) income of Peoples Bank     12,614       ( 7,889 ) income of NWIN Risk Management, Inc     923       983   Net income   $ 16,604     $ 12,097         (Dollars in thousands)       NorthWest Indiana Bancorp       Condensed Statements of Cash Flows       Year Ended December 31,       2020     2019                     Cash flows from operating activities:                 Net income   $ 16,604     $ 12,097   Adjustments to reconcile net income to net cash provided by operating activities                 Distributions in excess of income (equity in undistributed income):                 Peoples Bank     ( 12,614 )     7,889   NWIN Risk Management, Inc     ( 923 )     ( 983 ) Stock based compensation expense     415       301   Net surrender value of restricted stock awards     ( 85 )     ( 63 ) Change in other assets     190       ( 94 ) Change in other liabilities     433       ( 259 ) Total adjustments     ( 12,584 )     6,791   Net cash - operating activities     4,020       18,888                     Cash flows from investing activities:                 Cash paid for acquisition     -       ( 15,743 )                   Investment in Peoples Bank     -       ( 1,500 ) Distribution from NWIN Risk Management, Inc     885       1,750   Net cash - investing activities     885       ( 15,493 )                   Cash flows from financing activities:                 Dividends paid     ( 4,291 )     ( 4,085 ) Proceeds from issuance of common stock     -       -   Net cash - financing activities     ( 4,291 )     ( 4,085 ) Net change in cash     614       ( 690 ) Cash at beginning of year     191       881   Cash at end of year   $ 805     $ 191     Page 110 of 117       Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There are no items reportable under this item.