What changed in this filing

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Item 1. Business

2023-03-30 compared with 2022-03-30 · 69 added, 98 removed, 823 unchanged (17% of the section changed)

Finward Bancorp, an Indiana corporation (the “Bancorp”

or “FNWD”), was incorporated on January 31, 1994, and is the holding company for Peoples Bank, an Indiana-chartered commercial bank (the “Bank”).

or “Finward”), was incorporated on January 31, 1994, and is the holding company for Peoples Bank, an Indiana-chartered commercial bank (the “Bank”).

The Bank is a wholly owned subsidiary of the Bancorp.

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The Bank is also a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis, which is one of the eleven regional banks comprising the system of Federal Home Loan Banks.

On January 31, 2022, the Bancorp 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, between the Bancorp and RYFL (the “Merger Agreement”).

Pursuant to the terms of the RYFL Merger Agreement, RYFL merged with and into the Bancorp, with the Bancorp as the surviving corporation (the “RYFL Merger”).

Simultaneously with the RYFL Merger, Royal Savings Bank (“Royal Bank”), an Illinois state chartered savings bank and wholly-owned subsidiary of RYFL, merged with and into Peoples Bank, with Peoples Bank as the surviving bank.

In connection with the RYFL Merger, each RYFL stockholder holding 101 or more shares of RYFL common stock had the right to receive, at the stockholder’s election, 0.4609 shares of Finward common stock or $20.14 in cash, or a combination of both, for each share of RYFL’s common stock, subject to allocation provisions and adjustment.

Stockholders holding fewer than 101 shares of RYFL common stock received $20.14 in cash and no stock consideration for each outstanding share of RYFL common stock.

Any fractional shares of Finward common stock that an RYFL stockholder would have otherwise received in the merger were cashed out in the amount of such fraction multiplied by $47.65.

The Bancorp issued 795,423 shares of Bancorp common stock to the former RYFL stockholders, and paid cash consideration of approximately $18.7 million.

Based upon the closing price of FNWD’s common stock on January 28, 2022, the transaction had an implied valuation of approximately $56.7 million.

As a result of the acquisition, the Bank was able to further expand its retail banking network in the South Suburban Chicagoland market, bringing the total number of its full-service banking centers to 30.

The Bancorp maintains its corporate office at 9204 Columbia Avenue, Munster, Indiana, from which it oversees the operation of its thirty branch locations.

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 closing price of Finward’s common stock on January 28, 2022, 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.

The Bancorp maintains its corporate office at 9204 Columbia Avenue, Munster, Indiana, from which it oversees the operation of its 26 branch locations.

For further information, see “Properties.”

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The Bancorp’s Internet address is www.ibankpeoples.com.

Forward-Looking Statements

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Risks, uncertainties, and factors that could cause the Bancorp’s actual results to vary materially from those expressed or implied by any forward-looking statement include but are not limited to:

the significant risks and uncertainties for our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios and other regulatory requirements caused by the COVID-19 pandemic, which will depend on several factors, including the scope and duration of the pandemic, its influence on financial markets, the effectiveness of our remote work arrangements and staffing levels in branches and other operational facilities, and actions taken by governmental authorities and other third parties in response to the pandemic;

changes in interest rates, market liquidity, and capital markets, as well as the magnitude of such changes, which may reduce net interest margins;

continuing increases in inflation;

current financial conditions within the banking industry, including the effects of recent failures of other financial institutions, liquidity levels, and responses by the Federal Reserve, Department of the Treasury, and the Federal Deposit Insurance Corporation to address these issues;

the use of proceeds of future offerings of securities;

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our ability to sustain revenue and earnings growth;

changes in interest rates, market liquidity, and capital markets, as well as the magnitude of such changes, which may reduce net interest margins;

customer acceptance of the Bancorp’s products and services;

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customer disintermediation;

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the introduction, withdrawal, success, and timing of asset/liability management strategies or of mergers and acquisitions and other business initiatives and strategies;

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economic conditions;

loss of key personnel;

continuing risks and uncertainties relating to the COVID-19 pandemic and government responses thereto;

the impact, extent, and timing of technological changes, capital management activities, and other actions of the Federal Reserve Board and legislative and regulatory actions and reforms;

other factors and risk described in our other filings we make with the SEC under the Exchange Act.

other factors and risks described under the heading “Risk Factors” in Part I, Item 1A of this Form 10-K, as may be updated from time to time in our other filings with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

In addition to the above factors, we also caution that the actual amounts and timing of any future common stock dividends or share repurchases will be subject to various factors, including our capital position, financial performance, capital impacts of strategic initiatives, market conditions, and regulatory and accounting considerations, as well as any other factors that our Board of Directors deems relevant in making such a determination.

Therefore, there can be no assurance that we will repurchase shares or pay any dividends to holders of our common stock, or as to the amount of any such repurchases or dividends.

Further, statements about the effects of the COVID-19 pandemic on our business, operations, financial performance, and prospects may constitute forward-looking statements and are subject to the risk that the actual impacts may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable, and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our customers, third parties, and us.

Because such forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such statements.

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Other risks and uncertainties that could affect the Bancorp’s future performance are set forth below in Item 1A, “Risk Factors.”

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Lending Activities

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provided, however, that certain specified types of loans are exempted from these limitations or subject to different limitations.

The maximum amount that the Bank could have loaned to one borrower and the borrower’s related entities at December 31, 2021, under the 15% of capital and surplus limitation was approximately $22,029,000.

The maximum amount that the Bank could have loaned to one borrower and the borrower’s related entities at December 31, 2022, under the 15% of capital and surplus limitation, was approximately $26.1 million.

At December 31, 2022, the Bank had no loans that exceeded the regulatory limitations.

At December 31, 2022, there were no concentrations of loans in any type of industry that exceeded 10% of total loans that were not otherwise disclosed as a loan category.

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Loan Portfolio.

1 unchanged sentence

The amounts are stated in thousands (000’s).

(Dollars in thousands)

December 31, 2022

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Loans receivable, net of deferred fees and costs..

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Loan Maturity Schedule.

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(1) the extension of credit has been approved in advance by a majority of the entire Board of Directors of the Bank, and (2) the interested party has abstained from participating directly or indirectly in the voting.

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All loans secured by personal property must be covered by insurance in an amount sufficient to cover the full amount of the loan.

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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.

Generally if the properties 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.

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Commercial Real Estate Loans.

Commercial Real Estate and Multifamily Loans.

Commercial real estate loans are typically made to a maximum of 80% of the appraised value.

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The maturity date on these loans can range up to 25 years.

In addition, these loans have a reserve account held at the Bancorp, further detail regarding this reserve can be found in Note 4 –

In addition, these loans have a reserve account held at the Bancorp;

further detail regarding this reserve can be found in Note 4 –

Loans Receivable.

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and unsecured loans to customers whose character and capacity to repay are firmly established.

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Government Loans.

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Once it has been determined that collection efforts are unsuccessful, the Bancorp will initiate legal proceedings.

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The following table sets forth information regarding the Bancorp’s non-performing assets as of December 31, for each period indicated.

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Accruing loans which are contractually past due 90 days or more:

Construction and land development

Manufactured homes

Commercial business

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Amounts reported in the general loan loss reserve are included in the calculation of the Bancorp’s total risk-based capital requirement (to the extent that the amount does not exceed 1.25% of total risk-based assets), but are not included in Tier 1 leverage ratio calculations and Tier 1 risk-based capital requirements.

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Substandard loans include non-performing loans and potential problem loans, where information about possible credit issues or other conditions causes management to question the ability of such borrowers to comply with loan covenants or repayment terms.

2 unchanged sentences

(Dollars in thousands)

December 31, 2022

December 31, 2021

Residential real estate

7 unchanged sentences

(Dollars in thousands)

December 31, 2022

December 31, 2021

Residential real estate

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Subsequent decreases to the expected cash flows will generally result in a provision for loan losses.

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

(Dollars in thousands)

December 31, 2022

December 31, 2021

Residential real estate

10 unchanged sentences

December 31, 2021

Number of Loans

Recorded Investment

Number of Loans

Recorded Investment

Residential real estate

3 unchanged sentences

Manufactured homes

The decrease in nonperforming, impaired, and substandard loans as of December 31, 2021, is related to the strategic sale of a single large commercial real estate loan, that operates a hotel, totaling $5.1 million.

Nonperforming loans at December 31, 2021, also decreased due to the removal of various residential real estate loans from nonaccrual status totaling $2.9 million.

Substandard loans at December 31, 2021, also decreased due to the removal of various residential real estate loans totaling $2.7 million.

Impaired loans at December 31, 2021, also decreased due to the removal of eight commercial business or commercial real estate customers with loans totaling $623 thousand due to loan pay off or refinance.

The decrease in special mention loans as of December 31, 2021, is due to the removal of six commercial business, multifamily or commercial real estate customers with loans totaling $2.5 million because of loan risk rating change or loan pay off and the removal of various residential real estate and home equity loans totaling $945 thousand which was offset by the addition of seven commercial real estate or commercial business customers with loans totaling $2.9 million.

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The table that follows sets forth the allowance for loan losses and related ratios for the periods indicated.

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Nonaccruing loans to total loans

The improvement in the ALL to nonperforming loan and nonaccruing loans to total loans ratios is the result of the strategic sale of one large commercial real estate loan, which operates a hotel, totaling an impact of $5.1 million.

The following table shows the allocation of the allowance for loan losses at December 31, for the dates indicated.

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Commercial business and other

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Investment Activities

The primary objective of the 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.

Securities can be classified as either held-to-maturity (HTM) or available-for-sale (AFS) at the time of purchase.

Securities can be classified as trading, held-to-maturity (HTM), or available-for-sale (AFS) at the time of purchase.

No securities are classified as trading or as held-to-maturity.

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It has been the policy of the Bancorp to invest its excess cash in U.S.

government agency securities, mortgage-backed securities, collateralized mortgage obligations, and municipal securities.

government agency securities, mortgage-backed securities, collateralized mortgage obligations, municipal securities, and treasury securities.

In addition, short-term funds are generally invested as interest bearing balances in financial institutions and federal funds.

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The amounts are stated in thousands (000’s).

Money market fund

treasury securities:

Available-for-sale

government sponsored agencies:

Available-for-sale

treasury securities:

Available-for-sale

Collateralized Mortgage Obligations:

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The contractual maturities and weighted average yields for the U.S.

government securities, agency securities, municipal securities, and trust preferred securities at December 31, 2021, 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.

government securities, agency securities, municipal securities, treasury security, and trust preferred securities at December 31, 2022, are summarized in the table below.

Securities not due at a single maturity date, such as mortgage-backed securities and collateralized mortgage obligations, are shown separately.

The carrying values are stated in thousands (000’s).

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After 10 Years

Variable Maturities

government sponsored entities:

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Trust Preferred Securities:

Collateralized mortgage obligations and residential mortgage- backed securities:

The Bancorp currently holds two trust preferred securities and the securities’

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At December 31, 2022, the cost basis of the two trust preferred securities on non-accrual status totaled $2.2 million.

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Unrealized losses on securities have not been recognized into income because the securities are of high credit quality, have undisrupted cash flows, or have been independently evaluated for other-than-temporary impairment and appropriate write downs taken.

Management has the intent and ability to hold the securities for the foreseeable future, and the decline in fair value is largely due to changes in interest rates and volatility in the securities markets.

The fair values are expected to recover as the securities approach maturity.

Sources of Funds

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The Bancorp uses repurchase agreements, as well as a line-of-credit and advances from the FHLB for borrowings.

At December 31, 2021, the Bancorp had $14.6 million in repurchase agreements.

At December 31, 2022, the Bancorp had $120.0 million in FHLB fixed rate advances and $15.5 million in repurchase agreements.

The Bancorp had no other borrowed funds as of December 31, 2022.

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The deregulation of federal controls on insured deposits has allowed the Bancorp to be more competitive in obtaining funds and to be flexible in meeting the threat of net deposit outflows.

The Bancorp does not obtain funds through brokers.

The Bancorp does not obtain funds through brokers, however, the Bancorp did acquire brokered deposits through the acquisition of Royal Financial.

The following table presents the average daily amount of deposits and average rates paid on such deposits for the years indicated.

The amounts are stated in thousands (000’s).

December 31, 2022

December 31, 2021

Noninterest bearing demand deposits

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Fixed rate advances are payable at maturity, with a prepayment penalty.

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The following tables set forth certain information regarding borrowing and repurchase agreements by the Bancorp at the end of and during the periods indicated.

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Fixed rate short-term advances from the FHLB

Federal funds purchased

Fixed rate long-term advances from the FHLB

Total borrowings

________________________

(1) The weighted average rate for each period is calculated by weighting the principal balances outstanding for the various interest rates.

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The Bancorp's Wealth Management Group provides estate and retirement planning, guardianships, land trusts, profit sharing and 401(k) retirement plans, IRA and Keogh accounts, investment agency accounts, and serves as personal representative of estates and acts as trustee for revocable and irrevocable trusts.

At December 31, 2021, the market value of the Wealth Management Group’s assets totaled $392.7 million, an increase of $41.7 million, compared to December 31, 2020.

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At December 31, 2022, the market value of the Wealth Management Group’s assets under management totaled $361.4 million, a decrease of $31.3 million, compared to December 31, 2021.

Property, other than cash deposits, held in a fiduciary or agency capacity is not included in the consolidated balance sheets since such property is not owned by the Bancorp.

Analysis of Profitability and Key Operating Ratios

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equity to total assets

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The average balance sheet amounts, the related interest income or expense, and average rates earned or paid are presented in the following table.

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Ratio of interest-earning assets to interest-bearing liabilities

* Non-accruing loans have been included in the average balances.

*  Non-accruing loans have been included in the average balances.

** Net interest income divided by average interest-earning assets.

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The table below sets forth certain information regarding changes in interest income and interest expense of the Bancorp for the periods indicated.  For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to:

(1) changes in volume (change in volume multiplied by old rate) and (2) changes in rate 

(change in rate multiplied by old volume).  Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.  The amounts are stated in thousands (000's).

 The table below sets forth certain information regarding changes in interest income and interest expense of the Bancorpfor the periods indicated.  For each category of interest-earning asset and interest-bearing liability, information is providedon changes attributable to:

(1) changes in volume (change in volume multiplied by old rate) and (2) changes in rate (change in rate multiplied by old volume).  Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.  The amounts are stated in thousands (000's).

Year Ended December 31,

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Net change in net interest income/(expense)

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Subsidiary Activities

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NWIN, LLC was incorporated under the laws of the State of Nevada as an investment subsidiary.

The investment subsidiary currently holds Bank security investments, which are managed by a professional portfolio manager.

The investment subsidiary currently holds security investments, which are managed by a professional portfolio manager.

In addition, the investment subsidiary is the parent of a real estate investment trust, NWIN Funding, Inc., that invests in real estate loans originated by the Bank.

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provides the Bancorp with a vehicle that may be used to raise capital utilizing portfolio mortgages as collateral, without diluting stock ownership.

In addition, NWIN Funding, Inc.

will receive favorable state tax treatment for income generated by its operations.

Columbia Development Company, LLC is a wholly owned subsidiary of the Bank and was incorporated under the laws of the State of Indiana.

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All of the Bancorp’s banking centers and offices are located in its primary market area.

Approximately ninety-three percent of the Bancorp’s business activities are within this area.

Approximately ninety-two percent of the Bancorp’s business activities are within this area.

The Bancorp faces strong competition in its primary market area for the attraction and retention of deposits and in the origination of loans.

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In addition, non-bank financial services companies with which the Bancorp and Bank compete, while subject to regulation by the CFPB, are generally not subject to the same type of extensive regulation by the federal and state banking agencies applicable to the Bancorp and the Bank.

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Employees and Human Capital Resources

5 unchanged sentences

Management believes its employee relations are good.

The Bancorp has seven executive officers and has no other employees.

The Bancorp has six executive officers and has no other employees.

The Bancorp’s officers also are full-time employees of the Bank, and are compensated by the Bank.

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Additionally, under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a bank holding company is required to provide limited guarantee of the compliance by any insured depository institution subsidiary that may become "undercapitalized" (as defined in the statute) with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal banking agency.

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State Bank Regulation.

35 unchanged sentences

government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one to four-family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.

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In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions by the institution and certain discretionary bonus payments to management if an institution does not hold a “capital conservation buffer”

consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.

The capital conservation buffer requirement was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increased each year until fully implemented at 2.5% on January 1, 2019.

The FRB and FDIC have authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular risks or circumstances.

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Significantly and critically undercapitalized institutions are subject to additional mandatory and discretionary measures.

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Section 201 of the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (the “Economic Growth Act”) directed federal banking agencies to draft regulations establishing a new optional Community Bank Leverage Ratio (“CBLR”).

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Another rule was issued to transition back to the 9% CBLR by increasing the ratio to 8.5% for calendar year 2022 and 9% thereafter.

At this time, the Bank has not elected to opt in to the CBLR framework, but the framework is currently available to the Bank if it elects to opt in at some point in the future.

The Bank did not elect to opt in to the CBLR framework.

The following table shows that, at December 31, 2022, and December 31, 2021, the Bank’s capital exceeded all applicable regulatory capital requirements.

6 unchanged sentences

Corrective Action Regulations

At December 31, 2021

December 31, 2022

Common equity tier 1 capital to risk-weighted assets

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The impact of Basel IV on the Bancorp will depend on the manner in which it is implemented by the federal banking regulators.

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Banking regulators may change these capital requirements from time to time, depending on the economic outlook generally and the outlook for the banking industry.

12 unchanged sentences

The new CECL standard will become effective for the Bancorp for fiscal year ending December 31, 2023 and for interim periods within the fiscal year.

The Bancorp’s management is currently evaluating the impact the CECL model will have on the Bancorp’s accounting.

Additional detail around managements current efforts can be found in Note 1 to the financial statements, under ASU No.

The Bancorp’s management expects the one-time cumulative effect adjustment to the allowance for credit losses (“ACL”) will be between $3.8 million and $6.8 million upon adoption as of January 1, 2023.

Additional detail can be found in Note 1 to the financial statements, under ASU No.

2016-13, Financial Instruments - Credit Losses:

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There is no unlimited insurance coverage for noninterest bearing transaction accounts.

Rather, deposits held in noninterest bearing transaction accounts are aggregated with interest bearing deposits the owner may hold in the same ownership category, and the combined insured up to at least $250,000.

The Bank is subject to deposit insurance assessments by the FDIC pursuant to its regulations establishing a risk-related deposit insurance assessment system, based on the institution’s capital levels and risk profile.

6 unchanged sentences

No institution may pay a dividend if it is in default of the federal deposit insurance assessment.

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Under the Dodd-Frank Act, the FDIC is authorized to set the reserve ratio for the Deposit Insurance Fund at no less than 1.35% of estimated insured deposits, which is increased from the previous ratio of 1.15%.

1 unchanged sentence

The FDIC has set the designated reserve ratio for the deposit insurance fund at 2% of estimated insured deposits, which the FDIC has established as a long-term goal.

On September 30, 2018, the DIF reserve ratio reached 1.36 percent, exceeding the statutorily required minimum reserve ratio of 1.35 percent.

As of September 30, 2021, the FDIC had announced that the ratio had declined to 1.30% due largely to the effects of the COVID-19 pandemic.

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At December 31, 2022, the Bank was in compliance with this requirement.

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At December 31, 2022, the Bancorp owned $6.5 million of stock of the Federal Home Loan Bank of Indianapolis (“FHLBI”).

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However, similar standards and/or regulations may be adopted or implemented by federal and state banking agencies in the future which may be applicable to community banking organizations such as the Bancorp.

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Recent cyberattacks against banks and other financial institutions that resulted in unauthorized access to confidential customer information have prompted the federal banking regulators to issue extensive guidance on cybersecurity.

25 unchanged sentences

under the Truth In Lending Act, and imposes new requirements on high-cost mortgages and new disclosure, reporting and notice requirements for residential mortgage loans, as well as new requirements with respect to escrows and appraisal practices.

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Interchange Fees for Debit Cards.

2 unchanged sentences

Federal Securities Law.

The shares of Common Stock of the Bancorp have been registered with the SEC under the Securities Exchange Act (the “1934 Act”).

The Bancorp is subject to the information, proxy solicitation, insider trading restrictions and other requirements of the 1934 Act and the rules of the SEC there under.

If the Bancorp has fewer than 1,200 record shareholders, it may deregister its shares under the 1934 Act and cease to be subject to the foregoing requirements.

Shares of Common Stock held by persons who are affiliates of the Bancorp may not be resold without registration unless sold in accordance with the resale restrictions of Rule 144 under the Securities Act of 1933.

The shares of Common Stock of the Bancorp have been registered with the SEC under the Exchange Act.

The Bancorp is subject to the periodic reporting, proxy solicitation, insider trading restrictions and other requirements of the Exchange Act and the rules of the SEC promulgated there under.

If the Bancorp has fewer than 1,200 record shareholders, it may deregister its shares under the Exchange Act and cease to be subject to the foregoing requirements.

Shares of the Bancorp's Common Stock held by persons who are affiliates of the Bancorp may not be resold without registration unless sold in accordance with the resale restrictions of Rule 144 under the Securities Act of 1933.

If the Bancorp meets the current public information requirements under Rule 144, each affiliate of the Bancorp who complies with the other conditions of Rule 144 (including those that require the affiliate’s sale to be aggregated with those of certain other persons) would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of (i) 1% of the outstanding shares of the Bancorp or (ii) the average weekly volume of trading in such shares during the preceding four calendar weeks.

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The Bancorp cannot accurately predict whether any of this potential legislation will ultimately be enacted, and, if enacted, the ultimate effect that it, or implementing regulations, would have upon the financial condition or results of operations of the Bancorp or the Bank.

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Federal Taxation

2 unchanged sentences

State Taxation

The Bank is subject to Indiana’s Financial Institutions Tax (“FIT”), which is imposed at a flat rate of 6.0% on “adjusted gross income”.

This rate is scheduled to decrease over the succeeding years as follows:

to 5.5% for 2021, to 5.0% for 2022, and to 4.9% for 2023 and thereafter.

The Bank is subject to Indiana’s Financial Institutions Tax (“FIT”), which is imposed at a flat rate on “adjusted gross income,”

subject to scheduled decreases as described herein.

For 2022, this rate was 5.0%, and for 2023 and thereafter the rate will be 4.9%.

Additionally, the Bank is subject to Illinois state tax which is imposed at a flat rate of 9.5%.

“Adjusted gross income,”

for purposes of FIT, begins with taxable income as defined by Section 63 of the Internal Revenue Code of 1986, as amended (the “Code”) and, thus, incorporates federal tax law to the extent that it affects the computation of taxable income.

for purposes of the FIT begins with taxable income as defined by Section 63 of the Internal Revenue Code of 1986, as amended (the “Code”) and, thus, incorporates federal tax law to the extent that it affects the computation of taxable income.

Federal taxable income is then adjusted by several Indiana and Illinois modifications.

1 unchanged sentence

Accounting for Income Taxes

At December 31, 2021, the Bancorp has consolidated total deferred tax assets of $7.2 million and consolidated total deferred tax liabilities of $4.3 million, resulting in a consolidated net deferred tax asset of $2.8 million, net of a $12 thousand valuation allowance.

The valuation allowance of $12 thousand was provided for the state tax credit, as management does not believe these amounts will be fully utilized before statutory expiration.

At December 31, 2022, the Bancorp has consolidated total deferred tax assets of $32.7 million and consolidated total deferred tax liabilities of $3.5 million, resulting in a consolidated net deferred tax asset of $29.2 million.

The Bancorp does not have a valuation allowance associated with the deferred tax asset as of December 31, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business