Finward Bancorp 10-Q

Item 1. Financial Statements       Finward Bancorp Consolidated Balance Sheet       March 31, 2022     December 31,   (Dollars in thousands)   (unaudited)     2021                     ASSETS                                   Cash and non-interest bearing deposits in other financial institutions   $ 21,262     $ 12,725   Interest bearing deposits in other financial institutions     31,420       19,987   Federal funds sold     1,819       464                     Total cash and cash equivalents     54,501       33,176                     Certificates of deposit in other financial institutions     1,731       1,709                     Securities available-for-sale     464,320       526,889   Loans held-for-sale     1,420       4,987   Loans receivable, net of deferred fees and costs     1,439,728       966,720   Less: allowance for loan losses     ( 13,387 )     ( 13,343 ) Net loans receivable     1,426,341       953,377   Federal Home Loan Bank stock     3,038       3,247   Accrued interest receivable     7,427       5,444   Premises and equipment     45,773       31,385   Cash value of bank owned life insurance     31,378       31,440   Goodwill     22,774       11,109   Other intangible assets     5,998       3,126   Other assets     33,144       14,854                     Total assets   $ 2,097,845     $ 1,620,743                     LIABILITIES AND STOCKHOLDERS' EQUITY                                   Deposits:                 Non-interest bearing   $ 380,515     $ 295,294   Interest bearing     1,514,696       1,138,907   Total     1,895,211       1,434,201   Repurchase agreements     23,239       14,581   Borrowed funds     5       -   Accrued expenses and other liabilities     21,753       15,346                     Total liabilities     1,940,208       1,464,128                     Commitments and contingencies                                   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: March 31, 2022 - 4,294,136 December 31, 2021 - 3,480,701     -       -   Additional paid-in capital     68,386       30,430   Accumulated other comprehensive (loss) income     ( 33,462 )     4,276   Retained earnings     122,713       121,909                     Total stockholders' equity     157,637       156,615                     Total liabilities and stockholders' equity   $ 2,097,845     $ 1,620,743     See accompanying notes to consolidated financial statements.   1         Finward Bancorp Consolidated Statements of Income (unaudited)   (Dollars in thousands)   Quarter Ended March 31,       2022     2021   Interest income:                 Loans receivable   $ 13,286     $ 10,746   Securities     2,597       1,961   Other interest earning assets     11       20                     Total interest income     15,894       12,727                     Interest expense:                 Deposits     337       651   Repurchase agreements     16       10   Borrowed funds     6       20                     Total interest expense     359       681                     Net interest income     15,535       12,046   Provision for loan losses     -       578                     Net interest income after provision for loan losses     15,535       11,468                     Noninterest income:                 Fees and service charges     1,304       1,066   Gain on sale of loans held-for-sale, net     607       2,049   Wealth management operations     595       607   Gain on sale of securities, net     381       417   Increase in cash value of bank owned life insurance     252       169   Gain (loss) on sale of foreclosed real estate     -       ( 9 ) Other     5       14                     Total noninterest income     3,144       4,313                     Noninterest expense:                 Compensation and benefits     7,367       5,685   Data processing     3,054       674   Occupancy and equipment     1,500       1,372   Marketing     651       199   Federal deposit insurance premiums     219       180   Other     3,478       2,383                     Total noninterest expense     16,269       10,493                     Income before income tax expenses     2,410       5,288   Income tax expenses     275       745                     Net income   $ 2,135     $ 4,543                     Earnings per common share:                 Basic   $ 0.53     $ 1.31   Diluted   $ 0.53     $ 1.31                     Dividends declared per common share   $ 0.31     $ 0.31     See accompanying notes to consolidated financial statements.   2         Finward Bancorp Consolidated Statements of Comprehensive Income (Loss) (unaudited)   (Dollars in thousands)   Three Months Ended March 31,       2022     2021                     Net income   $ 2,135     $ 4,543                     Net change in net unrealized gains and losses on securities available-for-sale:                 Unrealized loss arising during the period     ( 47,389 )     ( 7,761 ) Less: reclassification adjustment for gains included in net income     ( 381 )     ( 417 ) Net securities loss during the period     ( 47,770 )     ( 8,178 ) Tax effect     10,032       1,717   Other comprehensive loss, net of tax     ( 37,738 )     ( 6,461 )                   Comprehensive loss, net of tax     ( 35,603 )     ( 1,918 )     See accompanying notes to consolidated financial statements.   Finward Bancorp Consolidated Statements of Changes in Stockholder's Equity (unaudited)                       Accumulated                               Additional     Other                       Common     Paid-in     Comprehensive     Retained     Total   (Dollars in thousands, except per share data)   Stock     Capital     (Loss)/Income     Earnings     Equity                                                                                       Balance at January 1, 2021   $ -     $ 29,987     $ 10,441     $ 111,261     $ 151,689                                             Net income     -       -       -       4,543       4,543   Other comprehensive loss, net of tax     -       -       ( 6,461 )     -       ( 6,461 ) Net surrender value of 1,711 restricted stock awards     -       ( 68 )     -       -       ( 68 ) Stock-based compensation expense     -       146       -       -       146   Cash dividends, $0.31 per share     -       -       -       ( 1,079 )     ( 1,079 )                                           Balance at March 31, 2021   $ -     $ 30,065     $ 3,980     $ 114,725     $ 148,770                                             Balance at January 1, 2022   $ -     $ 30,430     $ 4,276     $ 121,909     $ 156,615                                             Net income     -       -       -       2,135       2,135   Other comprehensive loss, net of tax     -       -       ( 37,738 )     -       ( 37,738 ) Net surrender value of 2,336 restricted stock awards     -       ( 115 )     -       -       ( 115 ) Stock-based compensation expense     -       169       -       -       169   Issuance of 795,423 shares at $47.75 per share, for acquisition of Royal Financial, Inc.     -       37,902       -       -       37,902   Cash dividends, $0.31 per share     -       -       -       ( 1,331 )     ( 1,331 )                                           Balance at March 31, 2022   $ -     $ 68,386     $ ( 33,462 )   $ 122,713     $ 157,637     See accompanying notes to consolidated financial statements.   3         Finward Bancorp Consolidated Statements of Cash Flows (unaudited)   (Dollars in thousands)   Three months ended March 31,       2022     2021   CASH FLOWS FROM OPERATING ACTIVITIES:                 Net income   $ 2,135     $ 4,543   Adjustments to reconcile net income to net cash provided by operating activities:                 Origination of loans for sale     ( 15,664 )     ( 49,083 ) Sale of loans originated for sale     19,760       57,876   Depreciation and amortization, net of accretion     1,191       1,043   Stock based compensation expense     169       146   Gain on sale of securities, net     ( 381 )     ( 417 ) Gain on sale of loans held-for-sale, net     ( 582 )     ( 2,026 ) Loss on sale of foreclosed real estate     -       9   Gain on cash value of bank owned life insurance     ( 252 )     ( 169 ) Gain on derivatives     ( 25 )     ( 23 ) Provision for loan losses     -       578   Net change in:                 Interest receivable     ( 1,983 )     ( 284 ) Other assets     1,504       2,643   Accrued expenses and other liabilities     ( 5,150 )     1,558   Net cash provided by operating activities     722       16,394                     CASH FLOWS FROM INVESTING ACTIVITIES:                 Proceeds from maturities of certificates of deposit in other financial institutions     223       423   Proceeds from maturities and pay downs of securities available-for-sale     9,225       27,287   Proceeds from sales of securities available-for-sale     16,236       6,904   Purchase of securities available-for-sale     ( 10,724 )     ( 54,540 ) Proceeds from bank owned life insurance     314       -   Net change in loans receivable     ( 20,094 )     ( 4,331 ) Proceeds of Federal Home Loan Bank Stock     1,512       -   Purchase of loans receivable     ( 2,113 )     ( 2,989 ) Purchase of premises and equipment, net     ( 1,219 )     ( 379 ) Proceeds from sale of foreclosed real estate     -       48   Cash and cash equivalents from acquisition activity, net     33,799       -   Net cash provided by (used in) investing activities     27,159       ( 27,577 )                   CASH FLOWS FROM FINANCING ACTIVITIES:                 Change in deposits     ( 14,025 )     64,355   Repayment of FHLB advances     -       ( 6,000 ) Net surrender value of restricted stock awards     ( 115 )     ( 68 ) Change in repurchase agreements and other borrowed funds     8,663       2,057   Dividends paid     ( 1,079 )     ( 1,074 ) Net cash (used in) provided by financing activities     ( 6,556 )     59,270   Net change in cash and cash equivalents     21,325       48,087   Cash and cash equivalents at beginning of period     33,176       19,922   Cash and cash equivalents at end of period   $ 54,501     $ 68,009                     SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                 Cash paid during the period for:                 Interest   $ 339     $ 690   Acquisition activity:                 Fair value of assets acquired, including cash and cash equivalents   $ 528,083     $ -   Value of goodwill and other intangible assets     14,884       -   Fair value of liabilities assumed     486,340       -   Cash paid for acquisition     18,725       -   Issuance of common stock for acquisition     37,902       -   Noncash activities:                 Dividends declared not paid     1,331       1,079   Securities purchased not settled     -       1,765     See accompanying notes to consolidated financial statements.   4     Finward Bancorp Notes to Consolidated Financial Statements (unaudited)     Note 1 - Basis of Presentation The consolidated financial statements include the accounts of Finward Bancorp (the “Bancorp” or “FNWD”), its wholly-owned subsidiaries NWIN Risk Management, Inc. (a captive insurance subsidiary) and Peoples Bank (the “Bank”), and the Bank’s wholly-owned subsidiaries, Peoples Service Corporation, NWIN, LLC, NWIN Funding, Incorporated, 1683 Real Estate LLC, and Columbia Development Company, LLC. The Bancorp’s business activities include being a holding company for the Bank as well as a holding company for NWIN Risk Management, Inc. The Bancorp’s earnings are primarily dependent upon the earnings of the Bank. The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10 -Q and, therefore, do not include all disclosures required by U.S. generally accepted accounting principles for complete presentation of consolidated financial statements. In the opinion of management, the consolidated financial statements contain all adjustments necessary to present fairly the consolidated balance sheets of the Bancorp as of March 31, 2022, and December 31, 2021, and the consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity, and consolidated statements of cash flows for the three months ended March 31, 2022, and 2021. The income reported for the three month period ended March 31, 2022, is not necessarily indicative of the results to be expected for the full year.   The Notes to the Consolidated Financial Statements appearing in Finward Bancorp’s Annual Report on Form 10 -K ( 2021 Annual Report), which include descriptions of significant accounting policies, should be read in conjunction with these interim financial statements. The Consolidated Balance Sheet at December 31, 2021 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on net income.   Revision of Previously Issued Financial Statements   We have revised amounts reported in previously issued financial statements for the periods presented in this Quarterly Report on Form 10 -Q related to immaterial errors discovered during the second quarter of 2021. The errors relate to certain deferred costs booked related to our manufactured home loan product, which resulted in increased assets and understatements of expense in prior periods.   We evaluated the aggregate effects of the errors to our previously issued financial statements in accordance with SEC Staff Accounting Bulletins No. 99 and No. 108 and, based upon quantitative and qualitative factors, determined that the errors were not material to the previously issued financial statements and disclosures included in our Quarterly Report on Form 10 -Q for the quarterly period ended March 31, 2021.   5     The following tables present the revisions to the line items of our previously issued financial statements to reflect the correction of the errors:   Consolidated Statement of Income   For the three months ending March 31, 2021   As Reported     Adjustment     As Revised   Compensation and benefits   $ 5,530     $ 155     $ 5,685   Total noninterest expense     10,338       155       10,493   Income before income tax expense     5,443       ( 155 )     5,288   Income tax expenses     764       ( 19 )     745   Net income     4,679       ( 136 )     4,543   Earnings per common share:                         Basic     1.35       ( 0.04 )     1.31   Diluted     1.35       ( 0.04 )     1.31     Consolidated Statements of Comprehensive Income (Loss)   For the three months ending March 31, 2021   As Reported     Adjustment     As Revised   Net income   $ 4,679     $ ( 136 )   $ 4,543   Comprehensive income, net of tax     ( 1,782 )     ( 136 )     ( 1,918 )   Consolidated Statements of Changes in Stockholders' Equity   Balance at January 1, 2021   As Reported     Adjustment     As Revised   Retained earnings   $ 112,494     $ ( 1,233 )   $ 111,261   Total equity     152,922       ( 1,233 )     151,689                             For the three months ending March 31, 2021                         Net income     4,679       ( 136 )     4,543   Retained earnings     116,094       ( 1,369 )     114,725   Total equity     150,139       ( 1,369 )     148,770     Consolidated Statements of Cash Flows   For the three months ending March 31, 2021   As Reported     Adjustment     As Revised   Net income   $ 4,679     $ ( 136 )   $ 4,543   Net change in other assets     2,662       ( 19 )     2,643   Net cash - operating activities     16,549       ( 155 )     16,394   Net change in loan     ( 4,486 )     155       ( 4,331 ) Net cash - investing activities     ( 27,732 )     155       ( 27,577 )     Note 2 - Use of Estimates Preparing financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period, as well as the disclosures provided. Actual results could differ from those estimates. Estimates associated with the allowance for loan losses, fair values of foreclosed real estate, loan servicing rights, investment securities, deferred tax assets, goodwill, and the status of contingencies are particularly susceptible to material change in the near term.     Note 3 - Acquisition Activity On January 31, 2022, Finward Bancorp (“Finward”) completed its previously announced acquisition of Royal Financial, Inc., a Delaware corporation (“RYFL”), pursuant to an Agreement and Plan of Merger dated July 28, 2021 ( the “Merger Agreement”) between Finward and RYFL. The stockholders of both Finward and RYFL approved the Merger Agreement at the respective stockholder meetings of the companies held on December 13, 2021. Pursuant to the Merger Agreement, RYFL merged with and into Finward, with Finward as the surviving corporation (the “Merger”), and Royal Savings Bank, an Illinois state-chartered savings bank and wholly-owned subsidiary of RYFL, merged with and into Peoples Bank, the wholly-owned Indiana state-chartered commercial bank subsidiary of Finward, with Peoples Bank as the surviving bank.   Under the terms of the merger agreement, RYFL stockholders who owned 101 or more shares of RYFL common stock were permitted to elect to receive either 0.4609 shares of Finward common stock or $ 20.14 in cash, or a combination of both, for each share of RYFL common stock owned, subject to proration and allocation provisions such that 65 % of the shares of RYFL common stock outstanding immediately prior to the closing of the merger were converted into the right to receive shares of Finward common stock and the remaining 35 % of the outstanding RYFL shares were converted into the right to receive cash. Stockholders holding less than 101 shares of RYFL common stock received fixed consideration of $ 20.14 in cash per share and no stock consideration.   6     As a result of RYFL stockholder stock and cash elections and the related allocation and proration provisions of the merger agreement, Finward issued 795,423 shares of its common stock and paid cash consideration of approximately $ 18.7 million in the Merger. Based on the January 28, 2022, closing price of $ 47.75 per share of Finward common stock, the transaction had an implied valuation of approximately $ 56.7 million. In connection with the acquisition, Robert W. Youman, was appointed to the boards of directors of Finward and Peoples Bank effective as of the closing of the Merger. RYFL had a home office and eight branch offices in Cook County and DuPage County, Illinois. The acquisition has further expanded the Bank’s banking center network in Cook County and DuPage County, Illinois.   Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on the valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the final purchase price for the Royal acquisition is allocated as follows:   ASSETS         LIABILITIES         Cash and due from banks   $ 52,524   Deposits         Investment securities, available for sale     -   Non-interest bearing   $ 32,095   Certificate of deposit in other financial institutions     245   NOW accounts     63,639             Savings and money market     184,149   Total Loans     450,757   Certificates of deposits     195,153             Total Deposits     475,036   Premises and equipment, net     13,848             FHLB stock     1,303   Interest payable     75   Goodwill     11,664   Other liabilities     11,228   Core deposit intangible     3,220             Interest receivable     1,836             Other assets     7,569             Total assets purchased   $ 542,966             Common shares issued     37,902             Cash paid     18,725             Total purchase price   $ 56,627   Total liabilities assumed   $ 486,339     Final estimates of fair value on the date of acquisition have not been finalized yet. Prior to the end of the one -year measurement period for finalizing the purchase price allocation, if information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be included in the purchase price allocation prospectively. If any adjustments are made to the preliminary assumptions (provisional amounts), disclosures will be made in the notes to the financial statements of the amounts recorded in the current period earnings by line item that have been recorded in previous reporting periods as if the adjustments to the provisional amounts had been recognized as of the acquisition date.   Goodwill of approximately $ 11.7 million, which is the excess of the acquisition consideration over the fair value of net assets acquired, is expected to be recorded in the RYFL acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes. To the extent that management revises any of the above fair value adjustments as a result of its continuing evaluation, the amount of goodwill recorded in the RYFL acquisition will change.   Gross loans acquired during the RYFL transaction totaled $ 456.7 million. As of the three months ended March 31, 2022, the remaining outstanding principal of loans directly related to the RYFL acquisition total $ 443.8 million, of which $ 6.1 million are expected to be uncollectable.   Revenue, excluding all purchase accounting adjustments, attributed to RYFL totaled $ 3.2  million for the three months ended March 31, 2022.   7     The following pro-forma and earnings (unaudited) of the combined company are presented as if the RYFL merger had occurred on January 1, 2022 and January 1, 2021:       For the three months ended     For the three months ended   (in thousands)   March 31, 2022     March 31, 2021   Selected Financial Data                 Interest income   $ 17,589     $ 17,391   Interest expense     ( 460 )     ( 1,191 ) Recovery of (provision for) loan losses     -       ( 278 ) Non-interest income     3,283       4,516   Non-interest expense (1)     ( 14,397 )     ( 12,945 ) Income before provision for income taxes     6,015       7,493   Income tax expense     ( 1,032 )     ( 1,173 ) Net income   $ 4,983     $ 6,320                     Earnings per common share:                 Basic   $ 1.24     $ 1.82   Diluted   $ 1.24     $ 1.82     ( 1 ) Excludes $ 2.9 million in pre-tax merger expenses for the three months ended March 31, 2022.   As of the three months ended March 31, 2022, the Bancorp has recorded $2.9 million in pretax one -time merger expenses related to the RYFL acquisition, these expenses have been allocated to the following non-interest expense line items within the income statement:       Three months ended   Noninterest expense:   March 31, 2022   Compensation and benefits   $ 132   Data processing     1,929   Marketing     135   Other     656             Period merger expense   $ 2,852     8         Note 4 - Securities The estimated fair value of available-for-sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:       (Dollars in thousands)               Gross     Gross     Estimated       Cost     Unrealized     Unrealized     Fair       Basis     Gains     Losses     Value   March 31, 2022                                 U.S. government sponsored entities   $ 8,883     $ -     $ ( 681 )   $ 8,202   U.S. treasury securities     199       -       -       199   Collateralized mortgage obligations and residential mortgage-backed securities     178,431       45       ( 14,353 )     164,123   Municipal securities     317,000       1,727       ( 27,903 )     290,824   Collateralized debt obligations     2,173       -       ( 1,201 )     972   Total securities available-for-sale   $ 506,686     $ 1,772     $ ( 44,138 )   $ 464,320         (Dollars in thousands)               Gross     Gross     Estimated       Cost     Unrealized     Unrealized     Fair       Basis     Gains     Losses     Value   December 31, 2021                                 U.S. government sponsored entities   $ 8,883     $ -     $ ( 214 )   $ 8,669   U.S. treasury securities     400       -       -       400   Collateralized mortgage obligations and residential mortgage-backed securities     187,279       961       ( 3,539 )     184,701   Municipal securities     322,750       9,904       ( 527 )     332,127   Collateralized debt obligations     2,173       -       ( 1,181 )     992   Total securities available-for-sale   $ 521,485     $ 10,865     $ ( 5,461 )   $ 526,889     The estimated fair value of available-for-sale debt securities at March 31, 2022, by contractual maturity, were as follows. Securities not due at a single maturity date, primarily collateralized mortgage obligations and residential mortgage-backed securities, are shown separately.       (Dollars in thousands)       Available-for-sale               Estimated       Cost     Fair   March 31, 2022   Basis     Value   Due in one year or less   $ 389     $ 390   Due from one to five years     1,759       1,763   Due from five to ten years     30,204       29,468   Due over ten years     295,903       268,576   Collateralized mortgage obligations and residential mortgage-backed securities     178,431       164,123   Total   $ 506,686     $ 464,320     9     The contractual maturities and weighted average yields for the U.S. government securities, agency securities, municipal securities, and trust preferred securities at March 31, 2022, are summarized in the table below. Securities not due at a single maturity date, such as mortgage-backed securities and collateralized mortgage obligations are not included in the following table. The carrying values are stated in thousands ( 000’s ).   The weighted average yields were calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values. Yields presented are not on a tax-equivalent basis.       Within 1 Year     1 - 5 Years     5 - 10 Years     After 10 Years     Total       Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield     Amount   U.S. government sponsored entities:   $ -       0.00 %   $ -       0.00 %   $ 8,202       1.00 %   $ -       0.00 %   $ 8,202   AFS                                                                         U.S. treasury securities:                                                                         AFS     199       0.13 %     -       0.00 %     -       0.00 %     -       0.00 %     199   Municipal Securities:                                                                         AFS     191       4.84 %     1,763       4.13 %     21,266       3.56 %     267,604       2.87 %     290,824   Trust Preferred Securities:                                                                         AFS     -       0.00 %     -       0.00 %     -       0.00 %     972       1.57 %     972   Totals   $ 390       2.43 %   $ 1,763       4.13 %   $ 29,468       2.85 %   $ 268,576       2.87 %   $ 300,197     Sales of available-for-sale securities were as follows for the three months ended:       (Dollars in thousands)       March 31,     March 31,       2022     2021                     Proceeds   $ 16,236     $ 6,904   Gross gains     397       417   Gross losses     ( 16 )     -     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, 2021   $ 4,276   Current period change     ( 37,738 ) Ending balance, March 31, 2022   $ ( 33,462 )   Securities with market values of approximately $ 34.8 million and $ 39.5 million were pledged as of March 31, 2022, and December 31, 2021, respectively, as collateral for repurchase agreements, public funds, and for other purposes as permitted or required by law.   10     Securities with gross unrealized losses at March 31, 2022, and December 31, 2021, not recognized in income are as follows:       (Dollars in thousands)               Less than 12 months     12 months or longer     Total     Percentage of       Estimated             Estimated             Estimated             Total Portfolio       Fair     Unrealized     Fair     Unrealized     Fair     Unrealized     in Loss       Value     Losses     Value     Losses     Value     Losses     Position   March 31, 2022                                                         U.S. government sponsored entities   $ -     $ -     $ 8,202     $ ( 681 )   $ 8,202     $ ( 681 )     100.0 % Collateralized mortgage obligations and residential mortgage-backed securities     99,994       ( 7,368 )     60,792       ( 6,985 )     160,786       ( 14,353 )     98.0 % Municipal securities     232,220       ( 27,678 )     2,594       ( 225 )     234,814       ( 27,903 )     80.7 % Collateralized debt obligations     -       -       972       ( 1,201 )     972       ( 1,201 )     100.0 % Total temporarily impaired   $ 332,214     $ ( 35,046 )   $ 72,560     $ ( 9,092 )   $ 404,774     $ ( 44,138 )     87.2 % Number of securities             384               33               417                   (Dollars in thousands)               Less than 12 months     12 months or longer     Total     Percentage of       Estimated             Estimated             Estimated             Total Portfolio       Fair     Unrealized     Fair     Unrealized     Fair     Unrealized     in Loss       Value     Losses     Value     Losses     Value     Losses     Position   December 31, 2021                                                         U.S. government sponsored entities   $ 8,669     $ ( 214 )   $ -     $ -     $ 8,669     $ ( 214 )     100.0 % Collateralized mortgage obligations and residential mortgage-backed securities     126,373       ( 3,175 )     8,109       ( 364 )     134,482       ( 3,539 )     72.8 % Municipal securities     70,309       ( 527 )     -       -       70,309       ( 527 )     21.2 % Collateralized debt obligations     -       -       992       ( 1,181 )     992       ( 1,181 )     100.0 % Total temporarily impaired   $ 205,351     $ ( 3,916 )   $ 9,101     $ ( 1,545 )   $ 214,452     $ ( 5,461 )     40.7 % Number of securities             133               5               138             Unrealized losses on securities have not been recognized into income because the securities are of high credit quality or have undisrupted cash flows. Management has the intent and ability to hold those securities for the foreseeable future, and the decline in fair value is largely due to changes in interest rates and volatility in securities markets. The fair values are expected to recover as the securities approach maturity.     Note 5 - Loans Receivable   The Bancorp’s current lending programs are described below:   Residential Real Estate. The primary lending activity of the Bancorp has been the granting of conventional mortgage loans to enable borrowers to purchase existing homes, refinance existing homes, or construct new homes. Conventional loans are made up to a maximum of 97 % of the purchase price or appraised value, whichever is less. For loans made in excess of 80 % of value, private mortgage insurance is generally required in an amount sufficient to reduce the Bancorp’s exposure to 80% or less of the appraised value of the property. Loans insured by private mortgage insurance companies can be made for up to 97% of value. Loans closed with over 20 % of equity do not require private mortgage insurance because of the borrower’s level of equity investment.   Fixed rate loans currently originated generally conform to Freddie Mac guidelines for loans purchased under the one‑to‑four family program. Loan interest rates are determined based on secondary market yield requirements and local market conditions. Fixed rate mortgage loans with contractual maturities generally exceeding fifteen years and greater may be sold and/or classified as held for sale to control exposure to interest rate risk.   The Bancorp’s Adjustable Rate Mortgage Loans (“ARMs”) include offerings that reprice annually or are “Mini-Fixed.” The “Mini‑Fixed” mortgage reprices annually after a one, three, five, seven or ten year period. The ability of the Bancorp to successfully market ARM’s depends upon loan demand, prevailing interest rates, volatility of interest rates, public acceptance of such loans and terms offered by competitors.   Home Equity Line of Credit. The Bancorp offers a fixed and variable rate revolving line of credit secured by the equity in the borrower’s home. Both products offer an interest only option where the borrower pays interest only on the outstanding balance each month. Equity lines will typically require a second mortgage appraisal and a second mortgage lender’s title insurance policy. Loans are generally made up to a maximum of 89 % of the appraised value of the property less any outstanding liens.   Fixed term home improvement and equity loans are made up to a maximum of 85 % of the appraised value of the improved property, less any outstanding liens. These loans are offered on both a fixed and variable rate basis with a maximum term of 240 months. All home equity loans are made on a direct basis to borrowers.   11     Commercial Real Estate and Multifamily Loans. Commercial real estate loans are typically made to a maximum of 80 % of the appraised value. Such loans are generally made on an adjustable rate basis. These loans are typically made for terms of 15 to 20 years. Loans with an amortizing term exceeding 15 years normally have a balloon feature calling for a full repayment within seven to ten years from the date of the loan. The balloon feature affords the Bancorp the opportunity to restructure the loan if economic conditions so warrant. Commercial real estate loans include loans secured by commercial rental units, apartments, condominium developments, small shopping centers, owner occupied commercial/industrial properties, hospitality units and other retail and commercial developments.   In originating commercial real estate loans, the Bancorp considers the feasibility of the project, the financial strength of the borrowers and lessees, the managerial ability of the borrowers, the location of the project and the economic environment. Management evaluates the debt coverage ratio and analyzes the reliability of cash flows, as well as the quality of earnings. All such loans are made in accordance with well-defined underwriting standards and are generally supported by personal guarantees, which represent a secondary source of repayment.   Loans for the construction of commercial properties are generally located within an area permitting physical inspection and regular review of business records. Projects financed outside of the Bancorp’s primary lending area generally involve borrowers and guarantors who are or were previous customers of the Bancorp or projects that are underwritten according to the Bank’s underwriting standards.   Construction and Land Development. Construction loans on residential properties are made primarily to individuals and contractors who are under contract with individual purchasers. These loans are personally guaranteed by the borrower. The maximum loan-to-value ratio is 89 % of either the current appraised value or the cost of construction, whichever is less. Residential construction loans are typically made for periods of six months to one year.   Loans are also made for the construction of commercial properties. All such loans are made in accordance with well-defined underwriting standards. Generally if the loans are not owner occupied, these types of loans require proof of intent to lease and a confirmed end-loan takeout. In general, loans made do not exceed 80 % of the appraised value of the property. Commercial construction loans are typically made for periods not to exceed two years or date of occupancy, whichever is less.   Commercial Business. Although the Bancorp’s priority in extending various types of commercial business loans changes from time to time, the basic considerations in determining the makeup of the commercial business loan portfolio are economic factors, regulatory requirements and money market conditions. The Bancorp seeks commercial loan relationships from the local business community and from its present customers. Conservative lending policies based upon sound credit analysis governs the extension of commercial credit. The following loans, although not inclusive, are considered preferable for the Bancorp’s commercial loan portfolio: loans collateralized by liquid assets; loans secured by general use machinery and equipment; secured short‑term working capital loans to established businesses secured by business assets; short‑term loans with established sources of repayment and secured by sufficient equity and real estate; and unsecured loans to customers whose character and capacity to repay are firmly established.   Consumer Loans. The Bancorp offers consumer loans to individuals for personal, household or family purposes. Consumer loans are either secured by adequate collateral, or unsecured. Unsecured loans are based on the strength of the applicant’s financial condition. All borrowers must meet current underwriting standards. The consumer loan program includes both fixed and variable rate products.   Manufactured Homes. The Bancorp purchases fixed rate closed loans from a third party that are subject to Bancorp’s underwriting requirements and secured by manufactured homes. The maturity date on these loans can range up to 25 years. In addition, these loans have a reserve account held at the Bancorp.   Government Loans. The Bancorp is permitted to purchase non-rated municipal securities, tax anticipation notes and warrants within the local market area.   12     Loans receivable are summarized below:   (Dollars in thousands)                     March 31, 2022     December 31, 2021   Loans secured by real estate:                 Residential real estate   $ 444,753     $ 260,134   Home equity     34,284       34,612   Commercial real estate     408,375       317,145   Construction and land development     150,810       123,822   Multifamily     234,267       61,194   Total loans secured by real estate     1,272,489       796,907   Commercial business     112,396       115,772   Consumer     924       582   Manufactured homes     38,636       37,887   Government     8,176       8,991   Loans receivable     1,432,621       960,139   Add (less):                 Net deferred loan origination costs     6,700       6,810   Undisbursed loan funds     407       ( 229 ) Loans receivable, net of deferred fees and costs   $ 1,439,728     $ 966,720     (Dollars in thousands)   Beginning Balance     Charge-offs     Recoveries     Provisions     Ending Balance                                             The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended March 31, 2022:                                             Allowance for loan losses:                                         Residential real estate   $ 2,480     $ -     $ 21     $ ( 8 )   $ 2,493   Home equity     357       -       -       ( 3 )     354   Commercial real estate     5,515       -       -       15       5,530   Construction and land development     2,119       -       -       16       2,135   Multifamily     848       -       -       41       889   Commercial business     2,009       -       31       ( 99 )     1,941   Consumer     15       ( 10 )     2       38       45   Manufactured homes     -       -       -       -       -   Government     -       -       -       -       -   Total   $ 13,343     $ ( 10 )   $ 54     $ -     $ 13,387     The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended March 31, 2021:   Allowance for loan losses:                                         Residential real estate   $ 2,211     $ ( 4 )   $ 10     $ ( 41 )   $ 2,176   Home equity     276       ( 1 )     -       34       309   Commercial real estate     5,406       -       -       320       5,726   Construction and land development     1,405       -       -       182       1,587   Multifamily     626       -       -       54       680   Commercial business     2,508       -       8       36       2,552   Consumer     26       ( 6 )     4       ( 7 )     17   Manufactured homes     -       -       -       -       -   Government     -       -       -       -       -   Total   $ 12,458     $ ( 11 )   $ 22     $ 578     $ 13,047     13     A deferred cost reserve is maintained for the portfolio of manufactured home loans that have been purchased. This reserve is available for use for manufactured home loan nonperformance and costs associated with nonperformance. If the segment performs in line with expectation, the deferred cost reserve is paid as an origination cost to the third party originator of the loan. The unamortized balance of the deferred cost reserve totaled $ 5.5 million and $ 5.8 million as of March 31, 2022 and December 31, 2021, respectively, and is included in net deferred loan origination fees and costs.   The Bancorp's impairment analysis is summarized below:       Ending Balances                                                     (Dollars in thousands)   Individually evaluated for impairment reserves     Collectively evaluated for impairment reserves     Loan receivables     Individually evaluated for impairment     Purchased credit impaired individually evaluated for impairment     Collectively evaluated for impairment                                                     The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at March 31, 2022:                                                                     Residential real estate   $ 17     $ 2,476     $ 444,753     $ 753     $ 2,908     $ 441,092   Home equity     4       350       34,284       135       134       34,015   Commercial real estate     440       5,090       408,375       1,496       2,965       403,914   Construction and land development     -       2,135       150,810       -       804       150,006   Multifamily     -       889       234,267       -       3,302       230,965   Commercial business     259       1,682       112,396       501       1,061       110,834   Consumer     -       45       924       -       21       903   Manufactured homes     -       -       38,636       -       -       38,636   Government     -       -       8,176       -       -       8,176   Total   $ 720     $ 12,667     $ 1,432,621     $ 2,885     $ 11,195     $ 1,418,541     The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2021:   Residential real estate   $ 17     $ 2,463     $ 260,134     $ 755     $ 1,016     $ 258,363   Home equity     4       353       34,612       147       137       34,328   Commercial real estate     386       5,129       317,145       1,600       -       315,545   Construction and land development     -       2,119       123,822       -       -       123,822   Multifamily     -       848       61,194       -       556       60,638   Commercial business     277       1,732       115,772       524       1,073       114,175   Consumer     -       15       582       -       -       582   Manufactured homes     -       -       37,887       -       -       37,887   Government     -       -       8,991       -       -       8,991   Total   $ 684     $ 12,659     $ 960,139     $ 3,026     $ 2,782     $ 954,331     14     The Bancorp's credit quality indicators are summarized below at March 31, 2022 and December 31, 2021:       Credit Exposure - Credit Risk Portfolio By Creditworthiness Category       March 31, 2022   (Dollars in thousands)   1 - 6     7     8                                             Loan Segment   Pass     Special mention     Substandard     Total   Residential real estate   $ 435,814     $ 2,308     $ 6,631     $ 444,753   Home equity     33,234       415       635       34,284   Commercial real estate     390,533       11,391       6,451       408,375   Construction and land development     146,407       4,403       -       150,810   Multifamily     229,705       1,532       3,030       234,267   Commercial business     108,605       3,395       396       112,396   Consumer     924       -       -       924   Manufactured homes     38,577       59       -       38,636   Government     8,176       -       -       8,176   Total   $ 1,391,975     $ 23,503     $ 17,143     $ 1,432,621           December 31, 2021   (Dollars in thousands)   1 - 6     7     8                                             Loan Segment   Pass     Special mention     Substandard     Total   Residential real estate   $ 253,472     $ 2,940     $ 3,722     $ 260,134   Home equity     33,565       415       632       34,612   Commercial real estate     301,572       12,011       3,562       317,145   Construction and land development     120,192       3,630       -       123,822   Multifamily     60,657       153       384       61,194   Commercial business     113,470       1,915       387       115,772   Consumer     582       -       -       582   Manufactured homes     37,828       59       -       37,887   Government     8,991       -       -       8,991   Total   $ 930,329     $ 21,123     $ 8,687     $ 960,139     The Bancorp has established a standard loan grading system to assist management, lenders and review personnel in their analysis and supervision of the loan portfolio. The use and application of these grades by the Bancorp is uniform and conforms to regulatory definitions. The loan grading system is as follows:   1 – Superior Quality Loans in this category are substantially risk free. Loans fully collateralized by a Bank certificate of deposit or Bank deposits with a hold are substantially risk free.   2 – Excellent Quality The borrower generates excellent and consistent cash flow for debt coverage, excellent average credit scores, excellent liquidity and net worth and are reputable operators with over 15 years experience. Current and debt to tangible net worth ratios are excellent. Loan to value is substantially below policy and collateral condition is excellent.   3 – Great Quality The borrower generates more than sufficient cash flow to fund debt service and cash flow is improving. Average credit scores are very strong. Operators are reputable with significant years of experience. Liquidity, net worth, current and debt to tangible net worth ratios are very strong. Loan to value is significantly below policy and collateral condition is significantly above average.   15     4 – Above Average Quality The borrower generates more than sufficient cash flow to fund debt service but cash flow trends may be stable or slightly declining. Average credit scores are strong. The borrower is a reputable operator with many years of experience. Liquidity, net worth, current and debt to tangible net worth ratios are strong. Loan to value is below policy and collateral condition is above average.   5 – Average Quality Borrowers are considered creditworthy and can repay the debt in the normal course of business, however, cash flow trends may be inconsistent or fluctuating. Average credit scores are satisfactory and years of experience is acceptable. Liquidity and net worth are satisfactory. Current and debt to tangible net worth ratios are average. Loan to value is slightly below policy and the collateral condition is slightly above average.   6 – Pass Borrowers are considered credit worthy but financial condition may show signs of weakness due to internal or external factors. Cash flow trends may be declining annually. Average credit scores may be low but remain acceptable. Borrower has limited years of experience. Liquidity, net worth, current and debt to tangible net worth ratios are below average. Loan to value is nearing policy limits and collateral condition is average.   7 – Special Mention A special mention asset has identified weaknesses that deserve Management’s close attention. If left uncorrected, these weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. There is still adequate protection by the current sound worth and paying capacity of the obligor or of the collateral pledged. The Special Mention rating is viewed as transitional and will be monitored closely.   Loans in this category may exhibit some of the following risk factors. Cash flow trends may be consistently declining or may be questionable. Debt coverage ratios may be at or near 1:1. Average credit scores may be very weak or the borrower may have minimal years of experience. Liquidity, net worth, current and debt to tangible net worth ratios may be very weak. Loan to value may be at policy limits or may exceed policy limits. Collateral condition may be below average.   8 – Substandard This classification consists of loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Financial statements normally reveal some or all of the following: poor trends, lack of earnings and cash flow, excessive debt, lack of liquidity, and the absence of creditor protection. Loans are still considered collectible, but due to increased risks and defined weaknesses of the credit, some loss could be incurred in collection if the deficiencies are not corrected.   9 – Doubtful Such loans have been placed on nonaccrual status and may be heavily dependent upon collateral possessing a value that is difficult to determine or based upon some near-term event which lacks clear certainty. These loans have all of the weaknesses of those classified as Substandard; however, based on existing conditions, these weaknesses make full collection of the principal balance highly improbable.   10 – Loss Loans that are considered uncollectible and of such little value that continuing to carry them as assets is not warranted.   Performing loans are loans that are paying as agreed and are approximately less than ninety days past due on payments of interest and principal.   During the three months ending March 31, 2022, four residential real estate loans totaling $ 194 thousand and one home equity loan totaling $ 7 thousand, were modified to include deferral of principal resulting troubled debt restructuring classification. During the three months ending March 31, 2021, two residential real estate loans to one customer totaling $ 150 thousand were modified to included deferral of principal resulting troubled debt restructuring classification. One residential real estate trouble debt restructuring loan totaling $ 39 thousand had subsequently defaulted during the three months ending March 31, 2021. 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.   16     The Bancorp's individually evaluated impaired loans are summarized below:   (Dollars in thousands)                           For the three months ended   (unaudited)   As of March 31, 2022     March 31, 2022       Recorded Investment     Unpaid Principal Balance     Related Allowance     Average Recorded Investment     Interest Income Recognized   With no related allowance recorded:                                         Residential real estate   $ 3,575     $ 5,070     $ -     $ 2,629     $ 30   Home equity     248       263       -       255       7   Commercial real estate     3,610       3,722       -       2,188       10   Construction and land development     804       920       -       460       -   Multifamily     3,302       4,241       -       2,036       -   Commercial business     1,247       1,363       -       1,226       15   Consumer     21       21       -       11       -   Manufactured homes     -       -       -       -       -   Government     -       -       -       -       -                                             With an allowance recorded:                                         Residential real estate   $ 86     $ 86     $ 17     $ 87     $ 3   Home equity     21       21       4       22       1   Commercial real estate     851       852       440       843       -   Construction and land development     -       -       -       -       -   Multifamily     -       -       -       -       -   Commercial business     315       377       259       354       16   Consumer     -       -       -       -       -   Manufactured homes     -       -       -       -       -   Government     -       -       -       -       -                                             Total:                                         Residential real estate   $ 3,661     $ 5,156     $ 17     $ 2,716     $ 33   Home equity   $ 269     $ 284     $ 4     $ 277     $ 8   Commercial real estate   $ 4,461     $ 4,574     $ 440     $ 3,031     $ 10   Construction & land development   $ 804     $ 920     $ -     $ 460     $ -   Multifamily   $ 3,302     $ 4,241     $ -     $ 2,036     $ -   Commercial business   $ 1,562     $ 1,740     $ 259     $ 1,580     $ 31   Consumer   $ 21     $ 21     $ -     $ 11     $ -   Manufactured homes   $ -     $ -     $ -     $ -     $ -   Government   $ -     $ -     $ -     $ -     $ -     17                                 For the three months ended       As of December 31, 2021     March 31, 2021   (Dollars in thousands)   Recorded Investment     Unpaid Principal Balance     Related Allowance     Average Recorded Investment     Interest Income Recognized   With no related allowance recorded:                                         Residential real estate   $ 1,683     $ 3,017     $ -     $ 1,817     $ 22   Home equity     262       275       -       341       4   Commercial real estate     765       765       -       1,174       12   Construction & land development     -       -       -       -       -   Multifamily     556       647       -       708       5   Commercial business     1,205       1,324       -       1,467       18   Consumer     -       -       -       -       -   Manufactured homes     -       -       -       -       -   Government     -       -       -       -       -                                             With an allowance recorded:                                         Residential real estate   $ 88     $ 88     $ 17     $ 217     $ 5   Home equity     22       22       4       12       -   Commercial real estate     835       835       386       5,549       50   Construction & land development     -       -       -       -       -   Multifamily     -       -       -       -       -   Commercial business     392       392       277       737       11   Consumer     -       -       -       -       -   Manufactured homes     -       -       -       -       -   Government     -       -       -       -       -                                             Total:                                         Residential real estate   $ 1,771     $ 3,105     $ 17     $ 2,034     $ 27   Home equity   $ 284     $ 297     $ 4     $ 353     $ 4   Commercial real estate   $ 1,600     $ 1,600     $ 386     $ 6,723     $ 62   Construction & land development   $ -     $ -     $ -     $ -     $ -   Multifamily   $ 556     $ 647     $ -     $ 708     $ 5   Commercial business   $ 1,597     $ 1,716     $ 277     $ 2,204     $ 29   Consumer   $ -     $ -     $ -     $ -     $ -   Manufactured homes   $ -     $ -     $ -     $ -     $ -   Government   $ -     $ -     $ -     $ -     $ -     The Bancorp's age analysis of past due loans is summarized below:   (Dollars in thousands)   30-59 Days Past Due     60-89 Days Past Due     Greater Than 90 Days Past Due     Total Past Due     Current     Total Loans     Recorded Investments Greater than 90 Days Past Due and Accruing   March 31, 2022                                                         Residential real estate   $ 3,056     $ 1,388     $ 3,528     $ 7,972     $ 436,781     $ 444,753     $ 117   Home equity     37       18       534       589       33,695       34,284       -   Commercial real estate     1,665       805       1,015       3,485       404,890       408,375       163   Construction and land development     2,513       -       -       2,513       148,297       150,810       -   Multifamily     55       18       111       184       234,083       234,267       -   Commercial business     970       -       583       1,553       110,843       112,396       214   Consumer     -       -       -       -       924       924       -   Manufactured homes     316       204       -       520       38,116       38,636       -   Government     -       -       -       -       8,176       8,176       -   Total   $ 8,612     $ 2,433     $ 5,771     $ 16,816     $ 1,415,805     $ 1,432,621     $ 494                                                             December 31, 2021                                                         Residential real estate   $ 2,507     $ 824     $ 2,142     $ 5,473     $ 254,661     $ 260,134     $ 31   Home equity     169       67       565       801       33,811       34,612       34   Commercial real estate     231       1,960       944       3,135       314,010       317,145       91   Construction and land development     5,148       283       -       5,431       118,391       123,822       -   Multifamily     -       -       109       109       61,085       61,194       -   Commercial business     573       1,594       242       2,409       113,363       115,772       49   Consumer     -       3       -       3       579       582       -   Manufactured homes     633       171       -       804       37,083       37,887       -   Government     -       -       -       -       8,991       8,991       -   Total   $ 9,261     $ 4,902     $ 4,002     $ 18,165     $ 941,974     $ 960,139     $ 205     18     The Bancorp's loans on nonaccrual status are summarized below:   (Dollars in thousands)                     March 31, 2022     December 31, 2021   Residential real estate   $ 5,710     $ 4,651   Home equity     620       623   Commercial real estate     1,263       940   Construction and land development     -       -   Multifamily     447       455   Commercial business     374       387   Consumer     -       -   Manufactured homes     -       -   Government     -       -   Total   $ 8,414     $ 7,056     As a result of acquisition activity, the Bancorp acquired loans for which there was evidence of credit quality deterioration since origination and it was determined that it was probable that the Bancorp would be unable to collect all contractually required principal and interest payments. At March 31, 2022, total purchased credit impaired loans with unpaid principal balances totaled $ 13.2 million with a recorded investment of $ 11.2 million. At December 31, 2021, total purchased credit impaired loans with unpaid principal balances totaled $ 4.2 million with a recorded investment of $ 2.8 million   As part of the fair value of loans receivable, there was a net fair value discount for loans acquired of $ 6.4 million at March 31, 2022, compared to $ 1.1 million at December 31, 2021.   Accretable yield, or income recorded for the three months ended March 31, is as follows:   (dollars in thousands)   Total   2021   $ 305   2022     107     Accretable yield, or income expected to be recorded in the future is as follows:   (dollars in thousands)   Total   Remainder 2022   $ 719   2023     804   2024     623   2025     605   2026 and thereafter     3,671   Total   $ 6,422       Note 6 – Intangibles and Acquisition Related Accounting The Bancorp established a goodwill balance totaling $ 11.7 million with the acquisition of Royal, and also maintains goodwill balances totaling $ 11.1 million from prior acquisitions. Goodwill is tested annually for impairment. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. The Bancorp’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of the Bancorp to provide quality, cost effective banking services in a competitive marketplace. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. There has not been any impairment of goodwill identified or recorded. Goodwill totaled $ 22.8 million and $11.1 million as of March 31, 2022 and December 31, 2021, respectively.   19     In addition to goodwill, a core deposit intangible was established with the acquisition of Royal and from previous acquisitons. The Bancorp had core deposit intangible balances of $ 6.0 million and $ 3.1 million as of March 31, 2022, and December 31, 2021, respectively. The table below summarizes the annual amortization:   The amortization recorded for the three months ended March 31, is as follows:   (dollars in thousands)   Total   2021   $ 248   2022   $ 347     Amortization to be recorded in future periods, is as follows:   (dollars in thousands)   Total   Current year     1,205   2023     1,522   2024     1,411   2025     688   5 years and thereafter     1,172   Total   $ 5,998     For the Royal acquisition, as part of the fair value of certificates of deposit, a fair value premium was established of $ 1.0 million. Approximately $ 129 thousand of amortization was taken as income during the three months ended March 31, 2022. It is estimated amortization to be recorded in future periods is as follows, an additional $ 412 thousand in 2022, $ 217 thousand in 2023, $ 124 thousand in 2024, $ 72 thousand in 2025, and $ 55 thousand thereafter.     Note 7 - Concentrations of Credit Risk The primary lending area of the Bancorp encompasses Lake County in northwest Indiana and Cook County in northeast Illinois, where collectively a majority of loan activity is concentrated. The Bancorp is also an active lender in Porter County, and to a lesser extent, LaPorte, Newton and Jasper counties in Indiana; and DuPage, Lake, and Will counties in Illinois. Substantially all loans are secured by specific items of collateral including residences, commercial real estate, land development, business assets and consumer assets.     Note 8 - Earnings per Share Earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding. A reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations for the three months ended March 31, 2022, and 2021 are as follows:   (dollars in thousands except per share data)   Period ended March 31,       2022     2021   Basic earnings per common share:                 Net income as reported   $ 2,135     $ 4,543   Weighted average common shares outstanding     4,020,815       3,471,604   Basic earnings per common share   $ 0.53     $ 1.31                     Diluted earnings per common share:                 Net income as reported   $ 2,135     $ 4,543   Weighted average common shares outstanding     4,020,815       3,471,604   Weighted average common and dilutive potential common shares outstanding     4,020,815       3,471,604   Diluted earnings per common share   $ 0.53     $ 1.31     20         Note 9 - Stock Based Compensation The Bancorp’s 2015 Stock Option and Incentive Plan (the “Plan”), which was adopted by the Bancorp’s Board of Directors on February 27, 2015, and approved by the Bancorp’s shareholders on April 24, 2015, permits the grant of equity awards for up to 250,000 shares of common stock. Awards granted under the Plan may be in the form of incentive stock options, non-qualified stock options, restricted stock, unrestricted stock, performance shares, or performance units.   As required by the Stock Compensation Topic, companies are required to record compensation cost for stock options and awards provided to employees in return for employment service. For the three months ended March 31, 2022, stock based compensation expense of $ 169 thousand was recorded, compared to $ 146 thousand for the three months ended March 31, 2021. It is anticipated that current outstanding unvested awards will result in additional compensation expense of approximately $ 1.6 million through 2025 with an weighted average life of 1.9 years.   There were 18,891 shares of restricted stock granted during the first three months of 2022 compared to 17,716 shares granted during the first three months of 2021. Restricted stock awards are issued with an award price equal to the market price of the Bancorp’s common stock on the award date and vest between three and five years after the grant date. Forfeiture provisions exist for personnel that separate employment before the vesting period expires. A summary of restricted stock activity under the Bancorp’s Plan described above for the three months ended March 31, 2022, follows:   Non-vested Shares   Shares     Weighted Average Grant Date Fair Value   Non-vested at January 1, 2022     44,235     $ 42.33   Granted     18,891       47.96   Vested     ( 10,863 )     41.56   Forfeited     ( 513 )     44.17   Non-vested at March 31, 2022     51,750     $ 44.53       Note 10 – Change in Accounting Principles In December 2019, the FASB issued ASU 2019 - 12 which remove specific exceptions to the general principles in Topic 740 in GAAP. It eliminates the need for an organization to analyze whether the following apply in a given period: exception to the incremental approach for intraperiod tax allocation; exceptions to accounting for basis differences where there are ownership changes in foreign investments; and exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. It also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for: franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacts changes in tax laws in interim periods. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Bancorp adopted ASU 2019 - 12 on January 1, 2021 and it did not have a material impact on its accounting and disclosures.     Note 11 - Upcoming Accounting Standards In June 2016, FASB issued ASU No. 2016 - 13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU includes increased disclosures and various changes to the accounting and measurement of financial assets including the Bancorp’s loans and available-for-sale debt securities. Each financial asset presented on the balance sheet would have a unique allowance for credit losses valuation account that is deducted from the amortized cost basis to present the net carrying value at the amount expected to be collected on the financial asset. The amendments in this ASU also eliminate the probable initial recognition threshold in current GAAP and instead, reflect an entity’s current estimate of all expected credit losses using reasonable and supportable forecasts. In October 2019, the FASB voted and approved proposed changes to the effective date of this ASU for smaller reporting companies, such as the Bancorp, and other non-SEC reporting entities. The approval changed the effective date of the ASU to fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. The new credit loss guidance will be effective for the Bancorp's as of January 1, 2023. Upon adoption, the ASU will be applied using a modified retrospective transition method to the beginning of the first reporting period in which the guidance is effective. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. Early adoption for all institutions is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management is in the process of evaluating the impact adoption of this update will have on the Bancorp’s consolidated financial statements. This process of evaluation has engaged multiple areas of the Bancorp’s management in discussing loss estimation methods and the application of these methods to specific segments of the loans receivable portfolio. Management has been actively monitoring developments and evaluating the use of different methods allowed. Due to continuing development of understanding of application, additional time is required to understand how this ASU will affect the Bancorp’s financial statements. Management plans on running parallel calculations and finalizing a method or methods of adoption in time for the effective date.   21     In March 2020, the FASB issued ASU No. 2020 - 04 “Reference Rate Reform (Topic 848 ): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. In January 2021, the FASB issued ASU 2021 - 01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The guidance is effective for all entities as of March 12, 2020, through December 31, 2022. The Bancorp is implementing a transition plan to identify and modify its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. The Bancorp believes the adoption of this guidance on activities after December 31, 2020, through December 31, 2022, will not have a material impact on the consolidated financial statements.   In October 2021, the FASB issued ASU 2021 - 08 related to accounting for acquired revenue contracts with customers in a business combination. The amendments in this update address diversity in practice and inconsistency related to recognition of an acquired contract liability and the effect of payment terms on subsequent revenue recognition for the acquirer. This update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We plan to adopt this pronouncement for our fiscal year beginning January 1, 2023, and we do not expect it to have a material effect on our consolidated financial statements.   In March 2022, the FASB issued ASU  2022 - 01 related to the portfolio layer method of hedge accounting. The amendments in this update clarify the accounting and promote consistency in reporting for hedges where the portfolio layer method is applied. This update is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. As we currently do not have items accounted for under the portfolio layer method of hedge accounting, we do not expect the update to have an effect on our consolidated financial statements.   In March 2022, the FASB issued ASU 2022 - 02, Financial Instruments—Credit Losses (Topic 326 ): Troubled Debt Restructurings and Vintage Disclosures, which addresses and amends areas identified by the FASB as part of its post-implementation review of the accounting standard that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by companies that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross writeoffs for financing receivables and net investment in leases by year of origination in the vintage disclosures. ASU 2022 - 02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for entities that have adopted the CECL accounting standard. Early adoption, however, is permitted if an entity has adopted the CECL accounting standard. The Bancorp is assessing ASU 2022 - 02 and its impact on its accounting and disclosures.     Note 12 – Derivative Financial Instruments The Bancorp uses derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities. The Bancorp has certain interest rate derivative positions that are not designated as hedging instruments. Derivative assets and liabilities are recorded at fair value on the Consolidated Balance Sheet and do not take into account the effects of master netting agreements. Master netting agreements allow the Bancorp to settle all derivative contracts held with a single counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable. These derivative positions relate to transactions in which the Bancorp enters into an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, the Bancorp agrees to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate. At the same time, the Bancorp agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the client to effectively convert a variable rate loan to a fixed rate. Because the terms of the swaps with the customers and the other financial institutions offset each other, with the only difference being counterparty credit risk, changes in the fair value of the underlying derivative contracts are not materially different and do not significantly impact the Bancorp’s results of operations.   22   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:   March 31, 2022             Asset derivatives     Liability derivatives   (Dollars in thousands)   Notational or contractual amount   Statement of Financial Condition classification   Fair value     Statement of Financial Condition classification     Fair value   Interest rate swap contracts   $ 93,890   Other assets   $ 4,990     Other liabilties     $ 4,990   Interest rate lock commitments     8,738   Other assets     166       N/A       -   Total   $ 102,628       $ 5,156             $ 4,990     December 31, 2021             Asset derivatives     Liability derivatives   (Dollars in thousands)   Notational or contractual amount   Statement of Financial Condition classification   Fair value     Statement of Financial Condition classification     Fair value   Interest rate swap contracts   $ 94,154   Other assets   $ 2,686     Other liabilties     $ 2,686   Interest rate lock commitments     7,837   Other assets     141       N/A       -   Total   $ 101,991       $ 2,827             $ 2,686     The following table shows the amounts included in the Statements of Income for non-hedging derivative financial instruments:         Three Months Ended         March 31,   (Dollars in thousands) Statement of Income Classification   2022     2021   Interest rate swap contracts Fees and service charges   $ -     $ ( 13 ) Interest rate lock commitments Gain on sale of loans held-for-sale, net     25       23   Total   $ 25     $ 10     The following table shows the offsetting of financial assets and derivative assets:       Gross Amounts of       Gross Amounts Offset in the Statement of     Net Amounts of Assets Presented in the Statement     Gross Amounts not Offset in the Statement of Financial Condition           (Dollars in thousands)   Recognized Assets      Financial Condition     of Financial Condition     Financial Instruments     Cash Collateral Received     Net Amount   March 31, 2022                                                 Interest rate swap contracts   $ 4,990     $ -     $ 4,990     $ -     $ -     $ 4,990   Interest rate lock commitments     166       -       166       -       -       166   Total   $ 5,156     $ -     $ 5,156     $ -     $ -     $ 5,156         Gross Amounts of     Gross Amounts Offset in the Statement of     Net Amounts of Liabilities Presented in the Statement       Gross Amounts not Offset in the Statement of Financial Condition           (Dollars in thousands)   Recognized Liabilities     Financial Condition     of Financial Condition     Financial Instruments     Cash Collateral Received     Net Amount   December 31, 2021                                                 Interest rate swap contracts   $ 2,686     $ -     $ 2,686     $ -     $ -     $ 2,686   Interest rate lock commitments     141       -       141       -       -       141   Total   $ 2,827     $ -     $ 2,827     $ -     $ -     $ 2,827     The following table shows the offsetting of financial liabilities and derivative liabilities:       Gross Amounts of     Gross Amounts Offset in the Statement of     Net Amounts of Liabilities Presented in the Statement of     Gross Amounts not Offset in the Statement of Financial Condition           (Dollars in thousands)   Recognized Liabilities     Financial Condition     Financial Condition     Financial Instruments     Cash Collateral Pledged     Net Amount   March 31, 2022                                                 Interest rate swap contracts   $ 4,990     $ -     $ 4,990     $ -     $ 3,930     $ 1,060   Total   $ 4,990     $ -     $ 4,990     $ -     $ 3,930     $ 1,060         Gross Amounts of     Gross Amounts Offset in the Statement of     Net Amounts of Liabilities Presented in the Statement of     Gross Amounts not Offset in the Statement of Financial Condition           (Dollars in thousands)   Recognized Liabilities     Financial Condition     Financial Condition     Financial Instruments     Cash Collateral Pledged     Net Amount   December 31, 2021                                                 Interest rate swap contracts   $ 2,686     $ -     $ 2,686     $ -     $ 3,930     $ ( 1,244 ) Total   $ 2,686     $ -     $ 2,686     $ -     $ 3,930     $ ( 1,244 )   23         Note 13 - Fair Value The Fair Value Measurements Topic establishes a hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Topic describes three levels of inputs that may be used to measure fair value:   Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.   Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.   Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.   The fair values of securities available-for-sale are determined on a recurring basis by obtaining quoted prices on nationally recognized securities exchanges or pricing models utilizing significant observable inputs such as matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Different judgments and assumptions used in pricing could result in different estimates of value. In certain cases where market data is not readily available because of a lack of market activity or little public disclosure, values may be based on unobservable inputs and classified in Level 3 of the fair value hierarchy.   At the end of each reporting period, securities held in the investment portfolio are evaluated on an individual security level for other-than-temporary impairment in accordance with GAAP. Impairment is other-than-temporary if the decline in the fair value is below its amortized cost and it is probable that all amounts due according to the contractual terms of a debt security will not be received. Significant judgments are required in determining impairment, which include making assumptions regarding the estimated prepayments, loss assumptions and the change in interest rates. The Bancorp considers the following factors when determining an other-than-temporary impairment for a security: the length of time and the extent to which the market value has been less than amortized cost; the financial condition and near-term prospects of the issuer; the underlying fundamentals of the relevant market and the outlook for such market for the near future; an assessment of whether the Bancorp ( 1 ) has the intent to sell the debt securities or ( 2 ) more likely than not will be required to sell the debt securities before their anticipated market recovery. If either of these conditions is met, management will recognize other-than-temporary impairment. If, in management’s judgment, an other-than-temporary impairment exists, the cost basis of the security will be written down for the credit loss, and the unrealized loss will be transferred from accumulated other comprehensive loss as an immediate reduction of current earnings.   The Bancorp’s management utilizes a specialist to perform an other-than-temporary impairment analysis for each of its pooled trust preferred securities. The analysis is performed annually during December and utilizes analytical models used to project future cash flows for the pooled trust preferred securities based on current assumptions for prepayments, default and deferral rates, and recoveries. The projected cash flows are then tested for impairment consistent with GAAP. The other-than-temporary impairment testing compares the present value of the cash flows from quarter to quarter to determine if there is a “favorable” or “adverse” change. Other-than-temporary impairment is recorded if the projected present value of cash flows is lower than the book value of the security. To perform the annual other-than-temporary impairment analysis, management utilizes current reports issued by the trustee, which contain principal and interest tests, waterfall distributions, note valuations, collection detail and credit ratings for each pooled trust preferred security. In addition, a detailed review of the performing collateral was performed. Based on current market conditions and a review of the trustee reports, management performed an analysis of the pooled trust preferred securities and no additional impairment was taken at December 31, 2021. A specialist will be used to review all pooled trust preferred securities again at December 31, 2022.   The table below shows the credit loss roll forward on a year-to-date basis for the Bancorp’s pooled trust preferred securities that have been classified with other-than-temporary impairment:       (Dollars in thousands)       Collateralized debt obligations       other-than-temporary impairment   Ending balance, December 31, 2021   $ 173   Additions not previously recognized     -   Ending balance,March 31, 2022   $ 173     24     At March 31, 2022, trust preferred securities with a cost basis of $ 2.2 million continue to be in “payment in kind” status. These trust preferred securities classified as “payment in kind” are a result of not receiving the scheduled quarterly interest payments. For these trust preferred securities in “payment in kind” status, management anticipates to receive the unpaid contractual interest payments from the issuer, because of the self-correcting cash flow waterfall provisions within the structure of the securities. When a tranche senior to the Bancorp’s position fails the coverage test, the Bancorp’s interest cash flows are paid to the senior tranche and recorded as a reduction of principal. The coverage test represents an over collateralization target by stating the balance of the performing collateral as a percentage of the balance of the Bancorp’s tranche, plus the balance of all senior tranches. The principal reduction in the senior tranche continues until the appropriate coverage test is passed. As a result of the principal reduction in the senior tranche, more cash is available for future payments to the Bancorp’s tranche. Consistent with GAAP, management considered the failure of the issuer of the security to make scheduled interest payments in determining whether a credit loss existed. Management will not capitalize the “payment in kind” interest payments to the book value of the securities and will keep these securities in non-accrual status until the quarterly interest payments resume on a consistent basis.   Assets and Liabilities Measured at Fair Value on a Recurring Basis There were no transfers to or from Levels 1 and 2 during the three months ended March 31, 2022. Assets measured at fair value on a recurring basis are summarized below:               (Dollars in thousands)               Fair Value Measurements at March 31, 2022 Using   (Dollars in thousands)   Estimated Fair Value     Quoted Prices in Active Markets for Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)   Assets:                                 Interest rate swap contracts   $ 4,990     $ -     $ 4,990     $ -   Interest rate lock commitments     166       -       166       -   Available-for-sale debt securities:                                 U.S. government sponsored entities     8,202       -       8,202       -   U.S. treasury securities     199       -       199       -   Collateralized mortgage obligations and residential mortgage-backed securities     164,123       -       164,123       -   Municipal securities     290,824       -       290,824       -   Collateralized debt obligations     972       -       -       972   Total securities available-for-sale   $ 464,320     $ -     $ 463,348     $ 972                                     Liabilities:                                 Interest rate swap contracts   $ 4,990     $ -     $ 4,990     $ -                 (Dollars in thousands)               Fair Value Measurements at December 31, 2021 Using   (Dollars in thousands)   Estimated Fair Value     Quoted Prices in Active Markets for Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)   Assets:                                 Interest rate swap contracts   $ 2,686     $ -     $ 2,686     $ -   Interest rate lock commitments     141       -       141       -   Available-for-sale debt securities:                                 U.S. government sponsored entities     8,669       -       8,669       -   U.S. treasury securities     400       -       400       -   Collateralized mortgage obligations and residential mortgage-backed securities     184,701       -       184,701       -   Municipal securities     332,127       -       332,127       -   Collateralized debt obligations     992       -       -       992   Total securities available-for-sale   $ 526,889     $ -     $ 525,897     $ 992                                     Liabilities:                                 Interest rate swap contracts   $ 2,686     $ -     $ 2,686     $ -     25     A roll forward of available-for-sale securities, which require significant adjustment based on unobservable data, are presented in the following table:       (Dollars in thousands)       Estimated Fair Value Measurements Using Significant Unobservable Inputs (Level 3)       Available-for- sale securities   Beginning balance, January 1, 2021   $ 929   Principal payments     ( 5 ) Total unrealized losses, included in other comprehensive income     20   Ending balance, March 31, 2021   $ 944             Beginning balance, January 1, 2022   $ 992   Principal payments     -   Total unrealized gains, included in other comprehensive income     ( 20 ) Ending balance, March 31, 2022   $ 972     Assets measured at fair value on a non-recurring basis are summarized below:               (Dollars in thousands)               Fair Value Measurements at March 31, 2022 Using   (Dollars in thousands)   Estimated Fair Value     Quoted Prices in Active Markets for Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)   Impaired loans   $ 151     $ -     $ -     $ 151                 (Dollars in thousands)               Fair Value Measurements at December 31, 2021 Using   (Dollars in thousands)   Estimated Fair Value     Quoted Prices in Active Markets for Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)   Impaired loans   $ 896     $ -     $ -     $ 896     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.   26     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.       March 31, 2022     Estimated Fair Value Measurements at March 31, 2022 Using   (Dollars in thousands)   Carrying Value     Estimated Fair Value     Quoted Prices in Active Markets for Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)   Financial assets:                                         Cash and cash equivalents   $ 54,501     $ 54,501     $ 54,501     $ -     $ -   Certificates of deposit in other financial institutions     1,731       1,650       -       1,650       -   Loans held-for-sale     1,420       1,445       -       1,445       -   Loans receivable, net     1,426,341       1,382,030       -       -       1,382,030   Federal Home Loan Bank stock     3,038       3,038       -       3,038       -   Accrued interest receivable     7,427       7,427       -       7,427       -                                             Financial liabilities:                                         Non-interest bearing deposits     380,515       380,515       380,515       -       -   Interest bearing deposits     1,514,696       1,513,699       1,084,309       429,390       -   Repurchase agreements     23,239       23,150       12,939       10,211       -   Borrowed funds     5       5       5       -       -   Accrued interest payable     42       42       -       42       -         December 31, 2021     Estimated Fair Value Measurements at December 31, 2021 Using   (Dollars in thousands)   Carrying Value     Estimated Fair Value     Quoted Prices in Active Markets for Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)   Financial assets:                                         Cash and cash equivalents   $ 33,176     $ 33,176     $ 33,176     $ -     $ -   Certificates of deposit in other financial institutions     1,709       1,737       -       1,737       -   Loans held-for-sale     4,987       5,065       -       5,065       -   Loans receivable, net     953,377       951,744       -       -       951,744   Federal Home Loan Bank stock     3,247       3,247       -       3,247       -   Accrued interest receivable     5,444       5,444       -       5,444       -                                             Financial liabilities:                                         Non-interest bearing deposits     295,294       295,294       295,294       -       -   Interest bearing deposits     1,138,907       1,139,126       899,690       239,436       -   Repurchase agreements     14,581       14,579       12,842       1,737       -   Borrowed funds     -       -       -       -       -   Accrued interest payable     22       22       -       22       -     The following methods were used to estimate the fair value of financial instruments presented in the preceding table for the periods ended March 31, 2022, and December 31, 2021:   Cash and cash equivalent carrying amounts approximate fair value. Certificates of deposits in other financial institutions carrying amounts approximate fair value (Level 2 ). The fair values of securities available-for-sale are obtained from broker pricing (Level 2 ), with the exception of collateralized debt obligations, which are valued by a third -party specialist (Level 3 ). Loans held-for-sale comprise residential mortgages and are priced based on values established by the secondary mortgage markets (Level 1 ). The estimated fair value for net loans receivable is based on the exit price notion which is the exchange price that would be received to transfer the loans at the most advantageous market price in an orderly transaction between market participants on the measurement date (Level 3 ). Federal Home Loan Bank stock is estimated at book value due to restrictions that limit the sale or transfer of the security. Interest rate swap agreements, both assets and liabilities, are valued by a third -party pricing agent using an income approach (Level 2 ). Fair values of accrued interest receivable and payable approximate book value, as the carrying values are determined using the observable interest rate, balance, and last payment date.   Non-interest and interest bearing deposits, which include checking, savings, and money market deposits, are estimated to have fair values based on the amount payable as of the reporting date (Level 1 ). The fair value of fixed-maturity certificates of deposit (included in interest bearing deposits) are based on estimates of the rate the Bancorp would pay on similar deposits, applied for the time period until maturity (Level 2 ). Estimated fair values for short-term repurchase agreements, which represent sweeps from demand deposits to accounts secured by pledged securities, are estimated based on the amount payable as of the reporting date (Level 1 ). Longer-term repurchase agreements, with contractual maturity dates of three months or more, are based on estimates of the rate the Bancorp would pay on similar deposits, applied for the time period until maturity (Level 2 ). Short-term borrowings are generally only held overnight, therefore, their carrying amount is a reasonable estimate of fair value (Level 1 ). The fair value of FHLB Advances are estimated by discounting the future cash flows using quoted rates from the FHLB for similar advances with similar maturities (Level 2 ). The estimated fair value of other financial instruments, and off-balance sheet loan commitments, approximate cost and are not considered significant to this presentation.   27