Finward Bancorp 10-Q

fnwd20220930_10q.htm     UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549   FORM 10-Q     (Mark One) ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.     For the quarterly period ended September 30, 2022 or   ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.     For the transition period from ______ to ______     Commission File Number: 0-26128   Finward Bancorp (Exact name of registrant as specified in its charter)   Indiana 35-1927981 (State or other jurisdiction of incorporation (I.R.S. Employer Identification Number) or organization)       9204 Columbia Avenue         Munster , Indiana       46321 (Address of principal executive offices) (ZIP code)   Registrant's telephone number, including area code: ( 219 ) 836 ‑ 4400     N/A     (Former name, former address and former fiscal year, if changed since last report)       Securities registered pursuant to Section 12(b) of the Act:   Title of each class Trading Symbol(s) Name of each exchange on which registered Common stock, no par value FNWD The NASDAQ Stock Market, LLC     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐   Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒                   No ☐   Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act: Large accelerated filer ☐  Accelerated filer ☐  Non-accelerated filer ☒ Smaller Reporting Company ☒   Emerging growth company ☐   If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐   Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒   There were 4,297,799 shares of the registrant’s Common Stock, without par value, outstanding at November 14, 2022.             Finward Bancorp Index                                                                                                                                                                                                    Page   Number PART I. Financial Information       Item 1.Unaudited Financial Statements and Notes  1     Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28     Item 3. Quantitative and Qualitative Disclosures about Market Risk 43     Item 4. Controls and Procedures 43     PART II. Other Information 44     SIGNATURES 45     EXHIBITS   31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer   31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer   32.1 Section 1350 Certifications   101 XBRL Interactive Data File                 Finward Bancorp Consolidated Balance Sheet   (Dollars in thousands)   September 30, 2022 (unaudited)     December 31, 2021                       ASSETS                                   Cash and non-interest bearing deposits in other financial institutions   $ 26,463     $ 12,725   Interest bearing deposits in other financial institutions     11,151       19,987   Federal funds sold     682       464                     Total cash and cash equivalents     38,296       33,176                     Certificates of deposit in other financial institutions     2,214       1,709                     Securities available-for-sale     359,035       526,889   Loans held-for-sale     997       4,987   Loans receivable, net of deferred fees and costs     1,502,696       966,720   Less: allowance for loan losses     ( 13,398 )     ( 13,343 ) Net loans receivable     1,489,298       953,377   Federal Home Loan Bank stock     3,038       3,247   Accrued interest receivable     6,849       5,444   Premises and equipment     43,865       31,385   Cash value of bank owned life insurance     31,754       31,440   Goodwill     22,615       11,109   Other intangible assets     5,188       3,126   Other assets     49,837       14,854                     Total assets   $ 2,052,986     $ 1,620,743                     LIABILITIES AND STOCKHOLDERS' EQUITY                                   Deposits:                 Non-interest bearing   $ 386,137     $ 295,294   Interest bearing     1,446,827       1,138,907   Total     1,832,964       1,434,201   Repurchase agreements     21,966       14,581   Borrowed funds     56,174       -   Accrued expenses and other liabilities     23,859       15,346                     Total liabilities     1,934,963       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: September 30, 2022 - 4,297,900 December 31, 2021 - 3,480,701     -       -   Additional paid-in capital     68,826       30,430   Accumulated other comprehensive (loss) income     ( 79,839 )     4,276   Retained earnings     129,036       121,909                     Total stockholders' equity     118,023       156,615                     Total liabilities and stockholders' equity   $ 2,052,986     $ 1,620,743     See accompanying notes to consolidated financial statements.   1       Finward Bancorp Consolidated Statements of Income (unaudited)   (Dollars in thousands)   Quarter Ended September 30,     Nine Months Ended September 30,   (Unaudited)   2022     2021     2022     2021   Interest income:                                 Loans receivable   $ 16,122     $ 10,270     $ 44,629     $ 31,291   Securities     2,292       2,378       7,358       6,483   Other interest earning assets     125       18       186       54                                     Total interest income     18,539       12,666       52,173       37,828                                     Interest expense:                                 Deposits     871       452       1,597       1,652   Repurchase agreements     51       13       93       35   Borrowed funds     110       1       143       23                                     Total interest expense     1,032       466       1,833       1,710                                     Net interest income     17,507       12,200       50,340       36,118   Provision for loan losses     -       139       -       1,293                                     Net interest income after provision for loan losses     17,507       12,061       50,340       34,825                                     Noninterest income:                                 Fees and service charges     1,570       1,473       4,434       4,010   Wealth management operations     407       604       1,590       1,787   Gain on sale of loans held-for-sale, net     344       1,229       1,242       4,394   Gain on sale of securities, net     23       590       662       1,276   Increase in cash value of bank owned life insurance     183       180       628       537   Gain on sale of foreclosed real estate     -       -       -       27   Other     103       70       114       108                                     Total noninterest income     2,630       4,146       8,670       12,139                                     Noninterest expense:                                 Compensation and benefits     7,498       6,042       22,403       17,624   Data processing     1,212       872       5,512       1,997   Occupancy and equipment     1,804       1,380       5,033       4,076   Marketing     587       334       1,623       728   Federal deposit insurance premiums     350       236       949       620   Net loss recognized on sale of premises and equipment     254       -       254       -   Other     3,305       3,537       10,681       8,859                                     Total noninterest expense     15,010       12,401       46,455       33,904                                     Income before income tax expenses     5,127       3,806       12,555       13,060   Income tax expenses     571       268       1,433       1,408                                     Net income   $ 4,556     $ 3,538     $ 11,122     $ 11,652                                     Earnings per common share:                                 Basic   $ 1.07     $ 1.02     $ 2.68     $ 3.35   Diluted   $ 1.07     $ 1.02     $ 2.67     $ 3.35                                     Dividends declared per common share   $ 0.31     $ 0.31     $ 0.93     $ 0.93     See accompanying notes to consolidated financial statements.   2       Finward Bancorp Consolidated Statements of Comprehensive (Loss) Income (unaudited)   (Dollars in thousands)   Three Months Ended September 30,     Nine Months Ended September 30,       2022     2021     2022     2021                                     Net income   $ 4,556     $ 3,538     $ 11,122     $ 11,652                                     Net change in net unrealized gains and losses on securities available-for-sale:                                 Unrealized (loss) gain arising during the period     ( 27,900 )     ( 6,501 )     ( 105,810 )     ( 8,638 ) Less: reclassification adjustment for gains included in net income     ( 23 )     ( 590 )     ( 662 )     ( 1,276 ) Net securities (loss) gain during the period     ( 27,923 )     ( 7,091 )     ( 106,472 )     ( 9,914 ) Tax effect     5,865       1,490       22,357       2,081   Other comprehensive (loss) gain, net of tax     ( 22,058 )     ( 5,601 )     ( 84,115 )     ( 7,833 )                                   Comprehensive (loss) gain, net of tax     ( 17,502 )     ( 2,063 )     ( 72,993 )     3,819     See accompanying notes to consolidated financial statements.   3       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 June 30, 2021   $ -     $ 30,141     $ 8,209     $ 117,219     $ 155,569                                             Net income     -       -       -       3,538       3,538   Other comprehensive loss, net of tax     -       -       ( 5,601 )     -       ( 5,601 ) Stock-based compensation expense     -       143       -       -       143   Cash dividends, $ 0.31 per share     -       -       -       ( 1,080 )     ( 1,080 )                                           Balance at September 30, 2021   $ -     $ 30,284     $ 2,608     $ 119,677     $ 152,569                                             Balance at January 1, 2021   $ -     $ 29,987     $ 10,441     $ 111,261     $ 151,689                                             Net income     -       -       -       11,652       11,652   Other comprehensive loss, net of tax     -       -       ( 7,833 )     -       ( 7,833 ) Net surrender value of 1,904 restricted stock awards     -       ( 131 )     -       -       ( 131 ) Stock-based compensation expense     -       428       -       -       428   Cash dividends, $ 0.31 per share     -       -       -       ( 3,236 )     ( 3,236 )                                           Balance at September 30, 2021   $ -     $ 30,284     $ 2,608     $ 119,677     $ 152,569                                                                                       Balance at June 30, 2022   $ -     $ 68,623     $ ( 57,781 )   $ 125,812     $ 136,654                                             Net income     -       -       -       4,556       4,556   Other comprehensive loss, net of tax     -       -       ( 22,058 )     -       ( 22,058 ) Stock-based compensation expense     -       203       -       -       203   Cash dividends, $ 0.31 per share     -       -       -       ( 1,332 )     ( 1,332 )                                           Balance at September 30, 2022   $ -     $ 68,826     $ ( 79,839 )   $ 129,036     $ 118,023                                             Balance at January 1, 2022   $ -     $ 30,430     $ 4,276     $ 121,909     $ 156,615                                             Net income     -       -       -       11,122       11,122   Other comprehensive loss, net of tax     -       -       ( 84,115 )     -       ( 84,115 ) Net surrender value of 2,479 restricted stock awards     -       ( 120 )     -       -       ( 120 ) Stock-based compensation expense     -       535       -       -       535   Issuance of 795,423 shares at $ 47.75 per share, for acquisition of Royal Financial, Inc     -       37,981       -       -       37,981   Cash dividends, $ 0.31 per share     -       -       -       ( 3,995 )     ( 3,995 )                                           Balance at September 30, 2022   $ -     $ 68,826     $ ( 79,839 )   $ 129,036     $ 118,023     See accompanying notes to consolidated financial statements.   4       Finward Bancorp Consolidated Statements of Cash Flows (unaudited)   (Dollars in thousands)   Nine months ended September 30,       2022     2021   CASH FLOWS FROM OPERATING ACTIVITIES:                 Net income   $ 11,122     $ 11,652   Adjustments to reconcile net income to net cash provided by operating activities:                 Origination of loans for sale     ( 40,775 )     ( 120,101 ) Sale of loans originated for sale     45,994       131,477   Depreciation and amortization, net of accretion     4,695       3,289   Stock based compensation expense     535       428   Gain on sale of securities, net     ( 662 )     ( 1,276 ) Gain on sale of loans held-for-sale, net     ( 1,352 )     ( 4,546 ) Loss on sale of premises and equipment, net     254       -   Gain on sale of foreclosed real estate     -       ( 27 ) Gain on cash value of bank owned life insurance     ( 628 )     ( 537 ) Loss on derivatives     110       152   Provision for loan losses     -       1,293   Net change in:                 Interest receivable     431       ( 546 ) Other assets     ( 5,043 )     1,591   Accrued expenses and other liabilities     ( 3,045 )     ( 6,290 ) Net cash provided by operating activities     11,636       16,559                     CASH FLOWS FROM INVESTING ACTIVITIES:                 Proceeds from maturities of certificates of deposit in other financial institutions     474       920   Purchase of certificates of deposit in other financial institutions     ( 734 )     -   Proceeds from maturities and pay downs of securities available-for-sale     37,289       43,488   Proceeds from sales of securities available-for-sale     53,953       28,565   Purchase of securities available-for-sale     ( 30,421 )     ( 191,130 ) Proceeds from bank owned life insurance     314       -   Net change in loans receivable     ( 82,501 )     20,148   Proceeds of Federal Home Loan Bank Stock     1,512       671   Purchase of loans receivable     ( 2,663 )     ( 11,331 ) Purchase of premises and equipment, net     ( 2,656 )     ( 1,019 ) Proceeds from sale of premises and equipment     1,694       -   Proceeds from sale of foreclosed real estate     -       484   Cash and cash equivalents from acquisition activity, net     33,799       -   Net cash provided by (used in) investing activities     10,060       ( 109,204 )                   CASH FLOWS FROM FINANCING ACTIVITIES:                 Change in deposits     ( 76,273 )     103,861   Proceeds from FHLB advances     37,000       -   Repayment of FHLB advances     -       ( 6,000 ) Net surrender value of restricted stock awards     ( 120 )     ( 131 ) Change in repurchase agreements     7,385       10,133   Change in other borrowed funds     19,174       ( 149 ) Dividends paid     ( 3,742 )     ( 3,226 ) Net cash (used in) provided by financing activities     ( 16,576 )     104,488   Net change in cash and cash equivalents     5,120       11,843   Cash and cash equivalents at beginning of period     33,176       19,922   Cash and cash equivalents at end of period   $ 38,296     $ 31,765                     SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                 Cash paid during the period for:                 Interest   $ 1,749     $ 1,744   Income taxes     1,157       2,185   Acquisition activity:                 Fair value of assets acquired, including cash and cash equivalents   $ 528,321     $ -   Value of goodwill and other intangible assets     14,726       -   Fair value of liabilities assumed     486,341       -   Cash paid for acquisition     18,725       -   Issuance of common stock for acquisition     37,981       -   Noncash activities:                 Dividends declared not paid     1,332       1,080   Securities purchased not settled     -       11,187     See accompanying notes to consolidated financial statements.   5     Finward Bancorp Notes to Condensed Consolidated Financial Statements (unaudited)     Note 1 - Basis of Presentation   Organization and Description of Business   The consolidated financial statements include the accounts of Finward Bancorp (the “Bancorp” or “FNWD”), its wholly-owned subsidiaries NWIN Risk Management, Inc. (a captive insurance subsidiary) and Peoples Bank (the “Bank”), and the Bank’s wholly-owned subsidiaries, Peoples Service Corporation, NWIN, LLC; NWIN Funding, Incorporated, 1683 Real Estate LLC, and Columbia Development Company, LLC. The Bancorp’s business activities include being a holding company for the Bank as well as a holding company for NWIN Risk Management, Inc. The Bancorp’s earnings are primarily dependent upon the earnings of the Bank. The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10 -Q and, therefore, do not include all disclosures required by U.S. generally accepted accounting principles for complete presentation of consolidated financial statements. In the opinion of management, the consolidated financial statements contain all adjustments necessary to present fairly the consolidated balance sheets of the Bancorp as of September 30, 2022, and December 31, 2021, and the consolidated statements of income, comprehensive income (loss), and changes in stockholders’ equity for the quarter and nine months ended September 30, 2022, and 2021, and consolidated statements of cash flows for the nine months ended September 30, 2022, and 2021. The income reported for the nine month period ended September 30, 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.     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 RYFL 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     13,896             FHLB stock     1,303   Interest payable     75   Goodwill     11,506   Other liabilities     11,228   Core deposit intangible     3,220             Interest receivable     1,836             Other assets     7,758             Total assets purchased   $ 543,045             Common shares issued     37,981             Cash paid     18,725             Total purchase price   $ 56,706   Total liabilities assumed   $ 486,339       During the second quarter of 2022, an adjustment was made to the carrying value of other assets of $ 189 thousand, due to the valuation of prepaids brought over in the acquisition, and premises and equipment, net, of $ 48 thousand, due to a correction in the valuation of buildings, in addition, a correction was made to the valuation of shares issued increasing the value by $ 79 thousand. The resulting impact of these changes was a decrease to the goodwill balance related to the RYFL acquisition of $ 158 thousand.   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 $ 11.5 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 nine months ended September 30, 2022, the remaining outstanding principal of loans directly related to the RYFL acquisition total $ 389.5 million, of which $ 5.6 million are expected to be uncollectable.   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     For the nine months ended     For the nine months ended   (in thousands)   September 30, 2022     September 30, 2021     September 30, 2022     September 30, 2021   Selected Financial Data                                 Interest income   $ 18,539     $ 17,939     $ 53,868     $ 52,593   Interest expense     ( 1,032 )     ( 838 )     ( 1,934 )     ( 3,027 ) Recovery of (provision for) loan losses     -       ( 14 )     -       ( 1,108 ) Non-interest income     2,630       4,376       8,809       12,794   Non-interest expense (1)     ( 15,010 )     ( 15,559 )     ( 44,583 )     ( 42,335 ) Income before provision for income taxes     5,127       5,904       16,160       18,917   Income tax expense     ( 571 )     ( 866 )     ( 2,190 )     ( 2,678 ) Net income   $ 4,556     $ 5,038     $ 13,970     $ 16,239                                     Earnings per common share:                                 Basic   $ 1.07     $ 1.45     $ 3.36     $ 4.67   Diluted   $ 1.07     $ 1.45     $ 3.35     $ 4.67     ( 1 ) Excludes $ 2.9 million in pre-tax merger expenses for the nine months ended September 30, 2022.   For the nine months ended September 30, 2022, the Bancorp has recorded $2.9 million in pre-tax one -time merger expenses related to the RYFL acquisition, and these expenses have been allocated to the following non-interest expense line items within the income statement:   (in thousands)   Nine months ended   Noninterest expense:   September 30, 2022   Compensation and benefits   $ 132   Data processing     1,929   Marketing     135   Other     656             Period merger expense   $ 2,852       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   September 30, 2022                                 U.S. government sponsored entities   $ 8,883     $ -     $ ( 1,338 )   $ 7,545   U.S. treasury securities     394       -       -       394   Collateralized mortgage obligations and residential mortgage-backed securities     166,651       -       ( 29,370 )     137,281   Municipal securities     282,002       -       ( 69,214 )     212,788   Collateralized debt obligations     2,173       -       ( 1,146 )     1,027   Total securities available-for-sale   $ 460,103     $ -     $ ( 101,068 )   $ 359,035         (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     8     The cost basis and estimated fair value of available-for-sale debt securities at September 30, 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   September 30, 2022   Basis     Value   Due in one year or less   $ 190     $ 190   Due from one to five years     1,978       1,972   Due from five to ten years     21,124       18,207   Due over ten years     270,160       201,385                     Collateralized mortgage obligations and residential mortgage-backed securities     166,651       137,281   Total   $ 460,103     $ 359,035       Sales of available-for-sale securities were as follows for the quarter ended:       (Dollars in thousands)       September 30,     September 30,       2022     2021                     Proceeds   $ 10,178     $ 9,275   Gross gains     41       591   Gross losses     ( 18 )     ( 1 )     Sales of available-for-sale securities were as follows for the nine months ended:       (Dollars in thousands)       September 30,     September 30,       2022     2021                     Proceeds   $ 53,953     $ 28,565   Gross gains     733       1,297   Gross losses     ( 71 )     ( 21 )     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, June 30, 2022   $ ( 57,781 ) Current period change     ( 22,058 ) Ending balance, September 30, 2022   $ ( 79,839 )       (Dollars in thousands)       Unrealized gain/(loss)   Ending balance, June 30, 2021   $ 8,209   Current period change     ( 5,601 ) Ending balance, September 30, 2021   $ 2,608         (Dollars in thousands)       Unrealized gain/(loss)   Ending balance, December 31, 2021   $ 4,276   Current period change     ( 84,115 ) Ending balance, September 30, 2022   $ ( 79,839 )       (Dollars in thousands)       Unrealized gain/(loss)   Ending balance, December 31, 2020   $ 10,441   Current period change     ( 7,833 ) Ending balance, September 30, 2021   $ 2,608     9     Securities with market values of approximately $ 208.9 million and $ 39.5 million were pledged as of September 30, 2022 and December 31, 2021, respectively, as collateral for repurchase agreements, public funds, and for other purposes as permitted or required by law.   Securities with gross unrealized losses at September 30, 2022, and December 31, 2021 not recognized in income are as follows:       (Dollars in thousands)               Less than 12 months     12 months or longer     Total               Estimated             Estimated             Estimated             Percentage of       Fair     Unrealized     Fair     Unrealized     Fair     Unrealized     Total Portfolio       Value     Losses     Value     Losses     Value     Losses     in Loss Position   September 30, 2022                                                         U.S. government sponsored entities   $ -     $ -     $ 7,545     $ ( 1,338 )   $ 7,545     $ ( 1,338 )     100.0 % Collateralized mortgage obligations and residential mortgage-backed securities     45,306       ( 7,593 )     91,975       ( 21,777 )     137,281       ( 29,370 )     100.0 % Municipal securities     166,907       ( 49,241 )     45,611       ( 19,973 )     212,518       ( 69,214 )     99.9 % Collateralized debt obligations     -       -       1,027       ( 1,146 )     1,027       ( 1,146 )     100.0 % Total temporarily impaired   $ 212,213     $ ( 56,834 )   $ 146,159     $ ( 44,233 )   $ 358,371     $ ( 101,068 )     99.8 % Number of securities             333               120               453                 (Dollars in thousands)               Less than 12 months     12 months or longer     Total               Estimated             Estimated             Estimated             Percentage of       Fair     Unrealized     Fair     Unrealized     Fair     Unrealized     Total Portfolio       Value     Losses     Value     Losses     Value     Losses     in Loss 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 15 year mortgage loan program has gained wide acceptance in the Bancorp’s primary market area. As a result of the shortened maturity of these loans, this product has been priced below the comparable 20 and 30 year loan offerings. Mortgage applicants for 15 year loans tend to have a larger than normal down payment; this, coupled with the larger principal and interest payment amount, has caused the 15 year mortgage loan portfolio to consist, to a significant extent, of second time home buyers whose underwriting qualifications tend to be above average.   The Bancorp’s Adjustable Rate Mortgage Loans (“ARMs”) include offerings that reprice annually or are “mini-fixed.” The “mini‑fixed” mortgage reprices annually after a one, three, five, seven or ten year period. The ability of the Bancorp to successfully market ARM’s depends upon loan demand, prevailing interest rates, volatility of interest rates, public acceptance of such loans and terms offered by competitors.   Home Equity Line of Credit. The Bancorp offers a fixed and variable rate revolving line of credit secured by the equity in the borrower’s home. Both products offer an interest only option where the borrower pays interest only on the outstanding balance each month. Equity lines will typically require a second mortgage appraisal and a second mortgage lender’s title insurance policy. Loans are generally made up to a maximum of 89 % of the appraised value of the property less any outstanding liens.   10     Fixed term home improvement and equity loans are made up to a maximum of 85 % of the appraised value of the improved property, less any outstanding liens. These loans are offered on both a fixed and variable rate basis with a maximum term of 240 months. All home equity loans are made on a direct basis to borrowers.   Commercial Real Estate and Multifamily Loans. Commercial real estate loans are typically made to a maximum of 80 % of the appraised value. Such loans are generally made on an adjustable rate basis. These loans are typically made for terms of 15 to 20 years. Loans with an amortizing term exceeding 15 years normally have a balloon feature calling for a full repayment within seven to ten years from the date of the loan. The balloon feature affords the Bancorp the opportunity to restructure the loan if economic conditions so warrant. Commercial real estate loans include loans secured by commercial rental units, apartments, condominium developments, small shopping centers, owner occupied commercial/industrial properties, hospitality units and other retail and commercial developments.   While commercial real estate lending is generally considered to involve a higher degree of risk than single‑family residential lending due to the concentration of principal in a limited number of loans and the effects of general economic conditions on real estate developers and managers, the Bancorp has endeavored to reduce this risk in several ways. In originating commercial real estate loans, the Bancorp considers the feasibility of the project, the financial strength of the borrowers and lessees, the managerial ability of the borrowers, the location of the project and the economic environment. Management evaluates the debt coverage ratio and analyzes the reliability of cash flows, as well as the quality of earnings. All such loans are made in accordance with well-defined underwriting standards and are generally supported by personal guarantees, which represent a secondary source of repayment.   Loans for the construction of commercial properties are generally located within an area permitting physical inspection and regular review of business records. Projects financed outside of the Bancorp’s primary lending area generally involve borrowers and guarantors who are or were previous customers of the Bancorp or projects that are underwritten according to the Bank’s underwriting standards.   Construction and Land Development. Construction loans on residential properties are made primarily to individuals and contractors who are under contract with individual purchasers. These loans are personally guaranteed by the borrower. The maximum loan-to-value ratio is 89 % of either the current appraised value or the cost of construction, whichever is less. Residential construction loans are typically made for periods of six months to one year.   Loans are also made for the construction of commercial properties. All such loans are made in accordance with well-defined underwriting standards. Generally if the loans are not owner occupied, these types of loans require proof of intent to lease and a confirmed end-loan takeout. In general, loans made do not exceed 80 % of the appraised value of the property. Commercial construction loans are typically made for periods not to exceed two years or date of occupancy, whichever is less.   Commercial Business and Farmland Loans. 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 are partially secured by a reserve account held at the Bancorp.   11     Government Loans. The Bancorp is permitted to purchase non-rated municipal securities, tax anticipation notes and warrants within the local market area.   (Dollars in thousands)                     September 30, 2022     December 31, 2021   Loans secured by real estate:                 Residential real estate   $ 471,565     $ 260,134   Home equity     37,578       34,612   Commercial real estate     452,852       317,145   Construction and land development     134,301       123,822   Multifamily     258,377       61,194   Total loans secured by real estate     1,354,673       796,907   Commercial business     95,372       115,772   Consumer     827       582   Manufactured homes     35,866       37,887   Government     9,649       8,991   Loans receivable     1,496,387       960,139   Add (less):                 Net deferred loan origination costs     5,767       6,810   Undisbursed loan funds and loan clearings     542       ( 229 ) Loans receivable, net of deferred fees and costs   $ 1,502,696     $ 966,720     12     (Dollars in thousands)   Beginning Balance     Charge-offs     Recoveries     Provisions     Ending Balance     The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended September 30, 2022:   Allowance for loan losses:                                         Residential real estate   $ 2,756     $ -     $ 8     $ 246     $ 3,010   Home equity     373       -       -       22       395   Commercial real estate     5,527       -       -       ( 27 )     5,500   Construction and land development     1,744       -       -       ( 229 )     1,515   Multifamily     1,128       -       -       108       1,236   Commercial business     1,808       ( 57 )     50       ( 100 )     1,701   Consumer     70       ( 13 )     4       ( 20 )     41   Manufactured homes     -       -       -       -       -   Government     -       -       -       -       -   Total   $ 13,406     $ ( 70 )   $ 62     $ -     $ 13,398     The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended September 30, 2021:   Allowance for loan losses:                                         Residential real estate   $ 2,294     $ ( 28 )   $ 21     $ 188     $ 2,475   Home equity     371       -       -       3       374   Commercial real estate     5,939       -       -       413       6,352   Construction and land development     1,798       -       -       90       1,888   Multifamily     740       -       -       47       787   Commercial business     2,474       -       6       ( 594 )     1,886   Consumer     23       ( 4 )     1       ( 8 )     12   Manufactured homes     -       -       -       -       -   Government     -       -       -       -       -   Total   $ 13,639     $ ( 32 )   $ 28     $ 139     $ 13,774     The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the nine months ended September 30, 2022:   Allowance for loan losses:                                         Residential real estate   $ 2,480     $ -     $ 58     $ 472     $ 3,010   Home equity     357       -       -       38       395   Commercial real estate     5,515       -       -       ( 15 )     5,500   Construction and land development     2,119       -       -       ( 604 )     1,515   Multifamily     848       -       -       388       1,236   Commercial business     2,009       (57 )     88       ( 339 )     1,701   Consumer     15       ( 50 )     16       60       41   Manufactured homes     -       -       -       -       -   Government     -       -       -       -       -   Total   $ 13,343     $ ( 107 )   $ 162     $ -     $ 13,398     The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the nine months ended September 30, 2021:   Allowance for loan losses:                                         Residential real estate   $ 2,211     $ ( 32 )   $ 46     $ 250     $ 2,475   Home equity     276       ( 1 )     -       99       374   Commercial real estate     5,406       -       -       946       6,352   Construction and land development     1,405       -       -       483       1,888   Multifamily     626       -       -       161       787   Commercial business     2,508       -       25       ( 647 )     1,886   Consumer     26       ( 21 )     6       1       12   Manufactured homes     -       -       -       -       -   Government     -       -       -       -       -   Total   $ 12,458     $ ( 54 )   $ 77     $ 1,293     $ 13,774     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 expectations, the deferred cost reserve is paid as a premium to the third party originator of the loan. The unamortized balance of the deferred cost reserve totaled $ 5.0 million and $ 5.8 million as of September 30, 2022, and December 31, 2021, respectively, and is included in net deferred loan origination 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 September 30, 2022:   Residential real estate   $ 27     $ 2,983     $ 471,565     $ 1,545     $ 1,778     $ 468,242   Home equity     3       392       37,578       116       127       37,335   Commercial real estate     456       5,044       452,852       2,264       2,965       447,623   Construction and land development     -       1,515       134,301       -       -       134,301   Multifamily     -       1,236       258,377       -       2,804       255,573   Commercial business     263       1,438       95,372       397       991       93,984   Consumer     -       41       827       -       19       808   Manufactured homes     -       -       35,866       -       -       35,866   Government     -       -       9,649       -       -       9,649   Total   $ 749     $ 12,649     $ 1,496,387     $ 4,322     $ 8,684     $ 1,483,381       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 September 30, 2022 and December 31, 2021:       Credit Exposure - Credit Risk Portfolio By Creditworthiness Category       September 30, 2022   (Dollars in thousands)   1 - 6     7     8                                             Loan Segment   Pass     Special mention     Substandard     Total   Residential real estate   $ 464,241     $ 1,297     $ 6,027     $ 471,565   Home equity     36,589       391       598       37,578   Commercial real estate     432,797       11,754       8,301       452,852   Construction and land development     132,129       2,172       -       134,301   Multifamily     253,001       2,608       2,768       258,377   Commercial business     92,213       2,931       228       95,372   Consumer     827       -       -       827   Manufactured homes     35,866       -       -       35,866   Government     9,649       -       -       9,649   Total   $ 1,457,312     $ 21,153     $ 17,922     $ 1,496,387           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 nine months ending September 30, 2022, nine residential real estate loans totaling $ 1.5 million, one commercial real estate loan totaling 1.4 million, and one home equity loan totaling $ 5 thousand, were modified to include deferral of principal resulting in troubled debt restructuring classification. No trouble debt restructuring loans had subsequently defaulted during the nine months ending September 30, 2022. During the nine months ending September 30, 2021, two residential real estate loans to one customer totaling $ 148 thousand were modified to include deferral of principal and interest resulting in troubled debt restructuring classification. One commercial real estate loan totaling $ 835 thousand was restructured with a reduced interest rate and extended amortization resulting in troubled debt restructuring classification. One commercial business loan totaling $ 601 thousand was provided a short-term renewal and a pending long term restructure resulting in troubled debt restructuring classification. One residential real estate trouble debt restructuring loan totaling $ 37 thousand had subsequently defaulted during the nine months ending September 30, 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 nine months ended     For the three months ended   (unaudited)   As of September 30, 2022     September 30, 2022     September 30, 2022       Recorded Investment     Unpaid Principal Balance     Related Allowance     Average Recorded Investment     Interest Income Recognized     Average Recorded Investment     Interest Income Recognized   With no related allowance recorded:                                                         Residential real estate   $ 3,069     $ 4,559     $ -     $ 2,596     $ 206     $ 2,563     $ 51   Home equity     222       238       -       216       14       178       1   Commercial real estate     4,384       4,572       -       2,932       196       3,677       ( 24 ) Construction and land development     -       -       -       430       13       400       13   Multifamily     2,804       3,253       -       2,454       86       2,872       24   Commercial business     1,072       1,181       -       1,137       79       1,048       3   Consumer     19       19       -       15       1       20       1   Manufactured homes     -       -       -       -       -       -       -   Government     -       -       -       -       -       -       -                                                         -   With an allowance recorded:                                                     -   Residential real estate   $ 254     $ 278     $ 27     $ 179     $ 5     $ 272     $ ( 4 ) Home equity     21       21       3       21       1       21       -   Commercial real estate     845       845       456       844       -       846       -   Construction and land development     -       -       -       -       -       -       -   Multifamily     -       -       -       -       -       -       -   Commercial business     316       321       263       332       14       311       ( 2 ) Consumer     -       -       -       -       -       -       -   Manufactured homes     -       -       -       -       -       -       -   Government     -       -       -       -       -       -       -                                                             Total:                                                         Residential real estate   $ 3,323     $ 4,837     $ 27     $ 2,775     $ 211     $ 2,835     $ 47   Home equity   $ 243     $ 259     $ 3     $ 237     $ 15     $ 199     $ 1   Commercial real estate   $ 5,229     $ 5,417     $ 456     $ 3,776     $ 196     $ 4,523     $ ( 24 ) Construction & land development   $ -     $ -     $ -     $ 430     $ 13     $ 400     $ 13   Multifamily   $ 2,804     $ 3,253     $ -     $ 2,454     $ 86     $ 2,872     $ 24   Commercial business   $ 1,388     $ 1,502     $ 263     $ 1,469     $ 93     $ 1,359     $ 1   Consumer   $ 19     $ 19     $ -     $ 15     $ 1     $ 20     $ 1   Manufactured homes   $ -     $ -     $ -     $ -     $ -     $ -     $ -   Government   $ -     $ -     $ -     $ -     $ -     $ -     $ -     17                                 For the nine months ended     For the three months ended       As of December 31, 2021     September 30, 2021     September 30, 2021   (Dollars in thousands)   Recorded Investment     Unpaid Principal Balance     Related Allowance     Average Recorded Investment     Interest Income Recognized     Average Recorded Investment     Interest Income Recognized   With no related allowance recorded:                                                         Residential real estate   $ 1,683     $ 3,017     $ -     $ 1,691     $ 83     $ 1,565     $ 41   Home equity     262       275       -       307       7       273       2   Commercial real estate     765       765       -       1,268       39       1,362       13   Construction & land development     -       -       -       -       -       -       -   Multifamily     556       647       -       647       20       587       9   Commercial business     1,205       1,324       -       1,410       33       1,354       ( 3 ) Consumer     -       -       -       -       -       -       -   Manufactured homes     -       -       -       -       -       -       -   Government     -       -       -       -       -       -       -                                                             With an allowance recorded:                                                         Residential real estate   $ 88     $ 88     $ 17     $ 159     $ 1     $ 102     $ ( 4 ) Home equity     22       22       4       17       1       22       1   Commercial real estate     835       835       386       5,700       145       5,852       32   Construction & land development     -       -       -       -       -       -       -   Multifamily     -       -       -       -       -       -       -   Commercial business     392       392       277       698       15       659       ( 7 ) Consumer     -       -       -       -       -       -       -   Manufactured homes     -       -       -       -       -       -       -   Government     -       -       -       -       -       -       -                                                             Total:                                                         Residential real estate   $ 1,771     $ 3,105     $ 17     $ 1,850     $ 84     $ 1,667     $ 37   Home equity   $ 284     $ 297     $ 4     $ 324     $ 8     $ 295     $ 3   Commercial real estate   $ 1,600     $ 1,600     $ 386     $ 6,968     $ 184     $ 7,214     $ 45   Construction & land development   $ -     $ -     $ -     $ -     $ -     $ -     $ -   Multifamily   $ 556     $ 647     $ -     $ 647     $ 20     $ 587     $ 9   Commercial business   $ 1,597     $ 1,716     $ 277     $ 2,108     $ 48     $ 2,012     $ ( 10 ) 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   September 30, 2022                                                         Residential real estate   $ 2,266     $ 1,929     $ 2,539     $ 6,734     $ 464,831     $ 471,565     $ 348   Home equity     193       -       521       714       36,864       37,578       -   Commercial real estate     1,004       162       3,350       4,516       448,336       452,852       1,071   Construction and land development     46       -       -       46       134,255       134,301       -   Multifamily     474       908       288       1,670       256,707       258,377       181   Commercial business     1,662       1,466       532       3,660       91,712       95,372       342   Consumer     -       -       -       -       827       827       -   Manufactured homes     572       313       41       926       34,940       35,866       40   Government     -       -       -       -       9,649       9,649       -   Total   $ 6,217     $ 4,778     $ 7,271     $ 18,266     $ 1,478,121     $ 1,496,387     $ 1,982                                                             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)                     September 30, 2022     December 31, 2021   Residential real estate   $ 4,965     $ 4,651   Home equity     585       623   Commercial real estate     2,807       940   Construction and land development     -       -   Multifamily     367       455   Commercial business     219       387   Consumer     -       -   Manufactured homes     -       -   Government     -       -   Total   $ 8,943     $ 7,056     As a result of acquisition activity, the Bancorp acquired loans for which there was evidence of credit quality deterioration since origination and it was determined that it was probable that the Bancorp would be unable to collect all contractually required principal and interest payments. At September 30, 2022, total purchased credit impaired loans with unpaid principal balances totaled $ 10.6 million with a recorded investment of $ 8.7 million. At December 31, 2021, 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 $ 5.8 million at September 30, 2022, compared to $ 1.1 million at December 31, 2021.   Accretable yield, or income recorded for the three months ended September 30, is as follows:   (dollars in thousands)   Total   2021   $ 188   2022     176     Accretable yield, or income recorded for the nine months ended September 30, is as follows:   (dollars in thousands)   Total   2021   $ 793   2022     723     Accretable yield, or income expected to be recorded in the future is as follows:   (dollars in thousands)   Total   Remainder 2022   $ 164   2023     665   2024     649   2025     507   2026     332   2027 and thereafter     3,464   Total   $ 5,781       Note 6 – Intangibles and Acquisition Related Accounting The Bancorp established a goodwill balance totaling $ 11.5 million with the acquisition of RYFL, and also maintains goodwill balances totaling $ 11.1 million from prior acquisitions. Goodwill totaled $ 22.6 million and $11.1 million as of September 30, 2022 and December 31, 2021, respectively. During the quarter ended June 30, 2022, there was remeasurement of goodwill reducing the balance by $ 158 thousand, see Note 3 – Acquisition Activity for more detail on the remeasurement. 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.   19     In addition to goodwill, a core deposit intangible was established with the acquisition of RYFL and from previous acquisitions. The Bancorp had core deposit intangible balances of $ 5.2 million and $ 3.1 million as of September 30, 2022, and December 31, 2021, respectively. The table below summarizes the annual amortization:     The amortization recorded for the nine months ended September 30, is as follows:   (dollars in thousands)   Total   2021   $ 745   2022   $ 1,157     The amortization recorded for the three months ended September 30, is as follows:   (dollars in thousands)   Total   2021   $ 248   2022   $ 400     Amortization to be recorded in future periods, is as follows:   (dollars in thousands)   Total   Current year     396   2023     1,522   2024     1,411   2025     688   2026     360   5 years and thereafter     812   Total   $ 5,189       For the RYFL acquisition, as part of the fair value of certificates of deposit, a fair value premium was established of $ 1.0 million. Approximately $ 134 thousand and $ 438 thousand of amortization was taken as income during the quarter and nine months ended September 30, 2022, respectively. It is estimated amortization to be recorded in future periods is as follows; an additional $ 103 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 quarter and nine months ended September 30, 2022, and 2021, are as follows:   (dollars in thousands except per share data)   Three months ended September 30,     Nine months ended September 30,       2022     2021     2022     2021   Basic earnings per common share:                                 Net income as reported   $ 4,556     $ 3,538     $ 11,122     $ 11,652   Weighted average common shares outstanding     4,242,568       3,479,139       4,153,733       3,476,406   Basic earnings per common share   $ 1.07     $ 1.02     $ 2.68     $ 3.35                                     Diluted earnings per common share:                                 Net income as reported   $ 4,556     $ 3,538     $ 11,122     $ 11,652   Weighted average common shares outstanding     4,242,568       3,479,139       4,153,733       3,476,406   Add: Dilutive effect of unvested restricted stock awards     18,028       -       16,804       -   Weighted average common and dilutive potential common shares outstanding     4,260,596       3,479,139       4,170,537       3,476,406   Diluted earnings per common share   $ 1.07     $ 1.02     $ 2.67     $ 3.35       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.   20     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 quarter ended September 30, 2022, stock based compensation expense of $ 203 thousand was recorded, compared to $ 143 thousand for the quarter ended September 30, 2021. For the nine months ended September 30, 2022, stock based compensation expense of $ 535 thousand was recorded, compared to $ 428 thousand for the nine months ended September 30, 2021. It is anticipated that current outstanding unvested awards will result in additional compensation expense of approximately $ 1.4 million through 2025 with an weighted average life of 2.3 years.   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 nine months ended September 30, 2022, follows:   Non-vested Shares   Shares     Weighted Average Grant Date Fair Value   Non-vested at January 1, 2022     44,235     $ 42.33   Granted     23,842       46.06   Vested     ( 11,158 )     41.63   Forfeited     ( 1,587 )     44.17   Non-vested at September 30, 2022     55,332     $ 44.03       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 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.   In June 2022, the FASB issued ASU No. 2022 - 03 “Fair Value Measurements (Topic 820 ): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This guidance is effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Bancorp has assessed ASU 2022 - 03 and does not expect it to have a material impact on its accounting and disclosures.   In September 2022, the FASB issued ASU No. 2022 - 04 “Liabilities - Supplier Finance Programs (Subtopic 405 - 50 )” enhancing the transparency of supplier finance programs and the related financial statement disclosures. The amendments require that a buyer in a supplier finance program disclose information about the key terms of the program, outstanding confirmed amounts as of the end of the period, a rollforward of such amounts during each annual period, and a description of where in the financial statements outstanding amounts are presented. ASU  2022 - 04  is effective January 1, 2023, except for the disclosure of rollforward information, which is effective January 1, 2024, and is not expected to have an impact on the Bancorp’s consolidated financial statements.   22       Note 12 – Derivative Financial Instruments   The Bancorp uses derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities. The Bancorp has certain interest rate derivative positions that are not designated as hedging instruments. Derivative assets and liabilities are recorded at fair value on the Consolidated Balance Sheet and do not take into account the effects of master netting agreements. Master netting agreements allow the Bancorp to settle all derivative contracts held with a single counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable. These derivative positions relate to transactions in which the Bancorp enters into an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, the Bancorp agrees to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate. At the same time, the Bancorp agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the client to effectively convert a variable rate loan to a fixed rate. Because the terms of the swaps with the customers and the other financial institutions offset each other, with the only difference being counterparty credit risk, changes in the fair value of the underlying derivative contracts are not materially different and do not significantly impact the Bancorp’s results of operations.   The Bancorp enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (i.e., interest rate lock commitment). The interest rate lock commitments are considered derivatives and are recorded on the accompanying consolidated balance sheets at fair value in accordance with FASB ASC 815, Derivatives and Hedging.   The following table shows the amounts of non-hedging derivative financial instruments:   September 30, 2022               Notational or contractual amount   Asset derivatives     Liability derivatives   (Dollars in thousands)     Statement of Financial Condition classification   Fair value     Statement of Financial Condition classification     Fair value   Interest rate swap contracts   $ 90,181   Other assets   $ 9,819     Other liabilties     $ 9,819   Interest rate lock commitments     2,097   Other assets     31       N/A       -   Total   $ 92,278       $ 9,850             $ 9,819     December 31, 2021               Notational or contractual amount   Asset derivatives     Liability derivatives   (Dollars in thousands)     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:         Nine Months Ended         September 30,   (Dollars in thousands) Statement of Income Classification   2022     2021   Interest rate swap contracts Fees and service charges   $ 3     $ 379   Interest rate lock commitments Gain on sale of loans held-for-sale, net     ( 110 )     ( 152 ) Total   $ ( 107 )   $ 227           Three Months Ended         September 30,   (Dollars in thousands) Statement of Income Classification   2022     2021   Interest rate swap contracts Fees and service charges   $ 3     $ 161   Interest rate lock commitments Gain on sale of loans held-for-sale, net     ( 42 )     ( 24 ) Total   $ ( 39 )   $ 137     23     The following table shows the offsetting of financial assets and derivative assets:                               Gross Amounts not Offset in the                                       Statement of Financial Condition               Gross Amounts of     Gross Amounts Offset in the     Net Amounts of Assets Presented             Cash Collateral Received           (Dollars in thousands)   Recognized Assets     Statement of Financial Condition     in the Statement of Financial Condition     Financial Instruments         Net Amount   September 30, 2022                                                 Interest rate swap contracts   $ 9,819     $ -     $ 9,819     $ -     $ -     $ 9,819   Interest rate lock commitments     31       -       31       -       -       31   Total   $ 9,850     $ -     $ 9,850     $ -     $ -     $ 9,850                                 Gross Amounts not Offset in the                                       Statement of Financial Condition               Gross Amounts of     Gross Amounts Offset in the     Net Amounts of Liabilities Presented             Cash Collateral Received           (Dollars in thousands)   Recognized Liabilities     Statement of Financial Condition     in the Statement of Financial Condition     Financial Instruments         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 not Offset in the                                       Statement of Financial Condition               Gross Amounts of     Gross Amounts Offset in the     Net Amounts of Liabilities Presented             Cash Collateral Pledged           (Dollars in thousands)   Recognized Liabilities     Statement of Financial Condition     in the Statement of Financial Condition     Financial Instruments         Net Amount   September 30, 2022                                                 Interest rate swap contracts   $ 9,819     $ -     $ 9,819     $ -     $ 3,930     $ 5,889   Total   $ 9,819     $ -     $ 9,819     $ -     $ 3,930     $ 5,889                                 Gross Amounts not Offset in the                                       Statement of Financial Condition               Gross Amounts of     Gross Amounts Offset in the     Net Amounts of Liabilities Presented             Cash Collateral Pledged           (Dollars in thousands)   Recognized Liabilities     Statement of Financial Condition     in the Statement of Financial Condition     Financial Instruments         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 )     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.   24     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 before recovery or ( 2 ) identified credit impairment indicating it is unlikely the Bancorp will recover its amortized cost basis. If any 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.   In addition to the impairment evaluation noted above, the Bancorp’s management utilizes a specialist to perform an other-than-temporary impairment analysis for each of its pooled collateralized debt obligations. The specialist analysis is performed annually in December, or when management deems necessary, and utilizes analytical models used to project future cash flows for the pooled collateralized debt obligations 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 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 collateralized debt obligation. 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 collateralized debt obligations and no additional impairment was taken at December 31, 2021. In addition, the collateralized debt obligation portfolio was reviewed in accordance with our quarterly impairment evaluation, as described in the preceding paragraph, noting no additional impairment was taken at September 30, 2022.   The table below shows the credit loss roll forward on a year-to-date basis for the Bancorp’s pooled collateralized debt obligations 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, September 30, 2022   $ 173       At September 30, 2022, collateralized debt obligations with a cost basis of $ 2.2 million continue to be in “payment in kind” status. These collateralized debt obligations classified as “payment in kind” are a result of not receiving the scheduled quarterly interest payments. For these collateralized debt obligations 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.   25     Assets and Liabilities Measured at Fair Value on a Recurring Basis There were no transfers to or from Levels 1 and 2 during the nine months ended September 30, 2022. Assets measured at fair value on a recurring basis are summarized below:               (Dollars in thousands)               Fair Value Measurements at September 30, 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   $ 9,819     $ -     $ 9,819     $ -   Interest rate lock commitments     31       -       31       -   Available-for-sale debt securities:                                 U.S. government sponsored entities     7,545       -       7,545       -   U.S. treasury securities     394       -       394       -   Collateralized mortgage obligations and residential mortgage-backed securities     137,281       -       137,281       -   Municipal securities     212,788       -       212,788       -   Collateralized debt obligations     1,027       -       -       1,027   Total securities available-for-sale   $ 359,035     $ -     $ 358,008     $ 1,027                                     Liabilities:                                 Interest rate swap contracts   $ 9,819     $ -     $ 9,819     $ -                 (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     $ -     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     ( 9 ) Total unrealized gains, included in other comprehensive income     91   Ending balance, September 30, 2021   $ 1,011             Beginning balance, January 1, 2022   $ 992   Principal payments     -   Total unrealized gains, included in other comprehensive income     35   Ending balance, September 30, 2022   $ 1,027     26     Assets measured at fair value on a non-recurring basis are summarized below:               (Dollars in thousands)               Fair Value Measurements at September 30, 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   $ 1,743     $ -     $ -     $ 1,743                 (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.   The following table shows carrying values and related estimated fair values of financial instruments as of the dates indicated. Estimated fair values are further categorized by the inputs used to measure fair value. Items that are not financial instruments are not included.       September 30, 2022     Estimated Fair Value Measurements at September 30, 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   $ 38,296     $ 38,296     $ 38,296     $ -     $ -   Certificates of deposit in other financial institutions     2,214       2,187       -       2,187       -   Loans held-for-sale     997       1,006       -       1,006       -   Loans receivable, net     1,489,298       1,430,158       -       -       1,430,158   Federal Home Loan Bank stock     3,038       3,038       -       3,038       -   Accrued interest receivable     6,849       6,849       -       6,849       -                                             Financial liabilities:                                         Non-interest bearing deposits     386,137       386,137       386,137       -       -   Interest bearing deposits     1,446,827       1,446,800       1,119,174       327,626       -   Repurchase agreements     21,966       21,803       14,253       7,550       -   Borrowed funds     56,174       56,170       19,174       36,996       -   Accrued interest payable     106       106       -       106       -           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       -   Accrued interest payable     22       22       -       22       -     27     The following methods were used to estimate the fair value of financial instruments presented in the preceding table for the periods ended September 30, 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.     Note 14 - Borrowings   At September 30, 2022, and December 31, 2021, borrowed funds are summarized below:       (Dollars in thousands)       September 30,     December 31,       2022     2021   Variable rate advances from the FHLB.     37,000       -   Line of credit at FHLB     19,174       -   Total   $ 56,174     $ -       At September 30, 2022, scheduled maturities of borrowed funds were as follows:           (Dollars in thousands)   Remainder 2022     $ -   2023       37,000   Total     $ 37,000     At September 30, 2022 and December 31, 2021 advances from the Federal Home Loan Bank were as follows:       (Dollars in thousands)       September 30,     December 31,       2022     2021   Variable rate advances, as of September 30, 2022, average rate: 3.45 %, none outstanding as of December 31, 2021   $ 37,000     $ -     Variable rate advances are payable at maturity. The advances were collateralized by loans with a carrying value totaling approximately $ 877 million at September 30, 2022. In addition to the variable rate advances, the Bancorp maintains a $ 25.0 million line of credit with the Federal Home Loan Bank of Indianapolis. The Bancorp carried a balance of $ 19.2 million at an average rate of 3.47 % at September 30, 2022, and did not have a balance on the line of credit at December 31, 2021. The Bancorp did not have other borrowings at September 30, 2022, or as of December 31, 2021.      Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations   Summary Finward Bancorp (the “Bancorp ” ) is a financial holding company registered with the Board of Governors of the Federal Reserve System. Peoples Bank (“the Bank”), an Indiana commercial bank, and NWIN Risk Management, Inc., a captive insurance company, are wholly-owned subsidiaries of the Bancorp. The Bancorp has no other business activity other than being a holding company for the Bank and NWIN Risk Management, Inc. The following management’s discussion and analysis presents information concerning our financial condition as of September 30, 2022, as compared to December 31, 2021, and the results of operations for the quarter and nine months ending September 30, 2022, and September 30, 2021. This discussion should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein and with the financial statements and other financial data, as well as the Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.   28     At September 30, 2022, the Bancorp had total assets of $2.1 billion, loans receivable, net of deferred fees and costs, of $1.5 billion and total deposits of $1.8 billion. Stockholders' equity totaled $118.0 million or 5.7% of total assets, with a book value per share of $27.46. Net income for the quarter ended September 30, 2022, was $4.6 million, or $1.07 earnings per common diluted share. For the quarter ended September 30, 2022, the return on average assets (ROA) was 0.88%, while the return on average stockholders’ equity (ROE) was 13.65%. Net income for the nine months ended September 30, 2022, was $11.1 million, or $2.67 earnings per diluted common share. For the nine months ended September 30, 2022, the ROA was 0.73%, while the ROE was 9.98%.    Recent Developments Acquisition of Royal Financial, Inc. On January 31, 2022, the Bancorp completed its acquisition of Royal Financial, Inc. (“RYFL”) pursuant to an Agreement and Plan of Merger dated July 28, 2021 (the “Merger Agreement”) between the Bancorp and RYFL. Pursuant to the terms of the Merger Agreement, RYFL merged with and into the Bancorp, with the Bancorp as the surviving corporation (the “RYFL Merger”). Simultaneous with the RYFL Merger, Royal Savings Bank, an Illinois state-chartered savings bank and wholly-owned subsidiary of RYFL, merged with and into the Bank, with the Bank as the surviving institution.   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 and no stock consideration for each share of RYFL common stock.   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 RYFL 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. The acquisition further expanded the Bank’s banking center network in Cook County and DuPage County, Illinois, expanding the Bank’s full-service retail banking network.   Financial Condition During the nine months ended September 30, 2022, total assets increased by $432.2 million (26.7%), with interest-earning assets increasing by $355.8 million (23.3%). At September 30, 2022, interest-earning assets totaled $1.9 billion compared to $1.5 billion at December 31, 2021. Earning assets represented 91.6% of total assets at September 30, 2022 and 94.0% of total assets at December 31, 2021. The increase in total assets and interest earning assets for the nine months was primarily the result of the acquisition of RYFL.   Net loans receivable totaled $1.5 billion at September 30, 2022, compared to $953.4 million at December 31, 2021. The loan portfolio, which is the Bancorp’s largest asset, is the primary source of both interest and fee income. The Bancorp’s lending strategy emphasizes quality loan growth, product diversification, and competitive and profitable pricing.   The Bancorp’s end-of-period loan balances were as follows:       (unaudited)                       September 30,     December 31,   (Dollars in thousands)   2022     2021       Balance     % Loans     Balance     % Loans                                     Residential real estate   $ 471,565       31.5 %     260,134       33.0 % Home equity     37,578       2.5 %     34,612       5.4 % Commercial real estate     452,852       30.3 %     317,145       31.2 % Construction and land development     134,301       9.0 %     123,822       9.7 % Multifamily     258,377       17.3 %     61,194       5.7 % Consumer     827       0.1 %     582       0.1 % Manufactured Homes     35,866       2.4 %     37,887       1.8 % Commercial business     95,372       6.4 %     115,772       11.4 % Government     9,649       0.5 %     8,991       1.7 % Loans receivable     1,496,387       100.0 %     960,139       100.0 % Plus:                                 Net deferred loans origination costs     5,767               6,810           Undisbursed loan funds     542               (229 )         Loans receivable, net of deferred fees and costs   $ 1,502,696             $ 966,720                                             Adjustable rate loans / loans receivable   $ 680,944       45.5 %   $ 542,975       56.6 %       (unaudited)               September 30,     December 31,       2022     2021                     Loans receivable to total assets     73.2 %     59.6 % Loans receivable to earning assets     79.9 %     63.4 % Loans receivable to total deposits     82.0 %     67.4 %   29     The following table sets forth certain information at September 30, 2022, regarding the dollar amount of loans in the Bancorp’s portfolio based on their contractual terms to maturity. Demand loans, loans having no schedule of repayment and no stated maturity, and overdrafts are reported as due in one year or less. Contractual principal repayments of loans do not necessarily reflect the actual term of the loan portfolio. The average life of mortgage loans is substantially less than their contractual terms because of loan prepayments and because of enforcement of due-on-sale clauses, which give the Bancorp the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells the property subject to the mortgage. The amounts are stated in thousands (000’s).       Maturing     After one     After five                       within     but within     but within     After               one year     five years     fifteen years     fifteen years     Total   Residential real estate   $ 8,806     $ 27,474     $ 106,061     $ 329,224     $ 471,565   Home equity     20,013       259       2,409       14,897       37,578   Commercial real estate     26,255       100,000       325,995       602       452,852   Construction and land development     37,561       37,949       39,928       18,863       134,301   Multifamily     27,292       102,202       126,515       2,368       258,377   Consumer     110       660       57       -       827   Manufactured Homes     -       56       9,809       26,001       35,866   Commercial business     35,272       44,523       14,891       686       95,372   Government     100       3,063       6,486       -       9,649   Total loans receivable   $ 155,409     $ 316,186     $ 632,151     $ 392,641     $ 1,496,387       The Bancorp is primarily a portfolio lender. Mortgage banking activities historically have been limited to the sale of fixed rate mortgage loans with contractual maturities greater than 15 years. These loans are identified as held for sale when originated and sold, on a loan-by-loan basis, in the secondary market. The Bancorp will also retain fixed rate mortgage loans with a contractual maturity greater than 15 years on a limited basis. During the nine months ended September 30, 2022, the Bancorp originated $40.8 million in new fixed rate mortgage loans for sale, compared to $120.1 million during the nine months ended September 30, 2021. Net gains realized from the mortgage loan sales totaled $1.2 million for the nine months ended September 30, 2022, compared to $4.4 million for the nine months ended September 30, 2021. The decrease in net gains realized from mortgage loan sales for the nine months ended September 30, 2022, compared to the prior year period is primarily due to lower demand for fixed rate mortgage loans as a result of increases in mortgage rates, which in-turn has resulted in a slowing in the sale of these mortgage loans. At September 30, 2022, the Bancorp had $997 thousand in loans that were classified as held for sale, compared to $5.0 million at December 31, 2021.   Non-performing loans include those loans that are 90 days or more past due and those loans that have been placed on non-accrual status. At September 30, 2022, non-performing loans that remained accruing and more than 90 days past due include two residential real estate loans totaling $348 thousand, six commercial real estate loans totaling $1.1 million, four commercial business loans totaling $342 thousand, one multifamily loan totaling $181 thousand, and one consumer manufactured home loan of $41 thousand. The Bancorp will at times maintain certain loans on accrual status, despite being over 90 days past due, for short periods of time when management has reason to believe payments are in the process of being received.   The Bancorp's nonperforming loans are summarized below:   (Dollars in thousands)   (unaudited)           Loan Segment   September 30, 2022     December 31, 2021   Residential real estate   $ 5,313     $ 4,682   Home equity     585       657   Commercial real estate     3,878       1,031   Construction and land development     -       -   Multifamily     548       455   Commercial business     561       436   Consumer     -       -   Manufactured homes     40       -   Government     -       -   Total   $ 10,925     $ 7,261   Nonperforming loans to total loans     0.73 %     0.75 % Nonperforming loans to total assets     0.53 %     0.45 %   30     Substandard loans include potential problem loans, where information about possible credit issues or other conditions causes management to question the ability of such borrowers to comply with loan covenants or repayment terms. No loans were internally classified as doubtful or loss at September 30, 2022 or December 31, 2021.   The Bancorp's substandard loans are summarized below:   (Dollars in thousands)   (unaudited)           Loan Segment   September 30, 2022     December 31, 2021   Residential real estate   $ 6,027     $ 3,722   Home equity     598       632   Commercial real estate     8,301       3,562   Construction and land development     -       -   Multifamily     2,768       384   Commercial business     228       387   Consumer     -       -   Manufactured homes     -       -   Government     -       -   Total   $ 17,922     $ 8,687     The increase in substandard loans is the result of loans acquired pursuant to the RYFL acquisition.   In addition to identifying and monitoring non-performing and other classified loans, management maintains a list of special mention loans. Special mention loans represent loans management is closely monitoring due to one or more factors that may cause the loan to become classified as substandard.   The Bancorp's special mention loans are summarized below:   (Dollars in thousands)   (unaudited)           Loan Segment   September 30, 2022     December 31, 2021   Residential real estate   $ 1,297     $ 2,940   Home equity     391       415   Commercial real estate     11,754       12,011   Construction and land development     2,172       3,630   Multifamily     2,608       153   Commercial business     2,931       1,915   Consumer     -       -   Manufactured homes     -       59   Government     -       -   Total   $ 21,153     $ 21,123     A loan is considered impaired when, based on current information and events, it is probable that a borrower will be unable to pay all amounts due according to the contractual terms of the loan agreement. Typically, management does not individually classify smaller-balance homogeneous loans, such as residential mortgages or consumer loans, as impaired, unless they are troubled debt restructurings.   Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date. Purchased loans with evidence of credit quality deterioration since origination are considered purchased credit impaired loans. Expected future cash flows at the purchase date in excess of the fair value of loans are recorded as interest income over the life of the loans if the timing and amount of the future cash flows is reasonably estimable (“accretable yield”). The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference and represents probable losses in the portfolio. In determining the acquisition date fair value of purchased credit impaired loans, and in subsequent accounting, the Bancorp aggregates these purchased loans into pools of loans by common risk characteristics, such as credit risk rating and loan type. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses.   The Bancorp's impaired loans, including purchased credit impaired loans, are summarized below:   (Dollars in thousands)   (unaudited)           Loan Segment   September 30, 2022     December 31, 2021   Residential real estate   $ 3,323     $ 1,771   Home equity     243       284   Commercial real estate     5,229       1,600   Construction and land development     -       -   Multifamily     2,804       556   Commercial business     1,388       1,597   Consumer     19       -   Manufactured homes     -       -   Government     -       -   Total   $ 13,006     $ 5,808     31     The increase in impaired loans is the result of purchase credit impaired loans acquired pursuant to the RYFL acquisition.   At times, the Bancorp will modify the terms of a loan to forego a portion of interest or principal or reduce the interest rate on the loan to a rate materially less than market rates, or materially extend the maturity date of a loan as part of a troubled debt restructuring. The valuation basis for the Bancorp’s troubled debt restructurings is based on the present value of expected future cash flows; unless consistent cash flows are not present, then the fair value of the collateral securing the loan is the basis for valuation.   The Bancorp's troubled debt restructured loans are summarized below:   (Dollars in thousands)   (unaudited)           Loan Segment   September 30, 2022     December 31, 2021   Residential real estate   $ 1,915     $ 342   Home equity     79       83   Commercial real estate     1,983       747   Construction and land development     -       -   Multifamily     -       -   Commercial business     497       694   Consumer     -       -   Manufactured homes     -       -   Government     -       -   Total   $ 4,474     $ 1,866     At September 30, 2022, management is of the opinion that there are no loans where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which will imminently result in such loans being classified as past due, non-accrual or a troubled debt restructure. Management does not presently anticipate that any of the non-performing loans or classified loans would materially affect future operations, liquidity or capital resources.   The allowance for loan losses (ALL) is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses, and decreased by charge-offs net of recoveries. A loan is charged‑off against the allowance by management as a loss when deemed uncollectible, although collection efforts continue and future recoveries may occur. The determination of the amounts of the ALL and provisions for loan losses is based on management’s current judgments about the credit quality of the loan portfolio with consideration given to all known relevant internal and external factors that affect loan collectability as of the reporting date. The appropriateness of the current period provision and the overall adequacy of the ALL are determined through a disciplined and consistently applied quarterly process that reviews the Bancorp’s current credit risk within the loan portfolio and identifies the required allowance for loan losses given the current risk estimates.   32     The Bancorp's provision for loan losses for the nine months ended are summarized below:   (Dollars in thousands)                     (unaudited)                           Loan Segment   September 30, 2022     September 30, 2021   Residential real estate   $ 472     $ 250   Home equity     38       99   Commercial real estate     (15 )     946   Construction and land development     (604 )     483   Multifamily     388       161   Commercial business     (339 )     (647 ) Consumer     60       1   Manufactured homes     -       -   Government     -       -   Total   $ -     $ 1,293     The Bancorp's charge-off and recovery information is summarized below:   (Dollars in thousands)   (unaudited)       As of the nine months ended September 30, 2022   Loan Segment   Charge-off     Recoveries     Net Charge-offs   Residential real estate   $ -     $ 58     $ 58   Home equity     -       -       -   Commercial real estate     -       -       -   Construction and land development     -       -       -   Multifamily     -       -       -   Commercial business     (57 )     88       31   Consumer     (50 )     16       (34 ) Manufactured homes     -       -           Government     -       -       -   Total   $ (107 )   $ 162     $ 55     The Bancorp's charge-off and recovery information is summarized below:   (Dollars in thousands)   (unaudited)       As of the nine months ended September 30, 2021   Loan Segment   Charge-off     Recoveries     Net Charge-offs   Residential real estate   $ (32 )   $ 46     $ 14   Home equity     (1 )     -       (1 ) Commercial real estate     -       -       -   Construction and land development     -       -       -   Multifamily     -       -       -   Farmland     -       -       -   Commercial business     -       25       25   Consumer     (21 )     6       (15 ) Manufactured homes     -       -           Government     -       -       -   Total   $ (54 )   $ 77     $ 23       The ALL provisions take into consideration management’s current judgments about the credit quality of the loan portfolio, loan portfolio balances, changes in the portfolio mix, and local economic conditions. In determining the provision for loan losses for the current period, management has considered risks associated with the local economy, changes in loan balances and mix, and asset quality.     The Bancorp's allowance to total loans and non-performing loans are summarized below:   (Dollars in thousands)   (unaudited)               September 30, 2022     December 31, 2021                     Allowance for loan losses   $ 13,398     $ 13,343   Total loans   $ 1,502,696     $ 966,720   Non-performing loans   $ 10,925     $ 7,261   ALL-to-total loans     0.89 %     1.38 % ALL-to-non-performing loans (coverage ratio)     122.6 %     183.8 %   33     In addition, management considers reserves that are not part of the ALL that have been established from acquisition activity. The Bancorp acquired loans for which there was evidence of credit quality deterioration since origination and it was determined that it was probable that the Bancorp would be unable to collect all contractually required principal and interest payments. At September 30, 2022, total purchased credit impaired loans reserves totaled $1.9 million compared to $1.4 million at December 31, 2021. Additionally, the Bancorp has acquired loans where there was no evidence of credit quality deterioration since origination and has marked these loans to their fair values. As part of the fair value of loans receivable, a net fair value discount was established for loans acquired of $5.8 million at September 30, 2022, compared to $1.1 million at December 31, 2021. Details on these fair value marks and the additional reserves created can be found in Note 5, Loans Receivable.   The primary objective of the Bancorp’s investment portfolio is to provide for the liquidity needs of the Bancorp and to contribute to profitability by providing a stable flow of dependable earnings. Funds are generally invested in federal funds, interest bearing balances in other financial institutions, U.S. government securities, federal agency obligations, obligations of state and local municipalities, and corporate securities. The securities portfolio, all of which is designated as available-for-sale, totaled $359.0 million at September 30, 2022, compared to $526.9 million at December 31, 2021, a decrease of $167.9 million (31.9%). The decrease is attributable to increased unrealized losses within the portfolio and the use of cashflows from the securities portfolio to fund loan growth. The acute increase in interest rates during the nine months ended September 30, 2022, including an increase by the Federal Reserve in the federal funds target rate from 0.25% as of December 31, 2021, to 3.25% as of September 30, 2022, was the primary cause of the increase in unrealized losses on available-for-sale securities within the Bancorp’s investment portfolio. Management continues to actively monitor the securities portfolio and does not currently anticipate the need to realize losses from the securities portfolio, and it is unlikely the Bancorp will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity. At September 30, 2022, the securities portfolio represented 19.1% of interest-earning assets and 17.5% of total assets compared to 34.6% of interest-earning assets and 32.5% of total assets at December 31, 2021.   The Bancorp’s end-of-period investment portfolio and other short-term investments and stock balances were as follows:       (unaudited)                               September 30,             December 31,           (Dollars in thousands)   2022             2021               Balance     % Securities     Balance     % Securities                                     U.S. government sponsored entities   $ 7,545       2.1 %   $ 8,669       1.6 % U.S. treasury securities     394       0.2 %     400       0.1 % Collateralized mortgage obligations and residential mortgage-backed securities     137,281       38.2 %     184,701       35.1 % Municipal securities     212,788       59.2 %     332,127       63.0 % Collateralized debt obligations     1,027       0.3 %     992       0.2 % Total securities available-for-sale   $ 359,035       100.0 %   $ 526,889       100.0 %       (unaudited)                               September 30,     December 31,     YTD           (Dollars in thousands)   2022     2021     Change               Balance     Balance     $     %                                     Interest bearing deposits in other financial institutions   $ 11,151     $ 19,987     $ (8,836 )     -44.2 % Fed funds sold     682       464       218       47.0 % Certificates of deposit in other financial institutions     2,214       1,709       505       29.5 % Federal Home Loan Bank stock     3,038       3,247       (209 )     -6.4 %     The net increase in interest bearing deposits in other financial institutions and fed funds sold is the result of the timing of cash flows and public fund deposits.   34     The contractual maturities and weighted average yields for the U.S. government securities, agency securities, municipal securities, and collateralized debt obligations at September 30, 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 %   $ 7,545       1.00 %   $ -       0.00 %   $ 7,545   AFS                                                                         U.S. treasury securities:                                                                         AFS     -       0.00 %     394       2.38 %     -       0.00 %     -       0.00 %     394   Municipal Securities:                                                                         AFS     190       4.84 %     1,578       3.93 %     10,662       3.11 %     200,358       2.74 %     212,788   Trust Preferred Securities:                                                                         AFS     -       0.00 %     -       0.00 %     -       0.00 %     1,027       4.03 %     1,027   Totals   $ 190       4.84 %   $ 1,972       3.62 %   $ 18,207       2.24 %   $ 201,385       2.75 %   $ 221,754       Deposits are a fundamental and cost-effective source of funds for lending and other investment purposes. The Bancorp offers a variety of products designed to attract and retain customers, with the primary focus on building and expanding relationships.   The Bancorp’s end-of-period deposit portfolio balances were as follows:       (unaudited)                               September 30,     December 31,     YTD   (Dollars in thousands)   2022     2021     Change       Balance     Balance     $     %                                     Checking   $ 808,696     $ 629,038     $ 179,658       28.6 % Savings     427,505       293,976       133,529       45.4 % Money market     269,110       271,970       (2,860 )     -1.1 % Certificates of deposit     327,653       239,217       88,436       37.0 % Total deposits   $ 1,832,964     $ 1,434,201     $ 398,763       27.8 %   The following table presents the average daily amount of deposits and average rates paid on such deposits for the periods indicated. The amounts are stated in thousands (000’s).       September 30, 2022                       (unaudited)     December 31, 2021       Amount     Rate %     Amount     Rate %   Noninterest bearing demand deposits   $ 369,703       -     $ 280,900       -   Interest bearing demand deposits     371,697       0.21       297,012       0.08   MMDA accounts     298,394       0.20       253,468       0.13   Savings accounts     417,266       0.05       277,839       0.06   Certificates of deposit     376,652       0.14       271,882       0.46   Total deposits   $ 1,833,712       0.12     $ 1,381,101       0.18     As of September 30, 2022, and December 31, 2021, approximately $570.0 million and $452.0 million, respectively, of our deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.   The increase in overall deposits is the result of the RYFL acquisition, as well as the Bancorp’s efforts to maintain and grow core deposits.   35     The Bancorp’s borrowed funds are primarily used to fund asset growth not supported by deposit generation. The Bancorp’s end-of-period borrowing balances were as follows:       (unaudited)                               September 30,     December 31,     YTD   (Dollars in thousands)   2022     2021     Change       Balance     Balance     $     %                                     Repurchase agreements   $ 21,966     $ 14,581     $ 7,385       50.6 % Borrowed funds     56,174       -       56,174       100.0 % Total borrowed funds   $ 78,140     $ 14,581     $ 63,559       435.9 %   The increase in other borrowed funds were utilized for loan funding purposes Repurchase agreements increased as part of normal account fluctuations within that product line.   Other assets totaled $49.8 million at September 30, 2022, compared to $14.9 million at December 31, 2021. The increase in other assets is primarily related to increased deferred tax assets as result of increased unrealized losses within the securities portfolio. Other liabilities totaled $23.9 million at September 30, 2022, compared to $15.3 million at December 31, 2021. The increase in other liabilities is primarily the result of increased fair value of interest rate swap contracts.   Liquidity and Capital Resources For the Bancorp, liquidity management refers to the ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, and pay dividends and operating expenses. Because profit and liquidity are often conflicting objectives, management attempts to maximize the Bank’s net interest margin by making adequate, but not excessive, liquidity provisions. Furthermore, funds are managed so that future profits will not be significantly impacted as funding costs increase.   Changes in the liquidity position result from operating, investing and financing activities. Cash flows from operating activities are generally the cash effects of transactions and other events that enter into the determination of net income. The primary investing activities include loan originations, loan repayments, investments in interest bearing balances in other financial institutions, and the purchase, sale, and maturity of investment securities. Financing activities focus almost entirely on the generation of customer deposits. In addition, the Bancorp utilizes borrowings (i.e., repurchase agreements, FHLB advances and federal funds purchased) as a source of funds.   During the nine months ended September 30, 2022, cash and cash equivalents increased by $5.1 million compared to a $11.9 million increase for the nine months ended September 30, 2021. The primary sources of cash and cash equivalents were cash and cash equivalents from acquisition activity, the sale of loans originated for sale, proceeds from the sale of securities, proceeds from the maturity and paydown of securities, and change in repurchase agreements and other borrowed funds. The primary uses of cash and cash equivalents were the purchase of securities, change in deposits, and loan originations. Cash provided by operating activities totaled $11.6 million for the nine months ended September 30, 2022, compared to cash provided of $16.6 million for the nine month period ended September 30, 2021. Cash provided from operating activities was primarily a result of net income and sale of loans originated for sale, offset by loans originated for sale and net change in other assets, accrued expenses, and other liabilities. Cash provided from investing activities totaled $10.0 million for the current period, compared to cash outflows of $109.2 million for the nine months ended September 30, 2021. Cash provided from investing activities for the current nine months were primarily related to the cash and cash equivalents from acquisition activity, net, and proceeds from the sales and maturities of securities, offset against the net change in loans receivable and purchase of securities. Cash outflows from financing activities totaled $16.6 million during the current period compared to net cash provided of $104.5 million for the nine months ended September 30, 2021. The net cash outflows from financing activities were primarily a result of net change in deposits, offset against the change in other borrowed funds. On a cash basis, the Bancorp paid dividends on common stock of $3.7 million for the nine months ended September 30, 2022, and $3.2 million for the nine months ended September 30, 2021.   At September 30, 2022, outstanding commitments to fund loans totaled $279.7 million. Approximately 54.1% of the commitments were at variable rates. Standby letters of credit, which are conditional commitments issued by the Bancorp to guarantee the performance of a customer to a third party, totaled $13.6 million at September 30, 2022. Management believes that the Bancorp has sufficient cash flow and borrowing capacity to fund all outstanding commitments and letters of credit, while maintaining proper levels of liquidity.   36     Management strongly believes that maintaining a high level of capital enhances safety and soundness. During the nine months ended September 30, 2022, stockholders' equity decreased by $38.6 million (24.6%). During the nine months ended September 30, 2022, stockholders’ equity was primarily decreased by other comprehensive losses as the result of market value changes within the securities portfolio of $84.1 million and dividends declared of $4.0 million, offset by increased additional paid in capital related to the RYFL acquisition of $38.0 million and net income of $11.1 million. On April 24, 2014, the Bancorp’s Board of Directors authorized a stock repurchase program to repurchase up to 50,000 shares of the Bancorp’s outstanding common stock, from time to time and subject to market conditions, on the open market or in privately negotiated transactions. The stock repurchase program does not expire and is only limited by the number of shares that can be purchased. The stock repurchase program will be reviewed annually by the Board of Directors. No shares were repurchased under the program during the first nine months of 2022 or 2021. During 2022, 11,158 restricted stock shares vested under the Incentive Plan outlined in Note 10 of the financial statements, of which 2,479 of these shares were withheld in the form of a net surrender to cover the withholding tax obligations of the vesting employees. The repurchase of these surrendered shares is considered outside of the scope of the formal board approved stock repurchase program.   The Bank is subject to risk-based capital guidelines adopted by the FDIC. The regulations divide capital into multiple tiers. The first tier (Common Equity Tier 1 Capital) includes common shareholders’ equity, after deductions for various items including goodwill and certain other intangible assets, and after certain other adjustments. Common Equity Tier 1 Capital also includes accumulated other comprehensive income (for organizations that do not make opt-out elections). The next tier (Tier 1 Capital) is comprised of Common Equity Tier 1 Capital plus other qualifying capital instruments such as perpetual noncumulative preferred stock and junior subordinated debt issued to trusts, and other adjustments. The third tier (Tier 2 Capital) includes instruments such as subordinated debt that have a minimum original maturity of at least five years and are subordinated to the claims of depositors and general creditors, total capital minority interest not included in Tier 1 Capital, and limited amounts of the allowance for loan losses, less applicable regulatory adjustments and deductions. The Bank is required to maintain a Common Equity Tier 1 Capital ratio of 4.5%, a Tier 1 Capital ratio of 6%, and a Total Capital ratio (comprised of Tier 1 Capital plus Tier 2 Capital) of 8%. In addition, the capital regulations provide for a minimum leverage ratio (Tier 1 capital to adjusted average assets) of 4%.   In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions by the institution and certain discretionary bonus payments to management if an institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.   The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required the FRB to set minimum capital levels for bank holding companies that are as stringent as those required for insured depository subsidiaries. However, under the FRB’s “Small Bank Holding Company” exemption from consolidated bank holding company capital requirements, bank holding companies and savings and loan holding companies with less than $3 billion in consolidated assets, such as the Bancorp, are exempt from consolidated regulatory capital requirements, unless the FRB determines otherwise in particular cases.   During the nine months ended September 30, 2022, the Bancorp’s and Bank’s risk weighted assets continued to be negatively impacted by regulatory requirements regarding collateralized debt obligations. The regulatory requirements state that for collateralized debt obligations that have been downgraded below investment grade by the rating agencies, increased risk-based asset weightings are required. The Bancorp currently holds pooled collateralized debt obligations with a cost basis of $2.2 million. These investments currently have ratings that are below investment grade. As a result, approximately $8.5 million of risk-based assets are generated by the collateralized debt obligations in the Bancorp’s and Bank’s total risk based capital calculation.   37     In addition, the following table shows that, at September 30, 2022, and December 31, 2021, the Bank’s capital exceeded all applicable regulatory capital requirements. The dollar amounts are in millions.   (Dollars in millions)                                   Minimum Required To Be                       Minimum Required For     Well Capitalized Under Prompt       Actual     Capital Adequacy Purposes     Corrective Action Regulations   September 30, 2022   Amount     Ratio     Amount     Ratio     Amount     Ratio   Common equity tier 1 capital to risk-weighted assets   $ 158.4       11.8 %   $ 60.2       4.5 %   $ 87.0       6.5 % Tier 1 capital to risk-weighted assets   $ 158.4       11.8 %   $ 80.3       6.0 %   $ 107.1       8.0 % Total capital to risk-weighted assets   $ 171.8       12.8 %   $ 107.1       8.0 %   $ 133.8       10.0 % Tier 1 capital to adjusted average assets   $ 158.4       8.1 %   $ 79.8       4.0 %   $ 99.8       5.0 %   (Dollars in millions)                                   Minimum Required To Be                       Minimum Required For Capital Adequacy Purposes     Well Capitalized Under Prompt       Actual         Corrective Action Regulations   At December 31, 2021   Amount     Ratio     Amount     Ratio     Amount     Ratio   Common equity tier 1 capital to risk-weighted assets   $ 136.6       13.0 %   $ 47.4       4.5 %     N/A       N/A   Tier 1 capital to risk-weighted assets   $ 136.6       13.0 %   $ 63.3       6.0 %     N/A       N/A   Total capital to risk-weighted assets   $ 149.8       14.2 %   $ 84.3       8.0 %     N/A       N/A   Tier 1 capital to adjusted average assets   $ 136.6       8.6 %   $ 64.2       4.0 %     N/A       N/A       The Bancorp’s ability to pay dividends to its shareholders is entirely dependent upon the Bank’s ability to pay dividends to the Bancorp. Under Indiana law, the Bank may pay dividends from its undivided profits (generally, earnings less losses, bad debts, taxes and other operating expenses) as is considered expedient by the Bank’s Board of Directors. However, the Bank must obtain the approval of the Indiana Department of Financial Institutions (DFI) if the total of all dividends declared by the Bank during the current year, including the proposed dividend, would exceed the sum of retained net income for the year to date plus its retained net income for the previous two years. For this purpose, “retained net income,” means net income as calculated for call report purposes, less all dividends declared for the applicable period. An exemption from DFI approval would require that the Bank have been assigned a composite uniform financial institutions rating of 1 or 2 as a result of the most recent federal or state examination; the proposed dividend would not result in a Tier 1 leverage ratio below 7.5%; and that the Bank not be subject to any corrective action, supervisory order, supervisory agreement, or board approved operating agreement. The aggregate amount of dividends that may be declared by the Bank in 2022, without the need for qualifying for an exemption or prior DFI approval, is its 2022 net profits plus $21.4 million. Moreover, the FDIC and the Federal Reserve Board may prohibit the payment of dividends if it determines that the payment of dividends would constitute an unsafe or unsound practice in light of the financial condition of the Bank. On August 29, 2022, the Board of Directors of the Bancorp declared a second quarter dividend of $0.31 per share. The Bancorp’s second quarter dividend was paid to shareholders on October 5, 2022.   Results of Operations - Comparison of the Quarter Ended September 30, 2022 to the Quarter Ended September 30, 2021   For the quarter ended September 30, 2022, the Bancorp reported net income of $4.6 million, compared to net income of $3.5 million for the quarter ended September 30, 2021, an increase of $1.0 million (28.8%). For the quarter, the ROA was 0.88%, compared to 0.87% for the quarter ended September 30, 2021. The ROE was 13.65% for the quarter ended September 30, 2022, compared to 8.90% for the quarter ended September 30, 2021.   Net interest income for the quarter ended September 30, 2022, was $17.5 million, an increase of $5.3 million (43.5%), compared to $12.2 million for the quarter ended September 30, 2021. The weighted-average yield on interest-earning assets was 3.88% for the quarter ended September 30, 2022, compared to 3.36% for the quarter ended September 30, 2021. The weighted-average cost of funds for the quarter ended September 30, 2022 was 0.22% compared to 0.13% for the quarter ended September 30, 2021. The impact of the 3.88% return on interest earning assets and the 0.22% cost of funds resulted in an interest rate spread and margin of 3.67% for the current quarter, an increase from the 3.23% spread for the quarter ended September 30, 2021. The Bancorp’s net interest margin on a tax-adjusted basis was 3.84% for the quarter ended September 30, 2022, compared to 3.46% for the quarter ended September 30, 2021. The Bancorp believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully-taxable equivalent basis, as these measures provide useful information to make peer comparisons. Tax adjusted net interest margin represents a non-GAAP financial measure. See the non-GAAP reconciliation table immediately below and the section captioned “Non-GAAP Financial Measures” for further disclosure regarding non-GAAP financial measures.   (Dollars in thousands)   Quarter Ended   (unaudited)   September 30, 2022     September 31, 2021   Calculation of tax adjusted net interest margin                 Net interest income   $ 17,507     $ 12,200   Tax adjusted interest on securities and loans     817       851   Adjusted net interest income     18,324       13,051   Total average earning assets     1,910,722       1,506,674   Tax adjusted net interest margin     3.84 %     3.46 %   38     Information relating to the average consolidated balance sheet and the yield on average earning assets and cost of average liabilities for the periods indicated are in the following table. Dividing the related interest, on an annualized basis, by the average balance of assets or liabilities drives the disclosed rates. Average balances are derived from daily balances.   Quarter Ended                                                 (Dollars in thousands)   Average Balances, Interest, and Rates   (unaudited)   September 30, 2022     September 30, 2021       Average Balance     Interest     Rate (%)     Average Balance     Interest     Rate (%)   ASSETS                                                 Interest bearing deposits in other financial institutions   $ 24,732     $ 110       1.78     $ 53,786     $ 12       0.09   Federal funds sold     1,579       6       1.52       1,112       -       -   Certificates of deposit in other financial institutions     1,899       9       1.90       1,262       6       1.90   Securities available-for-sale     394,796       2,271       2.30       486,993       2,363       1.94   Loans receivable*     1,484,678       16,122       4.34       960,274       10,270       4.28   Federal Home Loan Bank stock     3,038       21       2.76       3,247       15       1.85   Total interest earning assets     1,910,722     $ 18,539       3.88       1,506,674     $ 12,666       3.36   Cash and non-interest bearing deposits in other financial institutions     21,954                       41,378                   Allowance for loan losses     (13,487 )                     (13,688 )                 Other noninterest bearing assets     149,950                       97,290                   Total assets   $ 2,069,139                     $ 1,631,654                                                                     LIABILITIES AND STOCKHOLDERS' EQUITY                                                 Total deposits   $ 1,873,962     $ 871       0.19     $ 1,436,125     $ 452       0.13   Repurchase agreements     20,781       51       0.98       20,970       13       0.25   Borrowed funds     17,456       110       2.52       41       1       9.76   Total interest bearing liabilities     1,912,199     $ 1,032       0.22       1,457,136     $ 466       0.13   Other noninterest bearing liabilities     23,458                       15,508                   Total liabilities     1,935,657                       1,472,644                   Total stockholders' equity     133,482                       159,010                   Total liabilities and stockholders' equity   $ 2,069,139                     $ 1,631,654                                                                                                                       Net intrest spread     3.67 %                     3.23 %                 Net interest margin**     3.67 %                     3.24 %                 Ratio of interest-earning assets to interest-bearing liabilities   1.00x                     1.04x                       * Non-accruing loans have been included in the average balances. ** Net interest income divided by average interest-earning assets.   The increased net interest income and net interest margin for the quarter ended September 30, 2022, was primarily the result of the increased earning assets acquired through the RYFL acquisition, reallocation of securities cashflows into organic loan growth, and maintaining lower interest expense.   The following table shows the change in noninterest income for the quarter ending September 30, 2022, and September 30, 2021.   (Dollars in thousands)   Quarter Ended September 30,     9/30/2022     vs. 9/30/2021   (Unaudited)   2022     2021     $ Change     % Change   Noninterest income:                                 Fees and service charges     1,570       1,473       97       6.6 % Wealth management operations     407       604       (197 )     -32.6 % Gain on sale of loans held-for-sale, net     344       1,229       (885 )     -72.0 % Gain on sale of securities, net     23       590       (567 )     -96.1 % Increase in cash value of bank owned life insurance     183       180       3       1.7 % Gain on sale of foreclosed real estate     -       -       -       0.0 % Other     103       70       33       47.1 %                                   Total noninterest income     2,630       4,146       (1,516 )     -36.6 %   The increase in fees and service charges is primarily the result of the acquisition of Royal and the resultant increase in our customer base. The decrease in wealth management operations is the result of lower fee income year over year due to market conditions. The decrease in gain on sale of loans is the result of significant refinance activity which started in 2020 and continued into 2021 due to the economic and low-rate environment, which resulted in more loans originated and sold. We expect demand for fixed rate mortgage loans held-for-sale in the secondary market to be lower as borrowing rates on loans increase. The decrease in gains on the sale of securities is a result of current market conditions and actively repositioning the portfolio.   39     The following table shows the change in noninterest expense for the quarter ending September 30, 2022, and September 30, 2021.   (Dollars in thousands)   Quarter Ended September 30,     9/30/2022     vs. 9/30/2021   (Unaudited)   2022     2021     $ Change     % Change   Noninterest expense:                                 Compensation and benefits     7,498       6,042       1,456       24.1 % Data processing     1,212       872       340       39.0 % Occupancy and equipment     1,804       1,380       424       30.7 % Marketing     587       334       253       75.7 % Federal deposit insurance premiums     350       236       114       48.3 % Net loss recognized on sale of premises and equipment     254       -       254       0.0 % Other     3,305       3,537       (232 )     -6.6 %                                   Total noninterest expense     15,010       12,401       2,609       21.0 %     The increase in compensation and benefits is primarily the result of the Royal acquisition, management’s continued focus on talent management, and wage inflation. The increase in occupancy and equipment expense is primarily related to the Royal acquisition and higher operating costs. Marketing expenses have increased to enhance brand recognition in new markets and gain more wallet share. The increase in federal deposit insurance premiums is primarily the result of growth of the bank’s average assets. The increase in data processing expense is due to increased system utilization due to growth of the Bank, and continued investment in technological advancements such as Salesforce and nCino. The increase in net loss recognized on sale of premises and equipment is the result of the sale of a branch to reduce future fixed costs, allowing for redeployment of a portion of occupancy expenses into building a digital-forward foundation so the Bancorp can better serve its customers. The decrease in other operating expenses is primarily due to lower utilization of outside consultants related to bank initiatives during the quarter.   The provision for income taxes was $571 thousand for the quarter ended September 30, 2022, as compared to $268 thousand for the quarter ended September 30, 2021, an increase of $303 thousand (113.1%). The effective tax rate was 11.1% for the quarter ended September 30, 2022, as compared to 7.0% for the quarter ended September 30, 2021. The Bancorp’s higher current quarter effective tax rate is a result of higher earnings relative to tax preferred income.   Results of Operations - Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021   For the nine months ended September 30, 2022, the Bancorp reported net income of $11.1 million, compared to net income of $11.7 million for the nine months ended September 30, 2021, a decrease of $530 thousand (4.5%). For the nine months ended, the ROA was 0.73%, compared to 0.98 % for the nine months ended September 30, 2021. The ROE was 9.98% for the nine months ended September 30, 2022, compared to 9.96% for the nine months ended September 30, 2021.   Net interest income for the nine months ended September 30, 2022, was $50.3 million, an increase of $14.2 million (39.4%), compared to $36.1 million for the nine months ended September 30, 2021. The weighted-average yield on interest-earning assets was 3.69% for the nine months ended September 30, 2022, compared to 3.44% for the nine months ended September 30, 2021. The weighted-average cost of funds for the nine months ended September 30, 2022, was 0.13% compared to 0.16% for the nine months ended September 30, 2021. The impact of the 3.69% return on interest earning assets and the 0.13% cost of funds resulted in an interest rate spread of 3.56% for the current nine months, which is an increase from the spread of 3.28% as of September 30, 2021. On a tax adjusted basis, the Bancorp’s net interest margin was 3.75% for the nine months ended September 30, 2022, compared to 3.49% for the nine months ended September 30, 2021. The Bancorp believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully-taxable equivalent basis, as these measures provide useful information to make peer comparisons. Tax adjusted net interest margin represents a non-GAAP financial measure. See the non-GAAP reconciliation table immediately below and the section captioned “Non-GAAP Financial Measures” for further disclosure regarding non-GAAP financial measures.   (Dollars in thousands)   Nine Months Ended   (unaudited)   September 30, 2022     September 30, 2021   Calculation of tax adjusted net interest margin                 Net interest income   $ 50,340     $ 36,118   Tax adjusted interest on securities and loans     2,713       2,273   Adjusted net interest income     53,053       38,391   Total average earning assets     1,886,853       1,465,675   Tax adjusted net interest margin     3.75 %     3.49 %   40     Information relating to the average consolidated balance sheet and the yield on average earning assets and cost of average liabilities for the periods indicated are in the following table. Dividing the related interest, on an annualized basis, by the average balance of assets or liabilities drives the disclosed rates. Average balances are derived from daily balances.   Year-to-Date                                                 (Dollars in thousands)   Average Balances, Interest, and Rates   (unaudited)   September 30, 2022     September 30, 2021       Average Balance     Interest     Rate (%)     Average Balance     Interest     Rate (%)   ASSETS                                               Interest bearing deposits in other financial institutions   $ 24,268     $ 163       0.90     $ 53,774     $ 33       0.08   Federal funds sold     3,561       8       0.30       1,064       -       -   Certificates of deposit in other financial institutions     1,750       15       1.14       1,443       21       1.94   Securities available-for-sale     447,319       7,295       2.17       435,119       6,428       1.97   Loans receivable*     1,406,591       44,629       4.23       970,740       31,291       4.30   Federal Home Loan Bank stock     3,364       63       2.50       3,535       55       2.07   Total interest earning assets     1,886,853     $ 52,173       3.69       1,465,675     $ 37,828       3.44   Cash and non-interest bearing deposits in other financial institutions     21,279                       37,186                   Allowance for loan losses     (13,418 )                     (13,205 )                 Other noninterest bearing assets     142,254                       97,674                   Total assets   $ 2,036,968                     $ 1,587,330                                                                     LIABILITIES AND STOCKHOLDERS' EQUITY                                                 Total deposits   $ 1,833,712     $ 1,597       0.12     $ 1,395,883     $ 1,652       0.16   Repurchase agreements     20,935       93       0.59       17,458       35       0.27   Borrowed funds     11,175       143       1.71       992       23       3.09   Total interest bearing liabilities     1,865,822     $ 1,833       0.13       1,414,333     $ 1,710       0.16   Other noninterest bearing liabilities     22,510                       17,052                   Total liabilities     1,888,332                       1,431,385                   Total stockholders' equity     148,636                       155,945                   Total liabilities and stockholders' equity   $ 2,036,968                     $ 1,587,330                                                                                                                       Net intrest spread     3.56 %                     3.28 %                 Net interest margin**     3.56 %                     3.29 %                 Ratio of interest-earning assets to interest-bearing liabilities   1.01x                     1.04x                     * Non-accruing loans have been included in the average balances. ** Net interest income divided by average interest-earning assets.   The increased net interest income and net interest margin for the nine months ended September 30, 2022, was primarily the result of the increased earning assets acquired through the RYFL acquisition, reallocation of securities cashflows into organic loan growth, and maintaining lower interest expense.   The following table shows the change in noninterest income for the nine months ending September 30, 2022, and September 30, 2021.   (Dollars in thousands)   Nine Months Ended September 30,     9/30/2022     vs. 9/30/2021   (Unaudited)   2022     2021     $ Change     % Change   Noninterest income:                                 Fees and service charges     4,434       4,010       424       10.6 % Wealth management operations     1,590       1,787       (197 )     -11.0 % Gain on sale of loans held-for-sale, net     1,242       4,394       (3,152 )     -71.7 % Gain on sale of securities, net     662       1,276       (614 )     -48.1 % Increase in cash value of bank owned life insurance     628       537       91       16.9 % Gain on sale of foreclosed real estate     -       27       (27 )     -100.0 % Other     114       108       6       5.6 %                                   Total noninterest income     8,670       12,139       (3,469 )     -28.6 %   The increase in fees and service charges, for the quarter and the year-to-date periods, is primarily the result of the acquisition of Royal and the resultant increase in our customer base. The decrease in wealth management operations is the result of lower fee income year over year due to market conditions. The decrease in gain on sale of loans, for the quarter and the year-to-date periods, is the result of significant refinance activity which started in 2020 and continued into 2021 due to the economic and low-rate environment, which resulted in more loans originated and sold. We expect demand for fixed rate mortgage loans held-for-sale in the secondary market to be lower as borrowing rates on loans increase. The decrease in gains on the sale of securities, for the quarter and the year-to-date periods, is a result of current market conditions and actively repositioning the portfolio.   41     The following table shows the change in noninterest expense for the nine months ending September 30, 2022, and September 30, 2021.   (Dollars in thousands)   Nine Months Ended September 30,     9/30/2022     vs. 9/30/2021   (Unaudited)   2022     2021     $ Change     % Change   Noninterest expense:                                 Compensation and benefits     22,403       17,624       4,779       27.1 % Data processing     5,512       1,997       3,515       176.0 % Occupancy and equipment     5,033       4,076       957       23.5 % Marketing     1,623       728       895       122.9 % Federal deposit insurance premiums     949       620       329       53.1 % Net loss recognized on sale of premises and equipment     254       -       254       0.0 % Other     10,681       8,859       1,822       20.6 %                                   Total noninterest expense     46,455       33,904       12,551       37.0 %     The increase in compensation and benefits is primarily the result of the Royal acquisition, management’s continued focus on talent management, and wage inflation. The increase in occupancy and equipment expense is primarily related to the Royal acquisition and higher operating costs. Marketing expenses have increased to enhance brand recognition in new markets and gain more wallet share. The increase in federal deposit insurance premiums is primarily the result of growth of the bank’s average assets. The increase in data processing expense is primarily the result of data conversion expenses related to the acquisition of Royal, increased system utilization due to growth of the Bank, and continued investment in technological advancements such as Salesforce and nCino. The increase in net loss recognized on sale of premises and equipment is the result of the sale of a branch to reduce future fixed costs, allowing for redeployment of a portion of occupancy expenses into building a digital-forward foundation so that the Bank can better serve its customers. The increase in other operating expenses is primarily the result of one-time expenses related to the acquisition of Royal, continued investments in strategic initiatives focusing on growth of the organization, and inflationary pressures.   The provision for income taxes was $1.4 million for the nine months ended September 30, 2022, as compared to $1.4 million for the nine months ended September 30, 2021, an increase of $25 thousand (1.8%). The effective tax rate was 11.4% for the nine months ended September 30, 2022, as compared to 10.8% for the nine months ended September 30, 2021. The Bancorp’s higher current effective tax rate is a result of nondeductible acquisition costs incurred in 2022.   Critical Accounting Policies Critical accounting policies are those accounting policies that management believes are most important to the portrayal of the Bancorp’s financial condition and that require management’s most difficult, subjective or complex judgments. The Bancorp’s critical accounting policies from December 31, 2021, remain unchanged.   Forward-Looking Statements Statements contained in this report that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions are also intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act. The Bancorp cautions readers that forward-looking statements, including without limitation those relating to the Bancorp’s future business prospects, merger and acquisition activities, interest income and expense, net income, liquidity, and capital needs are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements, due to, among other things, factors identified in this report, including those identified in the Bancorp’s 2021 Form 10-K.   Non-GAAP Financial Measures This filing includes certain financial measures that are identified as non-GAAP, including adjusted net interest income and tax adjusted net interest margin. The Bancorp provides these non-GAAP performance measures because they are used by management to evaluate and measure the Bancorp’s performance, which the Bancorp believes also is useful to assist investors in assessing the Bancorp’s operating performance. Where non-GAAP financial measures are used in this report, the most comparable GAAP measure, as well as the reconciliation to the most comparable GAAP measure, can be found in the tables referenced herein.   42     The adjusted net interest income and tax-adjusted net interest margin measures recognize the income tax savings when comparing taxable and tax-exempt assets. Interest income and yields on tax-exempt securities and loans are presented using the current federal income tax rate of 21%. Management believes that it is standard practice in the banking industry to present net interest income and net interest margin on a fully tax-equivalent basis and that it may enhance comparability for peer comparison purposes.   Although these non-GAAP financial measures are frequently used by investors to evaluate a financial institution’s business and performance, they have limitations as analytical tools and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. In addition, these non-GAAP financial measures may differ from those used by other financial institutions to assess their business operations and performance.   Item 3. Quantitative and Qualitative Disclosures about Market Risk Not applicable.   Item 4. Controls and Procedures   (a) Evaluation of Disclosure Controls and Procedures . The Bancorp maintains disclosure controls and procedures (as defined in Sections 13a – 15(e) and 15d – 15(e)) of regulations promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”) that are designed to ensure that information required to be disclosed by the Bancorp in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Bancorp in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Bancorp's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. The Bancorp's Chief Executive Officer and Chief Financial Officer evaluate the effectiveness of the Bancorp's disclosure controls and procedures as of the end of each quarter. Based on that evaluation as of September 30, 2022, the Bancorp’s Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures were effective as of that date in ensuring that information required to be disclosed by the Bancorp under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms .   (b)  Changes in Internal Control Over Financial Reporting . There was no change in the Bancorp's internal control over financial reporting identified in connection with the Bancorp’s evaluation of controls that occurred during the nine months ended September 30, 2022, that has materially affected, or is reasonably likely to materially affect, the Bancorp's internal control over financial reporting.   43     PART II ‑ Other Information   Item 1. Legal Proceedings The Bancorp and its subsidiaries, from time to time, are involved in legal proceedings in the ordinary course of business against its debtors and are defendants in legal actions arising from normal business activities. Management, after consultation with legal counsel believes that the ultimate liabilities, if any, resulting from these actions will not have a material adverse effect on the financial position of the Bank or on the consolidated financial position of the Bancorp.   Item 1A. Risk Factors Not Applicable.   Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   On April 24, 2014 the Bancorp’s Board of Directors authorized a stock repurchase program to repurchase up to 50,000 shares of the Bancorp’s outstanding common stock, from time to time and subject to market conditions, on the open market or in privately negotiated transactions. The stock repurchase program does not expire and is only limited by the number of shares that can be purchased. The stock repurchase program will be reviewed annually by the Board of Directors. No shares were repurchased during the nine months ended September 30, 2022 under the stock repurchase program.   Period   Total Number of Shares Purchased     Average Price Paid per Share     Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs     Maximum Number of Shares That May Yet Be Purchased Under the Program(1)   January 1, 2022 – January 31, 2022     -       N/A       -       48,828   February 1, 2022 – February 28, 2022     -       N/A       -       48,828   March 1, 2022 – March 31, 2022     -       N/A       -       48,828   April 1, 2022 – April 30, 2022     -       N/A       -       48,828   May 1, 2022 – May 31, 2022     -       N/A       -       48,828   June 1, 2022 – June 30, 2022     -       N/A       -       48,828   July 1, 2022 – July 31, 2022     -       N/A       -       48,828   August 1, 2022 – August 31, 2022     -       N/A       -       48,828   September 1, 2022 – September 30, 2022     -       N/A       -       48,828     (1) The stock repurchase program was announced on April 24, 2014, whereby the Bancorp is authorized to repurchase up to 50,000 shares of the Bancorp’s common stock outstanding. There is no express expiration date for this program.   Item 3. Defaults Upon Senior Securities There are no matters reportable under this item.   Item 4. Mine Safety Disclosures Not Applicable   Item 5. Other Information None   Item 6. Exhibits Exhibit   Number Description     31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. 32.1 Section 1350 Certifications. 101 The following materials from the Bancorp’s Form 10-Q for the quarterly period ended September 30, 2022, formatted in an Inline XBRL Interactive Data File: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Changes in Stockholders’ Equity; (iv) Consolidated Statement of Comprehensive Income; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements, with detailed tagging of notes and financial statement schedules. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).   44     SIGNATURES   Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.         FINWARD BANCORP                     Date: November 14, 2022 /s/ Benjamin J. Bochnowski     Benjamin J. Bochnowski     President and Chief Executive Officer                     Date: November 14, 2022 /s/ Peymon S. Torabi     Peymon S. Torabi     Executive Vice President, Chief Financial     Officer and Treasurer       45