What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-31 compared with 2024-03-28 · 499 added, 629 removed, 1340 unchanged (46% of the section changed)

1 unchanged sentence

Report of Independent Registered Public Accounting Firm

To the Stockholders, Board of Directors, and Audit Committe

To the Stockholders, Board of Directors, and Audit Committee

Finward Bancorp

1 unchanged sentence

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Finward Bancorp (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Finward Bancorp (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for credit losses effective January 1, 2023, due to the adoption of Accounting Standards Topic 326:

Financial Instruments – Credit Losses.

The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter.

Basis for Opinion

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Page 67 of 122

Critical Audit Matter

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(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses

Financial Instruments – Credit Losses.

The Company’s loan portfolio totaled $1.5 billion as of December 31, 2023, and the associated allowance for credit losses (“ACL”) on loans was $18.8 million.

As discussed in Notes 1 and 4 to the consolidated financial statements, the Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist using relevant available information, from internal and external sources, relating to past events, current conditions, reasonable and supportable forecasts.

Historical peer and Company credit loss experience provides the basis for the estimation of expected credit losses.

As discussed in Note 1 to the consolidated financial statements, the Company’s loan portfolio totaled $1.5 billion as of December 31, 2024, and the associated allowance for credit losses (“ACL”) on loans was $16.9 million.

As discussed in Notes 1 and 3 to the consolidated financial statements, the Company measures expected credit losses for loans on a collective pooled basis when similar risk characteristics exist using relevant available information, from internal and external sources, relating to past events, current conditions, reasonable and supportable forecasts.

Historical peer provides the basis for the estimation of expected credit losses.

Management also considers further adjustments to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that exist for the period over which historical information is evaluated as well as other changes in qualitative factors not inherently considered in the quantitative analyses.

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The primary procedures we performed related to this critical audit matter included:

Obtained an understanding of the Company’s process for establishing the ACL, including the selection and application of qualitative factors and related adjustments to establish the qualitative component of the ACL.

Evaluated the relevancy and reliability of the underlying data used to derive the qualitative factors, including comparison to internal, external and/or peer data.

Assessed the appropriateness and reasonableness of the qualitative factor adjustments, including evaluating management’s judgments as to which factors and relevant assessed risks impacted the qualitative adjustments for each loan pool.

Tested the accuracy of the mathematical application of the qualitative factors to adjust the historical loss experience.

/s/ FORVIS, LLP

Obtained an understanding and evaluated the design of controls over the Company’s process for establishing the qualitative adjustments used in the ACL, including the key assumptions used to develop the qualitative adjustments applied to the ACL

Evaluated the relevancy and reliability of key data and assumptions used to derive the qualitative factors, including considering the key data’s completeness and accuracy within the model

Evaluated the mathematical accuracy of the application of qualitative factors within the model.

Evaluated the reasonableness of the overall ACL amount, including the qualitative component, and whether the recorded ACL appropriately reflects expected credit losses on the loan portfolio.

We reviewed historical loss statistics and peer-bank information and considered whether they corroborate or contradict the Company's measurement of the ACL.

/s/ Forvis Mazars, LLP

We have served as the Company’s auditor since 2021.

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March 31, 2025

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Consolidated Balance Sheets

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70,584 86,008

Certificates of deposit in other financial institutions

Securities available-for-sale

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See accompanying notes to consolidated financial statements.

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Consolidated Statements of Income

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Interest expense:

35,162 25,438

Repurchase agreements

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Total interest expense

40,731 31,228

Net interest income

48,447 54,555

Provision for credit losses

Net interest income after provision for credit losses

Provision (benefit) for credit losses

( 503 ) 2,025

Net interest income after provision (benefit) for credit losses

48,950 52,530

Noninterest income:

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Wealth management operations

Gain on tax credit investment

Gain on sale of loans held-for-sale, net

Gain (loss) on sale of securities, net

Loss on sale of securities, net

( 531 ) ( 48 )

Increase in cash value of bank owned life insurance

Gain on real estate

Gain (Loss) on sale of foreclosed real estate

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Data processing

Impairment charge on assets held for sale

Federal deposit insurance premiums

Professional services

Net (gain) recognized on sale of premises and equipment

12,115 13,694

Professional and outside services

Total noninterest expense

58,142 55,231

Income before income tax expenses

Income tax expenses (benefits)

Income before income tax expense

Income tax expense (benefit)

1,325 ( 335 )

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See accompanying notes to consolidated financial statements

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Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

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( 9,042 ) 16,630

reclassification adjustment for losses (gains) included in net income

reclassification adjustment for losses included in net income

Net securities gain (loss) during the period

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2,040 ( 3,991 )

Other comprehensive income (loss), net of tax

Other comprehensive income, net of tax

( 6,471 ) 12,687

Comprehensive income (loss), net of tax

Comprehensive income net of tax

$ 5,659 $ 21,067

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(Dollars in thousands, except per share data)

(Loss)/Income

Balance at January 1, 2023

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- - - 8,380 8,380

Other comprehensive loss, net of tax

Other comprehensive income, net of tax

- - 12,687 - 12,687

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- 719 - - 719

Issuance of 795,423 shares at $ 47.75 per share, for acquisition of Royal Financial, Inc.

- 37,981 - - 37,981

Cash dividends, $ 1.05 per share

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$ - $ 69,555 $ ( 51,613 ) $ 129,403 $ 147,345

Cumulative effect of change in accounting principle (ASU 2016-13)

- - - 12,130 12,130

- - - 8,380 8,380

Other comprehensive income, net of tax

Other comprehensive loss, net of tax

- - ( 6,471 ) - ( 6,471 )

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See accompanying notes to consolidated financial statements

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Consolidated Statements of Cash Flows

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Depreciation and amortization, net of accretion

Deferred tax expense (benefit)

( 673 ) 1,187

Deferred tax benefit

Stock based compensation expense

Loss (gain) on sale of securities, net

Cash payments for lease liabilities

( 1,360 ) ( 69 )

Loss on sale of securities, net

Gain on tax credit investment

Gain on sale of loans held-for-sale, net

( 1,091 ) ( 1,084 )

Loss (gain) on sale of premises and equipment, net

Impairment charge on assets held for sale

Loss (gain) on sale of foreclosed real estate

Gain on cash value of bank owned life insurance

Gain on sale of real estate

( 11,661 ) ( 276 )

Loss on derivatives

Provision for credit losses

Net change in:

Interest receivable

Gain on sale of foreclosed real estate

Increase of cash value of bank owned life insurance

( 812 ) ( 766 )

Gain on derivatives

Provision (benefit) for credit losses

( 503 ) 2,025

Accrued expenses and other liabilities

Interest receivable

Interest payable

( 2,445 ) 2,729

Accrued expenses and other liabilities

Total adjustments

Net cash provided by operating activities

( 2,325 ) 15,831

Net cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from maturities of certificates of deposit in other financial institutions

Purchase of certificates of deposit in other financial institutions

Proceeds from maturities and pay downs of securities available-for-sale

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Purchase of securities available-for-sale

( 123 ) ( 30,421 )

Proceeds from bank owned life insurance

Net change in loans receivable

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Proceeds from loans held for sale previously classified as loans receivable

Purchase of Federal Home Loan Bank Stock

Purchase of loans receivable

Purchase of premises and equipment, net

Purchase of premises and equipment

( 3,074 ) ( 1,148 )

1 unchanged sentence

Proceeds from sale of foreclosed real estate

Cash and cash equivalents from acquisition activity, net

Net cash provided by (used in) investing activities

Net cash provided by investing activities

42,789 15,021

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( 15,424 ) 54,726

Cash and cash equivalents at beginning of year

Cash and cash equivalents at beginning of period

86,008 31,282

Cash and cash equivalents at end of year

Cash and cash equivalents at end of period

$ 70,584 $ 86,008

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the year for:

$ 28,528 $ 4,572

Acquisition activity:

Fair value of assets acquired, including cash and cash equivalents

Cash paid during the period for:

$ 43,178 $ 28,528

Value of goodwill and other intangible assets

Fair value of liabilities assumed

Cash paid for acquisition

Issuance of common stock for acquisition

Noncash activities:

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Dividends declared not paid

Transfer of premises and equipment to other real estate

Initial recognition of ASU 2016-13

Initial recoginition of ASU 2016-13

Right-of-use asset obtained in exchange for lease liability

See accompanying notes to consolidated financial statements

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Notes to Consolidated Financial Statements

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NOTE 1 - Summary of Significant Accounting Policies

Principles of Consolidation – The consolidated financial statements include Finward Bancorp (the “Bancorp” or “Finward”) and Peoples Bank (the “Bank”), and the Bank’s wholly owned subsidiaries, Peoples Service Corporation, NWIN, LLC, NWIN Funding, Incorporated, and Columbia Development Company, LLC.

The Bancorp’s business activities include being a holding company for the Bank.

The Bancorp’s earnings are dependent upon the earnings of the Bank.

Principles of Consolidation – The consolidated financial statements include Finward Bancorp (the “Company”) and Peoples Bank (the “Bank”), and the Bank’s wholly owned subsidiaries, Peoples Service Corporation, NWIN, LLC, NWIN Funding, Incorporated, and Columbia Development Company, LLC.

The Company’s business activities include being a holding company for the Bank.

The Company’s earnings are dependent upon the earnings of the Bank.

Peoples Service Corporation provides insurance and annuity investments to the Bank’s wealth management customers.

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The formation of NWIN Funding, Inc.

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

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

In addition, NWIN Funding, Inc.

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Columbia Development Company is a limited liability company that serves to hold certain real estate properties that are acquired through foreclosure.

On May 18, 2016, NWIN Risk Management, Inc., a captive insurance company incorporated in Nevada, was formed as a wholly owned subsidiary of the Holding Company.

NWIN Risk Management, Inc.

was dissolved as a corporate entity on August 9, 2023.

All assets of the subsidiary were distributed to the Holding Company upon decommissioning.

All intercompany transactions and balances are eliminated in consolidation.

All significant inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates – Preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period, as well as the disclosures provided.

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Estimates associated with the allowance for credit losses are particularly susceptible to material change in the near term.

Concentrations of Credit Risk – The Bancorp grants residential, commercial real estate, commercial business and installment loans to customers primarily in Lake County, in northwest Indiana, and Cook County, in northeast Illinois.

The Bancorp is also an active lender in Porter County, and to a lesser extent, LaPorte, Newton and Jasper counties in Indiana;

Concentrations of Credit Risk – The Company grants residential, commercial real estate, commercial business and installment loans to customers primarily in Lake County, in northwest Indiana, and Cook County, in northeast Illinois.

The Company is also an active lender in Porter County, and to a lesser extent, LaPorte, Newton and Jasper counties in Indiana;

and DuPage, Lake, and Will counties in Illinois.

Substantially all loans are secured by specific items of collateral including residences, commercial real estate, land development, business assets and consumer assets.

Cash Flow Reporting – For purposes of the statements of cash flows, the Bancorp considers cash on hand, noninterest bearing deposits in other financial institutions, all interest bearing deposits in other financial institutions with original maturities of 90 days or less, and federal funds sold to be cash and cash equivalents.

The Bancorp reports net cash flows for customer loan and deposit transactions and short-term borrowings with maturities of 90 days or less.

Certificates of deposits in other financial institutions – Certificates of deposits in other financial institutions generally mature within 5 years and are carried at cost.

Securities – The Bancorp classifies securities into held-to-maturity, available-for-sale, or trading categories.

Held-to-maturity securities are those which management has the positive intent and the Bancorp has the ability to hold to maturity, and are reported at amortized cost.

Available-for-sale securities are those the Bancorp may decide to sell if needed for liquidity, asset-liability management or other reasons.

Cash Flow Reporting – For purposes of the statements of cash flows, the Company considers cash on hand, noninterest bearing deposits in other financial institutions, all interest bearing deposits in other financial institutions with original maturities of 90 days or less, and federal funds sold to be cash and cash equivalents.

The Company reports net cash flows for customer loan and deposit transactions and short-term borrowings with maturities of 90 days or less.

Securities – The Company classifies securities into held-to-maturity, available-for-sale, or trading categories.

Held- to-maturity securities are those which management has the positive intent and the Company has the ability to hold to maturity, and are reported at amortized cost.

Available-for-sale securities are those the Company may decide to sell if needed for liquidity, asset-liability management or other reasons.

Available-for-sale securities are reported at fair value, with unrealized gains and losses reported in other comprehensive (loss) income, net of tax.

At December 31, 2023, and 2022, all of the Bancorp’s securities were classified as available-for-sale.

The Bancorp does not have a held to maturity or trading portfolio.

At December 31, 2024, and 2023, all of the Company’s securities were classified as available-for-sale.

The Company does not have a held to maturity or trading portfolio.

Realized gains and losses resulting from the sale of securities recorded on the trade date are computed by the specific identification method.

Interest and dividend income, adjusted by amortization of premiums or discounts on a level yield method, are included in earnings.

Prior to the adoption of ASU 2016 - 13, declines in the fair value of securities below their cost deemed to be other‑than‑temporary impairment (“OTTI”) were reflected in operations as realized losses.

Upon adoption of ASU 2016 - 13, for securities in a loss position, the Company evaluates whether the decline in fair value below amortized cost resulted from a credit loss or other factors, and if the loss is attributable to credit loss, the loss is recognized through an allowance for credit losses on securities.

In assessing credit loss, the Company considers, among other things:

the extent to which fair value is less than the amortized cost basis, adverse conditions specific to the security or industry, historical payment patterns, the likelihood of future payments and changes to the rating of a security by a rating agency.

The full amount of the loss will be charged to earnings if the Company intends to sell an impaired security or it is more likely than not that the Company would be required to sell an impaired security before recovering its amortized cost basis.

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Allowance for credit losses – The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

Loans are charged off against the allowance when management believes uncollectibility of the loan is confirmed.

Loans are charged off against the allowance when management believes uncollectability of the loan is confirmed.

Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.

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Segments generally reflect underlying collateral categories as well taking into consideration the risk ratings and unguaranteed balance of small business loans.

Management considers various economic scenarios in its forecast when evaluating economic indicators and weights the various scenarios to arrive at the forecast that most reflects management’s expectation of future conditions.

Management considers various economic scenarios in its forecast when evaluating economic indicators and weighs the various scenarios to arrive at the forecast that most reflects management’s expectation of future conditions.

After a two -year forecast period, a two -year reversion period adjusts loss experience to the historical average on a straight-line basis.

Model results are supplemented by qualitative adjustments for risk factors relevant in assessing the expected credit losses within the portfolio segments.

These adjustments may increase or decrease the estimate of expected credit losses based upon the assessed level of risk for each qualitative factor.

Loans that do not share risk characteristics are evaluated on an individual basis.

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The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:

management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Bancorp.

Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience.

These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors and economic conditions not already captured.

The Company also maintains an allowance for credit losses on off-balance sheet credit exposures for unfunded loan commitments.

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Management tracks the level and trends in unused commitments and takes into consideration the same factors as those considered for purposes of the allowance for credit losses on outstanding loans.

Results for the full year and period end December 31, 2023, are presented under the current expected credit losses ("CECL") methodology while prior period amounts continue to be reported in accordance with the Allowance for loan and lease losses (“ALLL”) methodology.

A description of each segment of the loan portfolio, including the corresponding credit risk, is included below:

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Consumer loans are generally considered to have greater risk than our first and second mortgages on real estate because they may be unsecured, or, or if they are secured, the value of the collateral may be difficult to assess and more likely to decrease in value than real estate.

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.

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.

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Government – The Bancorp is permitted to purchase non-rated municipal securities, tax anticipation notes, and warrants within the local market area.

Troubled Loan Modifications – A troubled loan modification is undertaken to improve the likelihood that the loan will be repaid in full under the modified terms in accordance with a reasonable repayment schedule.

Troubled Loan Modifications – A troubled loan modification of a loan is undertaken to improve the likelihood that the loan will be repaid in full under the modified terms in accordance with a reasonable repayment schedule.

All modified loans are evaluated to determine whether the loan should be reported as a troubled loan modification (TLM).

A loan is a TLM when the Bancorp, for economic or legal reasons related to the borrower's financial difficulties, grants a type of loan modification to the borrower by modifying or renewing a loan under terms that the Bancorp would not otherwise consider.

To make this determination, the Bancorp must determine whether (a) the borrower is experiencing financial difficulties and (b) the Bancorp granted the borrower a modification for principal forgiveness, interest rate reduction, other-than-insignificant payment delay or other-than-insignificant term extension.

A loan is a TLM when the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a type of loan modification to the borrower by modifying or renewing a loan under terms that the Company would not otherwise consider.

To make this determination, the Company must determine whether (a) the borrower is experiencing financial difficulties and (b) the Company granted the borrower a modification for principal forgiveness, interest rate reduction, other-than-insignificant payment delay or other-than-insignificant term extension.

This determination requires consideration of all of the facts and circumstances surrounding the modification.

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Transfers of Financial Assets – Transfers of financial assets are accounted for as sales when control over the assets has been surrendered.

Control over transferred assets is deemed to be surrendered when ( 1 ) the assets have been isolated from the Bancorp, ( 2 ) the transferee obtains the right (free of conditions that constrain it from taking advantage of the right) to pledge or exchange the transferred assets, and ( 3 ) the Bancorp does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Premises and Equipment – Land is carried at cost.

Premises and equipment are carried at cost less accumulated depreciation.

Control over transferred assets is deemed to be surrendered when ( 1 ) the assets have been isolated from the Company, ( 2 ) the transferee obtains the right (free of conditions that constrain it from taking advantage of the right) to pledge or exchange the transferred assets, and ( 3 ) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Premises and Equipment – Owned land is carried at cost.

Owned premises and equipment are carried at cost less accumulated depreciation.

Premises and related components are depreciated using the straight-line method with useful lives ranging from 15 to 39 years.

Furniture and equipment are depreciated using the straight-line method with useful lives ranging from 2 to 10 years.

The Bank leases six branches through long term lease agreements whereby the Bank is also responsible for insurance costs, real estate taxes, and maintenance and repairs for each of the properties.

Lease right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

Foreclosed Real Estate – Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated costs to sell when acquired, establishing a new cost basis.

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If impaired, the assets are recorded at fair value.

Bank Owned Life Insurance – The Bancorp has purchased life insurance policies on certain key executives.

Bank Owned Life Insurance – The Company has purchased life insurance policies on certain key executives.

In accordance with accounting for split-dollar life insurance, Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Goodwill and Intangibles – The Bancorp records the assets acquired, including identified intangible assets, and the liabilities assumed in acquisitions at their fair values.

Goodwill and Intangibles – The Company records the assets acquired, including identified intangible assets, and the liabilities assumed in acquisitions at their fair values.

These fair values often involve estimates based on third -party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques that may include estimates of attrition, inflation, asset growth rates or other relevant factors.

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An impairment loss is recognized for any excess of carrying value over fair value of the goodwill or the indefinite-lived intangible asset.

Repurchase Agreements – Substantially all repurchase agreement liabilities represent amounts advanced by various customers that are not covered by federal deposit insurance and are secured by securities owned by the Bancorp.

Income Taxes – Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities.

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A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

At December 31, 2023 and 2022, the Bancorp evaluated tax positions taken for filing with the Internal Revenue Service and all state jurisdictions in which it operates.

The Bancorp believes that income tax filing positions will be sustained under examination and does not anticipate any adjustments that would result in a material adverse effect on the Bancorp's financial condition, results of operations, or cash flows.

Accordingly, the Bancorp has not recorded any reserves or related accruals for interest and penalties for uncertain tax positions at December 31, 2023 and 2022.

At December 31, 2024 and 2023, the Company evaluated tax positions taken for filing with the Internal Revenue Service and all state jurisdictions in which it operates.

The Company believes that income tax filing positions will be sustained under examination and does not anticipate any adjustments that would result in a material adverse effect on the Company's financial condition, results of operations, or cash flows.

Accordingly, the Company has not recorded any reserves or related accruals for interest and penalties for uncertain tax positions at December 31, 2024 and 2023.

Loan Commitments and Related Financial Instruments – Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and standby letters of credit, issued to meet customer financing needs.

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Loss Contingencies – Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

Management does not believe such matters currently exist that will have a material effect on the financial statements.

Restrictions on Cash –– As part of derivative contracts entered into by the Bancorp, cash balances of $ 4.1 million were pledged as collateral at December 31, 2023.

Management does not believe such matters currently exist that will have a material effect on the consolidated financial statements.

Restrictions on Cash – As part of derivative contracts entered into by the Company, cash balances of $ 5.1 million were pledged as collateral at December 31, 2024.

At December 31, 2024, the Company’s correspondent cash accounts exceeded federally insured limits by $ 6.8 million.

3 unchanged sentences

Changes in assumptions or in market conditions could significantly affect the estimates.

Operating Segments – While the Bancorp's executive management monitors the revenue streams of the various products and services, the identifiable segments are not material and operations are managed and financial performance is evaluated on a company-wide basis.

Accordingly, all of the Bancorp's financial service operations are considered by management to be aggregated in one reportable operating segment.

Reclassification – Certain amounts appearing in the consolidated financial statements and notes thereto as of and for the year ended December 31, 2022, may have been reclassified to conform to the December 31, 2023 presentation.

Trust Assets – Assets of the Bancorp’s wealth management department, other than cash on deposit at the Bancorp, are not included in these consolidated financial statements because they are not assets of the Bancorp.

Dividends – Banking regulations require maintaining certain capital levels and these regulations, along with certain provisions of state law, may limit the dividends paid by the Bank to the Bancorp or by the Bancorp to shareholders.

Pursuant to the MOU discussed in Note 12, the Bank must seek regulatory approval prior to paying cash dividends.

Adoption of New Accounting Pronouncements – In June 2016, FASB issued ASU 2016 - 13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments (“CECL”).

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 (“ACL”) 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.

The new credit loss guidance became effective for the Bancorp as of January 1, 2023.

On January 1, 2023, the Bancorp adopted ASU No.

2016 - 13 using a modified retrospective transition method, resulting in an implementation entry of $ 9.3 million, increasing the ACL by $ 6.1 million and unfunded commitment liability of $ 3.1 million, retained earnings decreased $ 6.2 million and a deferred tax asset of $ 2.2 million was generated.

The majority of the implementation entry is related to including acquired loan portfolios in the model and the addition of using economic forecasts in estimating future losses.

In addition, $ 1.0 million of non-accretable credit loan discounts on purchase credit impaired loans now classified as purchase credit deteriorated were reallocated to the ACL.

Upon adopting ASU 2016 - 13, the Bancorp did not record an allowance as of January 1, 2023, with respect to its available-for-sale debt securities as the majority of these securities are municipal securities for which the risk of loss is minimal.

The main drivers of the day one adjustment related to implementation is summarized in the following table:

As Reported Under

(Dollars in thousands)

Pre-ASC 326 Adoption

Impact of ASC 326

Allowance for credit losses

December 31, 2022

January 1, 2023

Residential real estate

$ 3,021 $ 2,223 $ 5,244

Commercial real estate

5,784 1,446 7,230

Construction and land development

1,253 1,735 2,988

1,007 141 1,148

Commercial business

1,365 325 1,690

Manufactured homes

Total allowance for credit losses on loans

$ 12,897 $ 6,187 $ 19,084

Accrued expenses and other liabilities

- 3,108 3,108

Total allowance for credit losses

$ 12,897 $ 9,295 $ 22,192

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 was 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.

The Bancorp adopted ASU 2022 - 02 on January 1, 2023 without material effect on the Bancorp's financial statements.

Upcoming Accounting Pronouncements - 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.

In December of 2022, the FASB issued ASU No.

2022 - 06 which extended the period of time preparers can utilize the reference rate reform relief guidance in Topic 848.

The guidance ensures the relief in Topic 848 covers the period of time during which a significant number of modifications may take place and the ASU defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

The Bancorp continues to implement its transition plan after the cessation of LIBOR and the modification of its loans and other financial instruments with attributes that were either directly or indirectly influenced by LIBOR.

The Bancorp expects to utilize the LIBOR transition relief allowed under ASU 2020 - 04, ASU 2021 - 01 and ASU 2022 - 06, as applicable, and does not expect such adoption to have a material impact on its accounting and disclosures.

Operating Segments – The Company has identified one reporting unit and one operating segment, community banking, which encompasses commercial and consumer banking services to serve a similar base of clients utilizing company-wide offerings of similar products and services managed through similar processes and platforms offered to individuals, businesses, municipalities and other entities.

See Note 19 - Segment Reporting for more details.

Trust Assets – Assets of the Company’s wealth management department, other than cash on deposit at the Company, are not included in these consolidated financial statements because they are not assets of the Company.

Adoption of New Accounting Pronouncements –

In June 2022, the FASB issued ASU No.

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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.

ASU 2022 - 03 did not have a material impact on our consolidated financial statements.

In March 2023, the FASB issued Accounting Standards (ASU) No.

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ASU 2023 - 02 did not have a material impact on our consolidated financial statements.

In July 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023 - 03, “Presentation of Financial Statements (Topic 205 ), Income Statement - Reporting Comprehensive Income (Topic 220 ), Distinguishing Liabilities from Equity (Topic 480 ), Equity (Topic 505 ), and Compensation - Stock Compensation (Topic 718 ):

Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S- X:

Income or Loss Applicable to Common Stock” (“ASU 2023 - 03” ).

This ASU amends various paragraphs in the accounting codification pursuant to the issuance of Commission Staff Bulletin ("SAB") number 120.

ASU 2023 - 03 does not provide any new guidance, so there is no transition or effective date.

ASU 2023 - 03 did not have a material impact on our condensed consolidated financial statements.

In November 2023, the FASB issued ASU 2023 - 07, Segment Reporting (Topic 280 ):

Improvements to Reportable Segment Disclosures, which requires all public entities to provide enhanced disclosures about significant segment expenses.

Provisions in the amendment include:

( 1 ) Requirement that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss (collectively referred to as the "significant expense principle");

( 2 ) Requirement that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition.

The other segment items category is the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss;

( 3 ) Requirement that a public entity provide all annual disclosures about a reportable segment's profit or loss and assets currently required by ASC 280 in interim periods;

( 4 ) Clarification that if the CODM uses more than one measure of a segment's profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit.

However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity's consolidated financial statements;

( 5 ) Requirement that a public entity disclose the title and position of the CODM and explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources;

and ( 6 ) Requirement that a public entity that has a single reportable segment provide all the disclosures by the amendments in the update and all existing segment disclosures in ASC 280.

The amendments in the update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

For public business entities, amendments in the update should be applied retrospectively to all periods presented in the financial statements, and upon transition the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption.

The Company adopted this standard effective January 1, 2024, and did not have a material impact on the consolidated financial statements.

Upcoming Accounting Pronouncements -

In October 2023, the FASB issued ASU 2023 - 06, Disclosure Improvements:

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As we are currently subject to these SEC requirements, this ASU is not expected to have a material impact on our consolidated financial statements or related disclosures.

In November 2023, the FASB issued ASU 2023 - 07, Segment Reporting (Topic 280 ):

Improvements to Reportable Segment Disclosures, which requires all public entities to provide enhanced disclosures about significant segment expenses.

The amendments in this ASU are to be applied retrospectively and are effective for our annual financial statements starting in fiscal 2024 and interim periods starting in fiscal 2025, with early adoption permitted.

We are currently evaluating the impact of this accounting standard, but do not expect it to have a material impact on our consolidated financial statements.

Income Taxes.

3 unchanged sentences

We are currently evaluating the impact of this accounting standard, but do not expect it to have a material impact on our consolidated financial statements.

NOTE 2 – Acquisition Activity

On January 31, 2022, Finward completed its previously announced acquisition of Royal Financial, Inc., a Delaware corporation (“RYFL”), pursuant to an Agreement and Plan of Merger dated July 28, 2021 ( the “Merger Agreement”) between Finward and RYFL.

The stockholders of both Finward and RYFL approved the Merger Agreement at the respective stockholder meetings of the companies held on December 13, 2021.

Pursuant to the Merger Agreement, RYFL merged with and into Finward, with Finward as the surviving corporation (the “Merger”), and Royal Savings Bank, an Illinois state-chartered savings bank and wholly-owned subsidiary of RYFL, merged with and into Peoples Bank, the wholly-owned Indiana state-chartered commercial bank subsidiary of Finward, with Peoples Bank as the surviving bank.

Under the terms of the merger agreement, RYFL stockholders who owned 101 or more shares of RYFL common stock were permitted to elect to receive either 0.4609 shares of Finward common stock or $ 20.14 in cash, or a combination of both, for each share of RYFL common stock owned, subject to proration and allocation provisions such that 65 % of the shares of RYFL common stock outstanding immediately prior to the closing of the merger were converted into the right to receive shares of Finward common stock and the remaining 35 % of the outstanding RYFL shares were converted into the right to receive cash.

Stockholders holding less than 101 shares of RYFL common stock received fixed consideration of $ 20.14 in cash per share and no stock consideration.

As a result of RYFL stockholder stock and cash elections and the related allocation and proration provisions of the merger agreement, Finward issued 795,423 shares of its common stock and paid cash consideration of approximately $ 18.7 million in the Merger.

Based on the January 28, 2022, closing price of $ 47.75 per share of Finward common stock, the transaction had an implied valuation of approximately $ 56.7 million.

In connection with the acquisition, Robert W.

Youman, was appointed to the boards of directors of Finward and Peoples Bank effective as of the closing of the Merger.

RYFL had a home office and eight branch offices in Cook County and DuPage County, Illinois.

The acquisition has further expanded the Bank’s banking center network in Cook County and DuPage County, Illinois.

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition.

Based on the valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the final purchase price for the RYFL acquisition is allocated as follows (in thousands):

Cash and due from banks

Investment securities, available for sale

Certificate of deposit in other financial institutions

Premises and equipment, net

Core deposit intangible

Interest receivable

Total assets purchased

Common shares issued

Total purchase price

Non-interest bearing

Savings and money market

Certificates of deposits

Total Deposits

Interest payable

Other liabilities

Total liabilities assumed

During the year-ended December 31, 2022, adjustments were made to the carrying value of other assets of $ 409 thousand, due to the valuation of prepaids and deferred tax assets brought over in the acquisition, and premises and equipment, net, of $ 48 thousand, due to a correction in the valuation of buildings, and 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 $ 378 thousand.

Goodwill related to the RYFL transaction is not expected to be deductible for tax purposes.

Goodwill of approximately $ 11.5 million, which is the excess of the acquisition consideration over the fair value of net assets acquired, has been 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.

Gross loans acquired during the RYFL transaction totaled $ 456.7 million.

The following pro-forma and earnings (unaudited) of the combined company are presented as if the RYFL merger had occurred on January 1, 2023, and January 1, 2022:

For the twelve months ended

(in thousands)

December 31, 2023

December 31, 2022

Selected Financial Data

Interest income

$ 85,783 $ 73,730

Interest expense

( 31,228 ) ( 4,987 )

Provision for loan losses

Non-interest income

10,746 11,648

Non-interest expense (1)

( 55,231 ) ( 60,228 )

Income before provision for income taxes

Income tax expense

335 ( 2,235 )

$ 8,380 $ 17,928

Earnings per common share:

$ 1.96 $ 4.29

$ 1.96 $ 4.28

Excludes $ 2.9 million in pre-tax merger expenses for the twelve months ended December 31, 2022.

For the year ended December 31, 2022, the Bancorp 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)

Twelve months ended

Noninterest expense:

December 31, 2022

Compensation and benefits

Data processing

Period merger expense

In November 2024, the FASB issued ASU 2024 - 03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures, which requires public business entities disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods.

The amendments in this update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

Early adoption is permitted.

We are currently evaluating the impact of this accounting standard, but we do not expect it to have a material impact on our consolidated financial statements.

In November 2024, the FASB issued ASU 2024 - 04, Debt-Debt With Conversion and Other Options, which clarifies the requirements for determining whether certain settlements of convertible debt instruments, including convertible debt instruments with cash conversion features or convertible debt instruments that are not currently convertible, should be accounted for as an induced conversion.

The amendments are effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods beginning after December 15, 2025.

Early adoption is permitted.

We are currently evaluating the impact of this accounting standard, but we do not expect it to have a material impact on our consolidated financial statements.

NOTE 2 – Securities

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

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

(Dollars in thousands)

December 31, 2024

government sponsored entities

US government sponsored entities

$ 8,884 $ - $ ( 823 ) $ 8,061

treasury securities

Collateralized mortgage obligations and residential mortgage-backed securities

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December 31, 2023

government sponsored entities

US government sponsored entities

$ 8,884 $ - $ ( 1,001 ) $ 7,883

treasury securities

Collateralized mortgage obligations and residential mortgage-backed securities

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Due from one to five years

11,953 10,801

Due from five to ten years

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The tax benefits related to these net realized losses were approximately $ 127 thousand for 2024.

The tax provisions related to these net realized gains were approximately $ 157 thousand for 2022.

Accumulated other comprehensive income/(loss) balances, net of tax, related to available-for-sale securities, were as follows:

The tax benefits related to these net realized losses were approximately $ 11 thousand for 2023.

Accumulated other comprehensive loss balances, net of tax, related to available-for-sale securities, were as follows:

(Dollars in thousands)

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Ending balance, December 31, 2022

Current period change

Period change

Ending balance, December 31, 2023

8 unchanged sentences

December 31, 2024

government sponsored entities

US government sponsored entities

$ - $ - $ 8,061 $ ( 823 ) $ 8,061 $ ( 823 ) 100.0 %

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- - 1,419 ( 737 ) 1,419 ( 737 ) 100.0

Total temporarily impaired

Total securities balance

$ 3,310 $ ( 156 ) $ 330,244 $ ( 76,258 ) $ 333,554 $ ( 76,414 ) 100.0 %

7 unchanged sentences

December 31, 2023

government sponsored entities

US government sponsored entities

$ - $ - $ 7,883 $ ( 1,001 ) $ 7,883 $ ( 1,001 ) 100.0 %

5 unchanged sentences

- - 1,357 ( 813 ) 1,357 ( 813 ) 100.0

Total temporarily impaired

Total securities balance

$ - $ - $ 362,299 $ ( 67,963 ) $ 362,299 $ ( 67,963 ) 97.6 %

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

AFS securities are not within the scope of the CECL methodology;

however, the accounting for credit losses on these securities is affected by ASC 326 - 30.

ASC 326 allows for prospective adoption of previously recorded other-than-temporary impairment (OTTI) on AFS securities.

At adoption, the Bank had $ 173 thousand of previously recorded credit impairment on trust preferred AFS securities.

The Bank believes this continues to represent the expected credit losses of the amortized cost basis, therefore, no additional ACL has been established for AFS debt securities at January 1, 2023.

The need for an ACL is monitored quarterly and is measured by evaluating the present value of cash flows as compared to the amortized cost basis of the security.

After adoption, if there is a decrease in future expected cash flows due to a deterioration in credit, an ACL will be recorded.

If there is an improvement in credit, any previously recorded ACL will be reduced.

Improvement in credit beyond any ACL that has been established will be recorded in the income statement in the period in which the cash recovery is received.

At December 31, 2023 collateralized debt obligations with a cost basis of $ 2.2 million and fair value of $ 1.4 million had previously recorded impairment of $ 173 thousand, which will not be recoverable until maturity of the security.

NOTE 3 – Loans Receivable

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26,708 30,845

11,024 10,021

Loans receivable

1 unchanged sentence

Net deferred loan origination costs

Undisbursed loan funds

Loan clearing funds

Loans receivable, net of deferred fees and costs

$ 1,508,976 $ 1,512,595

The Bancorp's age analysis of past due loans is summarized below:

The Company's age analysis of past due loans is summarized below:

(Dollars in thousands)

Greater Than 90

Days Past Due

Total Past Due and Accruing

Accruing Loans

Total Past Due

December 31, 2024

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$ 17,858 $ 5,050 $ 1,843 $ 24,751 $ 1,474,396 $ 1,499,147 $ 9,608 $ 1,508,755

The following table shows the amortized cost of loans, segregated by portfolio segment, credit quality rating and year of origination as of December 31, 2023, and gross charge-offs for the year ended December 31, 2023.

The following table shows the amortized cost of loans, segregated by portfolio segment, credit quality rating and year of origination as of December 31, 2024, and December 31, 2023 and gross charge-offs for the year ended December 31, 2024 and for the year ended December 31, 2023.

December 31, 2024

Converted to Term

Total Loans Receivable

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- - - 1,207 2,468 - - - 3,675

Substandard (8)

- 1,018 - 1,267 - - - - 2,285

$ 34,599 $ 25,378 $ 3,732 $ 10,341 $ 2,692 $ 820 $ 5,312 $ - $ 82,874

Current period gross charge-off

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$ 6,398 $ 8,923 $ 56,771 $ 74,716 $ 36,075 $ 20,066 $ 627 $ - $ 203,576

Special Mention (7)

- - 780 3,332 1,217 - - - 5,329

Substandard (8)

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$ - $ - $ 1,634 $ 11,360 $ 7,559 $ 6,101 $ - $ - $ 26,654

Substandard (8)

- - - 28 26 - - - 54

$ - $ - $ 1,634 $ 11,388 $ 7,585 $ 6,101 $ - $ - $ 26,708

Current period gross charge-off

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- - - - - - - - -

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

December 31, 2023

(Dollars in thousands)

Special mention

Total Loans Receivable

$ 148,105 $ 323,820 $ 321,183 $ 234,861 $ 108,683 $ 274,027 $ 94,893 $ 3,183 $ 1,508,755

Total current period gross charge-off

$ ( 95 ) $ ( 150 ) $ - $ ( 367 ) $ ( 50 ) $ ( 1,882 ) $ ( 27 ) $ - ( 2,571 )

Residential real estate

$ 20,740 $ 97,671 $ 106,778 $ 115,001 $ 23,873 $ 113,987 $ 1,716 $ - $ 479,766

Special Mention (7)

405 - 473 173 431 1,602 - - 3,084

Substandard (8)

- 786 152 471 217 472 - - 2,098

$ 21,145 $ 98,457 $ 107,403 $ 115,645 $ 24,521 $ 116,061 $ 1,716 $ - $ 484,948

Current period gross charge-off

- ( 40 ) - ( 25 ) ( 39 ) ( 893 ) - - ( 997 )

$ 110 $ 114 $ 101 $ 14 $ 61 $ 2,051 $ 42,801 $ 700 $ 45,952

Special Mention (7)

- - - - 4 31 70 63 168

Substandard (8)

- 161 - - - 67 251 - 479

$ 110 $ 275 $ 101 $ 14 $ 65 $ 2,149 $ 43,122 $ 763 $ 46,599

Current period gross charge-off

- - - - - ( 16 ) ( 27 ) - ( 43 )

Commercial real estate

$ 52,880 $ 127,607 $ 90,108 $ 55,236 $ 56,255 $ 108,489 $ 2,649 $ - $ 493,224

Special Mention (7)

- 69 2,429 1,274 1,123 2,397 142 - 7,434

Substandard (8)

- - - 230 - 2,314 - - 2,544

$ 52,880 $ 127,676 $ 92,537 $ 56,740 $ 57,378 $ 113,200 $ 2,791 $ - $ 503,202

Current period gross charge-off

- - - - - ( 372 ) - - ( 372 )

Construction and land development

$ 48,518 $ 24,948 $ 13,411 $ 1,732 $ 4,284 $ 473 $ 12,539 $ 2,420 $ 108,325

Special Mention (7)

365 76 4,205 2,256 - - - - 6,902

Substandard (8)

- - - - - - - - -

$ 48,883 $ 25,024 $ 17,616 $ 3,988 $ 4,284 $ 473 $ 12,539 $ 2,420 $ 115,227

Current period gross charge-off

- - - - - - - - -

$ 9,333 $ 53,493 $ 78,122 $ 41,773 $ 13,156 $ 19,609 $ 186 $ - $ 215,672

Substandard (8)

- - 1,666 1,562 - 1,017 - - 4,245

$ 9,333 $ 53,493 $ 79,788 $ 43,335 $ 13,156 $ 20,626 $ 186 $ - $ 219,917

Current period gross charge-off

- - - - - - - - -

Commercial business

$ 13,110 $ 13,774 $ 9,327 $ 5,705 $ 4,105 $ 12,905 $ 33,954 $ - $ 92,880

Special Mention (7)

373 197 58 - 129 436 417 - 1,610

Substandard (8)

43 1,094 256 214 - 1,121 168 - 2,896

$ 13,526 $ 15,065 $ 9,641 $ 5,919 $ 4,234 $ 14,462 $ 34,539 $ - $ 97,386

Current period gross charge-off

- ( 110 ) - ( 342 ) ( 11 ) ( 601 ) - - ( 1,064 )

$ 338 $ 73 $ 108 $ 4 $ 14 $ 71 $ - $ - $ 608

Substandard (8)

- - - 2 - - - - 2

$ 338 $ 73 $ 108 $ 6 $ 14 $ 71 $ - $ - $ 610

Current period gross charge-off

( 95 ) - - - - - - - ( 95 )

Manufactured homes

1 unchanged sentence

$ - $ 1,942 $ 12,556 $ 9,214 $ 5,031 $ 2,102 $ - $ - $ 30,845

Current period gross charge-off

- - - - - - - - -

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.

Thehe Bancorp reassesses its risk ratings annually, and no changes to our credit quality indicators have occurred.

$ 1,890 $ 1,815 $ 1,433 $ - $ - $ 4,883 $ - $ - $ 10,021

Current period gross charge-off

- - - - - - - - -

The Company 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 Company is uniform and conforms to regulatory definitions.

The loan grading system is as follows:

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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.

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.

Loan Modification Disclosures Pursuant to ASU 2022 - 02

Loans with risk classifications of pass and special mention were part of the pooled loan ACL analysis.

Loans classified as substandard or worse were individually evaluated for impairment and specific reserves were established, if applicable.

Risk gradings for loans with balances greater than $1 million are updated every 12 months through analysis during origination, renewals, modifications, or regular annual review.

Risk gradings for loans with balances less than $1 million are updated primarily through analysis during origination, renewals, modifications, or periodic review.

Risk gradings are also downgraded due to delinquency at month end.

In particular, 60 days past due are downgraded to Special Mention, while 90 days past due are further downgraded to Substandard.

Modifications to Borrowers Experiencing Financial Difficulty

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination.

The starting point to estimate such credit losses is historical loss information.

The Company uses a probability of default/loss given default model to determine the allowance for credit losses recorded at origination.

Occasionally, the Company subsequently modifies loans for borrowers experiencing financial distress by providing the following forms of relief:

principal forgiveness, term extension, payment delay, or interest rate reduction.

In some cases, the Company provides multiple types of modifications on one loan.

Because the effect of most modifications to borrowers experiencing financial difficulty is already included in the allowance for credit losses, no change to the allowance for credit losses is generally recorded for these modifications.

The following table shows the amortized cost of loans at December 31, 2024, that were both experiencing financial difficulty and modified during the year ended December 31, 2024, segregated by portfolio segment and type of modification.

The percentage of the amortized cost of loans that were modified to borrowers in financial distress as compared to the amortized cost of each segment of financial receivable is also presented below.

For the twelve months ended December 31, 2024

(Dollars in thousands)

Combination Term

Extension and

Interest Rate

Residential Real Estate

$ 528 $ 1,115 $ - $ - 0.35 %

41 - - - 0.01 %

$ 569 $ 1,115 $ - $ - 0.11 %

For the year ended December 31, 2023

(Dollars in thousands)

Term Extension

and Interest Rate

Combination Term

Extension and

Interest Rate

Residential Real Estate

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$ - $ 868 $ - $ - 0.06 %

There were no commitments to lend additional amounts to the borrowers included in the previous table.

The Bancorp closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

The following table shows the performance of such loans and leases that have been modified during the year ended December 31, 2023.

The financial effects of payment delay modifications and term extension modifications were forbearance average of five months and four months weighted average extension to life of loan, respectively.

There were no commitments to lend additional amounts to the borrowers included in the previous tables.

The Company closely monitors the performance of loans and leases that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

The performance of such modified loans is presented below.

For the year ended December 31, 2024

(Dollars in thousands)

4 unchanged sentences

$ 545 $ 570 $ - $ 569

The borrowers with term extension have had their maturity dates extended and as a result their monthly payments were reduced.

Upon the Bancorp’s determination that a modified loan has subsequently been deemed uncollectible, the loan or lease is written off.

For the year ended December 31, 2023

(Dollars in thousands)

Greater Than 90

Days Past Due

Residential Real Estate

$ 868 $ - $ - $ -

Upon the Company’s determination that a modified loan has subsequently been deemed uncollectible, the loan is written off.

Therefore, the amortized cost of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

Troubled Debt Restructuring (TDR) Disclosures Prior to the Adoption of ASU 2022 - 02

During the year ending December 31, 2022, nine residential real estate loans to nine customers totaling $ 743 thousand were modified to include deferral of principal or interest resulting in troubled debt restructuring classification.

Two home equity loans to two customers totaling $ 189 thousand were modified to include deferral of principal or interest resulting in troubled debt restructuring classification.

One commercial real estate loan totaling $ 1.4 million was provided a short-term renewal resulting in troubled debt restructuring classification.

No troubled debt restructuring loans had subsequently defaulted during the year ending December 31, 2022.

As of December 31, 2023, the Bancorp had one residential real estate loan in the process of foreclosure totaling $ 32 thousand.

The Bancorp was not in the process of foreclosing on any residential real estate loan as of December 31, 2022.

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.

All modified loans are deemed collectible.

There were $ 589 thousand in multifamily loans, $ 7 thousand in home equity loans and $ 736 thousand in residential loans in the process of foreclosure as of December 31, 2024.

Acquired Loan Purchase Discounts

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Allowance for Credit Losses

The allowance for credit losses is established for current expected credit losses on the Bancorp’s loan portfolios utilizing guidance in Accounting Standards Codification (ASC) Topic 326.

The Bancorp adopted ASU 2016 - 13 on January 1, 2023.

Therefore, as of December 31, 2022, the provision for credit losses and other allowance for loan loss disclosures for the year ended December 31, 2022, were calculated under the incurred loss method.

The allowance for credit losses is established for current expected credit losses on the Company’s loan portfolio utilizing guidance in Accounting Standards Codification (ASC) Topic 326.

The determination of the allowance requires significant judgment to estimate credit losses measured on a collective pool basis when similar risk characteristics exist, and for loans evaluated individually.

In determining the allowance, the Bancorp estimates expected future losses for the loan’s entire contractual term adjusted for expected payments when appropriate.

The allowance estimate considers relevant available information, from internal and external sources relating to the historical loss experience, current conditions, and reasonable and supportable forecasts for the Bancorp’s outstanding loan balances.

The allowance is an estimation that reflects management’s evaluation of expected losses related to the Bancorp’s financial assets measured at amortized cost.

In determining the allowance, the Company estimates expected future losses for the loan’s entire contractual term adjusted for expected payments when appropriate.

The allowance is an estimation that reflects management’s evaluation of expected losses related to the Company’s financial assets measured at amortized cost.

To ensure that the allowance is maintained at an adequate level, a detailed analysis is performed on a quarterly basis and an appropriate provision is made to adjust the allowance.

The Bancorp categorizes the loan portfolios into nine segments based on similar risk characteristics.

The Company categorizes the loan portfolio into nine segments based on similar risk characteristics.

Loans within each segment are collectively evaluated using the probability of default (“PD”)/loss given default (“LGD”) methodology (PD/LGD).

In creating the CECL model, the Bancorp has established a two -year reasonable and supportable forecast period with a two -year straight line reversion to the long-term historical average.

Due to its minimal loss history, the Bancorp elected to use peer data for a more reasonable calculation.

The following table shows the changes in the allowance for loan losses, segregated by portfolio segment, for the year ended December 31, 2023, and 2022.

In creating the “current expected credit loss (CECL)” model as required under ASC 326, the Company has established a two -year reasonable and supportable forecast period with a two -year straight line reversion to the long-term historical average.

Due to its minimal loss history, the Company elected to use peer data for a more reasonable calculation.

The Bancorp's activity in the allowance for credit losses, by loan segment, is summarized below for the year ended December 31, 2024:

(Dollars in thousands)

Beginning Balance

Adoption of ASC 326

Ending Balance

The Bancorp's activity in the allowance for credit losses, by loan segment, is summarized below for the twelve months ended December 31, 2023:

Allowance for credit losses:

14 unchanged sentences

$ 18,768 $ ( 2,468 ) $ 412 $ 199 $ 16,911

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

Allowance for loan losses:

The Bancorp's activity in the allowance for credit losses, by loan segment, is summarized below for the year ended December 31, 2023:

(Dollars in thousands)

Beginning Balance

Ending Balance

Allowance for credit losses:

Residential real estate

12 unchanged sentences

$ 19,084 $ ( 2,571 ) $ 563 $ 1,692 $ 18,768

$ 13,343 $ - $ - $ ( 608 ) $ 162 $ - $ 12,897

A collateral dependent loan relies solely on the operation or sale of the collateral for repayment.

In evaluating the overall risk associated with the loan, the Bancorp considers character, overall financial condition and resources, and payment record of the borrower;

In evaluating the overall risk associated with the loan, the Company considers character, overall financial condition and resources, and payment record of the borrower;

the prospects for support from any financially responsible guarantors;

9 unchanged sentences

$ 3,012 $ - $ - $ - $ 3,012 $ 50

219 - - - 219 -

Commercial real estate

1,598 - - - 1,598 43

Construction and land development

2,285 - - - 2,285 -

3,550 - - - 3,550 -

Commercial business

1 unchanged sentence

$ 11,376 $ 1,399 $ 1,428 $ 144 $ 14,347 $ 284

(Dollars in thousands)

December 31, 2023

Equipment/Inventory

Accounts Receivable

ACL Allocation

Residential real estate

$ 30 $ - $ - $ - $ 30 $ 30

Commercial real estate

2,541 - - - 2,541 53

4,244 - - - 4,244 85

Commercial business

- 1,583 1,557 192 3,332 738

$ 6,815 $ 1,583 $ 1,557 $ 192 $ 10,147 $ 906

A deferred cost reserve is maintained for the portfolio of manufactured home loans that have been purchased.

4 unchanged sentences

As of December 31, 2024

(Dollars in thousands)

Nonaccrual with

No Allowance for

Nonaccrual with

Allowance for

Nonaccrual Loans

Loans Past Due

2 unchanged sentences

$ 1,514 $ 3,150 4,664 $ -

Commercial real estate

Construction and land development

179 304 483 -

Commercial business

1,724 1,173 -

Manufactured homes

$ 5,287 $ 4,321 $ 1,843

The Bancorp's impairment analysis is summarized below:

Ending Balances

(Dollars in thousands)

evaluated for

impairment reserves

Loan receivables

evaluated for

Purchased credit

evaluated for

The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2022:

Residential real estate

$ 24 $ 2,997 $ 484,595 $ 1,518 $ 988 $ 482,089

3 407 38,978 294 125 38,559

Commercial real estate

2 unchanged sentences

3,362 - 3,362 -

- 1,007 251,014 6,739 382 243,893

Commercial business

1 unchanged sentence

$ 9,891 $ 3,847 $ 13,738 $ -

Manufactured homes

- - 34,882 - - 34,882

- - 9,549 - - 9,549

$ 337 $ 12,560 $ 1,508,571 $ 12,701 $ 5,400 $ 1,490,470

December 31, 2023

(dollars in thousands)

Interest income recognized

during the period on

nonaccrual loans

Residential real estate

Commercial real estate

Construction and land development

Commercial business

For the twelve months ended

As of December 31, 2023

December 31, 2022

(Dollars in thousands)

Unpaid Principal

Related Allowance

Average Recorded

Interest Income

With no related allowance recorded:

Residential real estate

$ 2,255 $ 3,711 $ - $ 2,528 $ 202

399 416 - 253 12

Commercial real estate

5,314 5,406 - 3,409 205

Construction & land development

7,121 7,163 - 3,387 16

Commercial business

2,278 2,392 - 1,365 76

Manufactured homes

With an allowance recorded:

Residential real estate

$ 251 $ 276 $ 24 $ 194 $ 5

Commercial real estate

13 14 13 678 -

Construction & land development

Commercial business

433 561 297 352 13

Manufactured homes

Nonaccrual with

No Allowance for

Nonaccrual with

Allowance for

Nonaccrual Loans

Loans Past Due

over 90 Days Still

Residential real estate

3 unchanged sentences

603 230 833 712

Construction & land development

2,357 1,358 3,715 -

$ 7,121 $ 7,163 $ - $ 3,387 $ 16

$ - $ - $ - $ - $ -

Commercial business

1 unchanged sentence

$ 5,287 $ 4,321 $ 9,608 $ 1,843

Manufactured homes

$ - $ - $ - $ - $ -

Accrued interest receivable on loans totaled $ 5.7 million and is excluded from the estimate of credit losses.

The Bancorp made the accounting policy election to not measure an ACL for accrued interest receivable.

Accrued interest receivable on loans totaled $ 5.5 million as of December 31, 2024 and $ 5.7 million as of December 31, 2023 and is excluded from the estimate of credit losses.

The Company made the accounting policy election to not measure an ACL for accrued interest receivable.

Accrued interest deemed uncollectible will be written off through interest income.

3 unchanged sentences

The following table shows the changes in the liability for credit losses on unfunded loan commitments.

For the year ended

(Dollars in thousands)

December 31, 2024

December 31, 2023

Balance, beginning of period

Adoption of ASC 326

$ 3,441 $ 3,108

Provision (Release)

Balance, end of period

$ 2,739 $ 3,441

Note 4 – Premises and Equipment, Net

4 unchanged sentences

34,876 41,252

Lease right of use

Furniture and equipment

5 unchanged sentences

$ 47,259 $ 38,436

Depreciation expense was approximately $ 2.9 million and $ 3.0 million for 2023 and 2022, respectively.

Depreciation and amortization expense was approximately $ 2.8 million and $ 2.9 million for 2024 and 2023, respectively.

Note 5 – Goodwill and Other Intangible Assets

3 unchanged sentences

$ 22,395 $ 22,395

Goodwill acquired - Royal Financial

Goodwill balance December 31,

1 unchanged sentence

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.

Goodwill is tested annually for impairment.

The Company’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of the Company to provide quality, cost effective banking services in a competitive marketplace.

Goodwill is tested periodically for impairment.

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.

1 unchanged sentence

In addition to goodwill, a core deposit intangible was established from previous acquisitions.

The Bancorp had core deposit intangible balances of $ 3.3 million and $ 4.8 million as of December 31, 2023, and 2022, respectively.

The Company had core deposit intangible balances of $ 1.9 million and $ 3.3 million as of December 31, 2024, and 2023, respectively.

The table below summarizes the annual amortization:

The amortization recorded for the year ended December 31, is as follows:

The amortization recorded for the nine months ended December 31, is as follows:

(Dollars in thousands)

1 unchanged sentence

(Dollars in thousands)

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 $ 217 thousand and $ 541 thousand of amortization was taken as income during the year ended December 31, 2023 and 2022, respectively.

Amortization to be recorded in future periods is $ 124 thousand in 2024, $ 72 thousand in 2025, and $ 54 thousand thereafter.

Note 6 – Income Taxes

1 unchanged sentence

(Dollars in thousands)

$ 92 $ ( 169 )

( 584 ) 1,074

Deferred, net of valuation allowance

12 unchanged sentences

Captive insurance

( 159 ) ( 282 )

Tax credit investments

( 486 ) ( 531 )

Non-deductible transaction costs

Total income tax expense (benefit)

6 unchanged sentences

Deferred compensation

Unrealized depreciation on securities available-for-sale, net

Unrealized depreciation on securities available-for-sale.

18,319 16,285

3 unchanged sentences

Unqualified deferred compensation plan

Other-than-temporary impairment

Accrued compensation

1 unchanged sentence

Deferred loan costs, net of fees

Lease liability

Total deferred tax assets

10 unchanged sentences

( 254 ) ( 383 )

Lease right of use

( 4,124 ) ( 83 )

( 174 ) ( 118 )

Total deferred tax liabilities

1 unchanged sentence

Valuation allowance

( 63 ) ( 62 )

Net deferred tax asset

$ 29,455 $ 28,066

At December 31, 2023, the Bancorp has Indiana net operating loss carryforwards of approximately $ 3.1 million which will expire in 2038 if not used.

The Bancorp also has a state tax credit carryforward of approximately $ 79 thousand which expires from 2024 to 2033.

Management has concluded that the state net operating losses are more likely than not to be utilized and therefore no valuation allowance is necessary.

A valuation allowance, net of federal effect, of $ 62 thousand was recorded in 2023 on the state tax credit carryforward, as it is not expected to be utilized before expiration.

The Bancorp acquired $ 3.3 million of federal net operating loss carryforwards and $ 7.2 million of Illinois net operating loss carryforwards with the acquisition of First Personal Financial Corp during 2018, of which $ 2.2 million of the federal losses expire in years ranging from 2029 to 2035, $ 1.1 million of the federal losses do not expire, and the Illinois losses expire in years ranging from 2028 to 2036.

Under Section 382 of the Internal Revenue Code, the annual limitation on the use of the federal loss carryforwards is $ 362 thousand for First Personal while there is no limitation on the use of the Illinois loss carryforwards.

Management has determined that all of the loss carryforwards are more likely than not to be utilized before expiration.

The Bancorp acquired $ 7.2 million of federal net operating loss carryforwards and $ 11.4 million of Illinois net operating loss carryforwards with the acquisition of AJS Bancorp Inc.

during 2019, of which $ 3.6 million of the federal loss carryforwards expire in years ranging from 2029 to 2034, $ 3.6 million of the federal loss carryforwards do not expire, and the Illinois loss carryforwards expire in years ranging from 2028 to 2037.

Under Section 382 of the Internal Revenue Code, the annual limitation on the use of the federal losses is $ 834 thousand for AJS, while there is no limitation on the use of the Illinois loss carryforwards.

At December 31, 2024, the Company has Indiana net operating loss carry forwards of approximately $ 3.6 million which will begin to expire in 2038 if not used.

The Company also has a state tax credit carry forward of approximately $ 63 thousand which expire from 2024 to 2034.

Management has concluded that the state net operating losses will be fully utilized and therefore no valuation allowance is necessary on the state net operating loss.

A valuation allowance is in place on the state tax credit carryforward, as it is not expected to be utilized before expiration.

A valuation allowance of $ 63 thousand and $ 62 thousand was provided at December 31, 2024 and 2023, respectively for the state tax credits net of federal benefit.

The Company acquired $ 3.3 million of federal net operating loss carryforwards and $ 7.2 million of Illinois net operating loss carryforwards with the acquisition of First Personal Financial Corp during 2018 of which $ 2.2 million of the federal losses expire in years ranging from 2029 to 2035, $ 1.1 million of the federal losses do not expire, and the Illinois losses expire in years ranging from 2028 to 2036 Under Section 382 of the Internal Revenue Code, the annual limitation on the use of the federal losses is $ 362 thousand for First Personal while there is no limitation on the use of the Illinois losses.

Management has determined that all of the losses are more likely than not to be utilized before expiration.

The Bancorp acquired $ 3.3 million of federal net operating loss carryforwards and $ 57.9 million of Illinois net operating loss carryforwards with the acquisition of Royal Financial, Inc.

during 2022, of which $ 2.7 million of the federal loss carryforwards expire in years ranging from 2030 to 2036, $ 623 thousand of the federal loss carryforwards do not expire, and the Illinois losses expire in years ranging from 2026 to 2032.

Under Section 382 of the Internal Revenue Code, the annual limitation on the use of the federal loss carryforwards is $ 822 thousand for Royal, while there is no limitation on the use of the Illinois loss carryforwards.

Management has determined that all of the loss carryforwards are more likely than not to be utilized before expiration.

At December 31, 2023 $ 6.3 million of the federal loss carryforwards, $ 68.1 million of the Illinois loss carryforward and $ 3.0 million of Indiana loss carryforwards remain;

The Company acquired $ 7.2 million of federal net operating loss carryforwards and $ 11.4 million of Illinois net operating loss carryforwards with the acquisition of AJS Bancorp Inc.

during 2019 of which $ 3.6 million of the federal losses expire in years ranging from 2030 to 2037, $ 3.6 million of the federal losses do not expire, and the Illinois losses expire in years ranging from 2029 to 2037.

Under Section 382 of the Internal Revenue Code, the annual limitation on the use of the federal losses is $ 834 thousand for AJS, while there is no limitation on the use of the Illinois losses.

Management has determined that all of the losses are more likely than not to be utilized before expiration.

The Company acquired $ 3.3 million of federal net operating loss carryforwards and $ 57.4 million of Illinois net operating loss carryforwards with the acquisition of Royal Financial, Inc.

during 2022 of which $ 2.7 million of the federal losses expire in years ranging from 2030 to 2036, $ 623 thousand of the federal losses do not expire, and the Illinois losses expire in years ranging from 2026 to 2032.

Under Section 382 of the Internal Revenue Code, the annual limitation on the use of the federal losses is $ 755 thousand for Royal, while there is no limitation on the use of the Illinois losses.

Management has determined that all of the losses are more likely than not to be utilized before expiration.

At December 31, 2024 $ 4.3 million of the federal loss carryforwards, $ 67.6 million of the Illinois loss carryforward remain and $ 3.6 million of Indiana loss carryforwards remain;

the benefit of which is reflected in deferred tax assets.

The Bancorp qualified under provisions of the Internal Revenue Code, to deduct from taxable income a provision for bad debts in excess of the provision for such losses charged to income in the financial statements, if any.

Accordingly, retained earnings at both December 31, 2023 and 2022 includes, approximately $ 14.5 million, for which no provision for federal income taxes has been made.

The Company qualified under provisions of the Internal Revenue Code, to deduct from taxable income a provision for bad debts in excess of both the provision for such losses charged to income in the financial statements, if any.

Accordingly, retained earnings at December 31, 2024 and 2023 includes, approximately $ 14.5 million, for which no provision for federal income taxes has been made.

If, in the future this portion of retained earnings is used for any purpose other than to absorb bad debt losses, federal income taxes would be imposed at the then applicable rate.

The unrecorded deferred income tax liability on the above amounts was approximately $ 3.8 million at both December 31, 2023 and 2022.

The Bancorp had no unrecognized tax benefits at any time during 2023 or 2022 and does not anticipate any significant increase or decrease in unrecognized tax benefits during 2023.

Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Bancorp's policy to record such accruals through income tax accounts;

The unrecorded deferred income tax liability on the above amounts was approximately $ 3.8 million at December 31, 2024 and 2023.

The Company had no unrecognized tax benefits at any time during 2024 or 2023 and does not anticipate any significant increase or decrease in unrecognized tax benefits during 2025.

Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Company's policy to record such accruals through income tax accounts;

no such accruals existed at any time during 2024 or 2023.

The Bancorp and its subsidiaries are subject to US Federal income tax as well as income tax of the states of Indiana and Illinois.

The Bancorp is no longer subject to examination by taxing authorities for the years before 2020.

The Company and its subsidiaries are subject to US Federal income tax as well as income tax of the states of Indiana and Illinois.

The Company is no longer subject to examination by taxing authorities for the years before 2021.

Note 7 – Deposits

The aggregate amount of retail and brokered certificates of deposit with a balance of $250 thousand or more was approximately $ 141.4 million at December 31, 2024 and $ 137.1 million at December 31, 2023.

Brokered certificates of deposit totaled $ 29.9 million at December 31, 2023 and $ 40.0 million at December 31, 2022.

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

At December 31, 2024, scheduled maturities of retail and brokered certificates of deposit were as follows:

(Dollars in thousands)

December 31, 2023

December 31, 2022

2029 and thereafter

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

(Dollars in thousands)

$ 591,487 $ 653,529

5 unchanged sentences

$ 1,760,566 $ 1,813,421

At December 31, 2023, scheduled maturities of certificates of deposit were as follows:

(Dollars in thousands)

2024 $ 482,124

2028 and thereafter

As of December 31, 2023, and 2022, approximately $ 530.2 million and $ 516.1 million, respectively, of our deposit portfolio was uninsured.

Note 8 – Borrowed Funds

At December 31, 2023 and 2022, borrowed funds and their outstanding rates are summarized below:

At December 31, 2024 and December 31, 2023, borrowed funds and their outstanding rates are summarized below:

(Dollars in thousands)

Fixed rate advances from the Federal Reserve with outstanding rates of 4.38 % as of December 31, 2023

Fixed rate advances from the FHLB with outstanding rates of 4.30 % as of December 31, 2022

$ - $ 120,000

Federal Reserve Fixed rate advance with outstanding rate of 4.38 %, matured March 22, 2024

FHLB Fixed rate advance with outstanding rate of 4.85 %, maturing May 16, 2025

FHLB Fixed rate advance with outstanding rate of 4.77 %, maturing May 19, 2025

FHLB Fixed rate advance with outstanding rate of 3.38 %, maturing August 7, 2028 (1)

FHLB Fixed rate advance with outstanding rate of 3.22 %, maturing August 7, 2029 (1)

FHLB Fixed rate advance with outstanding rate of 3.84 %, maturing February 28, 2029 (1)

FHLB Fixed rate advance with outstanding rate of 3.74 %, maturing February 28, 2029 (1)

$ 65,000 $ 80,000

Outstanding borrowings at December 31, 2023 were scheduled to mature in 2024.

FHLB retains puttable option to call these advances after a period of time.

At December 31, 2024, scheduled maturities of borrowed funds were as follows:

(Dollars in thousands)

On March 12, 2023, the Federal Reserve Board announced the creation of a new Bank Term Funding Program (the “BTFP”).

The BTFP offers loans of up to one year to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S.

The BTFP offered loans of up to one year to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S.

Treasury securities, agency debt and mortgage-backed securities, and other qualifying assets as collateral.

These assets are valued at par for purposes of the collateral pledge under the BTFP.

During the first quarter of 2023, the Bancorp participated in the BTFP by accessing $ 100 million of low-cost capital under the program, and reducing that funding to $ 80 million by paying off BTFP funds as liquidity needs changed throughout the year.

As of December 31, 2023, the Bancorp had pledged securities as collateral for the program with a par value of $ 105.3 million.

Fixed rate advances from the FHLB were collateralized by mortgage loans with a carrying value totaling approximately $ 593.0 million at December 31, 2022.

These assets were valued at par for purposes of the collateral pledge under the BTFP.

During the first quarter of 2023, the Company participated in the BTFP by accessing $ 80 million of low-cost capital under the program.

During the quarter ending September 30, 2024, the Company terminated its involvement in the Bank Term Funding Program (the “BTFP”) and paid off its outstanding balance of $ 60 million.

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

The advances were collateralized by mortgage loans with a carrying value totaling approximately $ 460.8 million at December 31, 2024.

FHLB retains puttable option to call some of these advances 6 to 12 months after issuance.

The Bank had a balance of $ 65 million at December 31, 2024 compared to no balance at December 31, 2023 at FHLB.

In addition to the fixed rate advances, the Bank maintains a $ 25.0 million line of credit with the Federal Home Loan Bank of Indianapolis.

The Bank did not have a balance on the line of credit at December 31, 2023 or 2022.

The Bank had no other borrowings at December 31, 2023, or 2022.

The Bank did not have a balance on the line of credit at December 31, 2024 or December 31, 2023.

At December 31, 2024, the Bank had available approximately $ 687.4 million in credit lines with various money center banks, including the FHLB and Federal Reserve.

Repurchase agreements generally mature within one year and are secured by U.S.

government and U.S.

agency securities, under the Bank’s control.

Repurchase agreements consist of variable rate sweeps which mature daily as well as fixed rate term agreements that generally mature within 12 months.

These repurchase agreements are secured by municipal securities and collateralized mortgage obligations and residential mortgage-backed securities, under the Bank’s control.

At December 31, information concerning these retail repurchase agreements is summarized below:

15 unchanged sentences

Note 9 – Employees ’ Benefit Plans

The Bancorp maintains an Unqualified Deferred Compensation Plan (the “UDC Plan”).

The purpose of the UDC Plan is to provide deferred compensation to key senior management employees of the Bancorp in order to recognize their substantial contributions to the Bank and provide them with additional financial security as inducement to remain with the Bank.

The Company maintains an Unqualified Deferred Compensation Plan (the “UDC Plan”).

The purpose of the UDC Plan is to provide deferred compensation to key senior management employees of the Company in order to recognize their substantial contributions to the Bank and provide them with additional financial security as inducement to remain with the Bank.

The Compensation Committee selects which persons shall be participants in the UDC Plan.

6 unchanged sentences

Note 10 – Stock Based Compensation

The Bancorp’s 2015 Stock Option and Incentive Plan (the “Incentive Plan”), permits the grant of equity awards for up to 250,000 shares of common stock.

The Company’s 2015 Stock Option and Incentive Plan (the “Incentive Plan”), permits the grant of equity awards for up to 250,000 shares of common stock.

Awards granted under the Incentive Plan may be in the form of incentive stock options, non-qualified stock options, restricted stock, unrestricted stock, performance shares, or performance units.

The purposes of the Plan are (i) to align the personal interests of plan participants with those of the shareholders of the Bancorp, (ii) to encourage key individuals to accept or continue employment or service with the Bancorp and its subsidiaries, and (iii) to furnish incentives to such key individuals to improve operations and increase profits by providing such key individuals the opportunity to acquire common stock of the Bancorp or to receive monetary payments based on the value of such common stock.

Restricted stock awards are generally granted with an award price equal to the market price of the Bancorp’s common stock on the award date.

The purposes of the Plan are (i) to align the personal interests of plan participants with those of the shareholders of the Company, (ii) to encourage key individuals to accept or continue employment or service with the Company and its subsidiaries, and (iii) to furnish incentives to such key individuals to improve operations and increase profits by providing such key individuals the opportunity to acquire common stock of the Company or to receive monetary payments based on the value of such common stock.

Restricted stock awards are generally granted with an award price equal to the market price of the Company’s common stock on the award date.

Restricted stock awards have been issued with a three year cliff-vesting period.

2 unchanged sentences

Total compensation cost that has been charged to expense for those plans was approximately $ 565 thousand and $ 719 thousand for the years ended December 31, 2024 and 2023, respectively.

When awarded restricted shares vest, employees of the Bank can elect to surrender a portion of their vested shares back to the Bancorp to cover the tax liability of their awards.

When awarded restricted shares vest, employees of the Bank can elect to surrender a portion of their vested shares back to the Company to cover the tax liability of their awards.

Shares were surrendered with a total value of $ 86 thousand and $ 196 thousand for the years ended December 31, 2024 and 2023, respectively.

A summary of changes in the Bancorp’s non-vested restricted stock for the year ended December 31, 2023, follows:

A summary of changes in the Company’s non-vested restricted stock for the year ended December 31, 2024, follows:

Non-vested Shares

18 unchanged sentences

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.

In addition, the following table shows that, at December 31, 2023, and 2022, the Bank’s capital exceeded all applicable regulatory capital requirements.

The dollar amounts are in millions.

(Dollars in millions)

In addition, the following table shows that, at December 31, 2024, and 2023, the Bank’s capital exceeded all applicable regulatory capital requirements set forth in 12 C.F.R.

Bank Level Capital

Minimum Required To Be

(Dollars in thousands)

Minimum Required For

11 unchanged sentences

$ 179,625 8.47 % $ 84,854 4.00 % $ 106,068 5.00 %

(Dollars in millions)

Bank Level Capital

Minimum Required To Be

(Dollars in thousands)

Minimum Required For

11 unchanged sentences

$ 168,260 7.78 % $ 86,561 4.00 % $ 108,201 5.00 %

The Bancorp’s ability to pay dividends to its shareholders is largely dependent upon the Bank’s ability to pay dividends to the Bancorp.

The Company’s ability to pay dividends to its shareholders is largely dependent upon the Bank’s ability to pay dividends to the Company.

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.

4 unchanged sentences

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 2023, without the need for qualifying for an exemption or prior DFI approval, is its 2023 net profit.

In addition, under the terms of the MOU, the Bank must seek regulatory approval prior to paying cash dividends.

The MOU documents an understanding among the Bank, the FDIC, and DFI that, among other things, the Bank will:

refrain from paying cash dividends without prior regulatory approval.

The aggregate amount of dividends that the Bank was eligible to declare in 2024, without the need for qualifying for an exemption or prior DFI approval, was its 2024 net profit.

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.

Additionally, as noted in the “Regulatory Developments Regarding the Bancorp and the Bank” section of the Management Discussion and Analysis, on November 7, 2023, the Bank entered into MOU with the FDIC which noted the Bank will refrain from paying cash dividends without prior regulatory approval.

On December 26, 2023, the Board of Directors of the Bancorp declared a fourth quarter dividend of $ 0.12 per share.

The Bancorp’s fourth quarter dividend was paid to shareholders on February 5, 2024.

On December 20, 2024, the Board of Directors of the Company declared a fourth quarter dividend of $ 0.12 per share.

The Company’s fourth quarter dividend totaling $ 518 thousand was paid to shareholders on February 3, 2025.

Note 12 – Earnings per Common Share

1 unchanged sentence

A reconciliation of the numerators and denominators of the basic earnings per common share and diluted earnings per common share computations for 2024 and 2023 is presented below.

For the year ended,

(dollars in thousands except per share data)

17 unchanged sentences

Note 13 – Related Party Transactions

The Bancorp had aggregate loans outstanding to directors and executive officers (with individual balances exceeding $ 120 thousand) of approximately $ 3.8 million at December 31, 2023, and approximately $ 3.5 million at December 31, 2022.

The Company had aggregate loans outstanding to directors and executive officers (with individual balances exceeding $60 thousand) of approximately $ 4.4 million at December 31, 2024, and approximately $ 4.8 million at December 31, 2023.

For the year ended December 31, 2024, the following activity occurred on these loans:

1 unchanged sentence

Aggregate balance at the beginning of the year

$ 4,832 $ 4,565

( 387 ) ( 383 )

Aggregate balance at the end of the year

$ 4,445 $ 4,832

Deposits from directors and executive officers totaled approximately $ 3.8 million and $ 4.0 million at December 31, 2024, and 2023, respectively.

Note 14 – Commitments and Contingencies

The Bancorp is a party to financial instruments in the normal course of business to meet the financing needs of its customers.

The Company is a party to financial instruments in the normal course of business to meet the financing needs of its customers.

These financial instruments, which include commitments to make loans and standby letters of credit, are not reflected in the accompanying consolidated financial statements.

Such financial instruments are recorded when they are funded.

The Bancorp’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to originate loans and standby letters of credit is represented by the contractual amount of those instruments.

The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to originate loans and standby letters of credit is represented by the contractual amount of those instruments.

Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee.

The Bancorp uses the same credit policy to make such commitments as it uses for on-balance sheet items.

The Company uses the same credit policy to make such commitments as it uses for on-balance sheet items.

Since commitments to make loans may expire without being used, the amount does not necessarily represent future cash commitments.

The Bancorp had outstanding commitments to originate loans as follows:

(Dollars in thousands)

The following table represents the commitments to extend credit and standby letters of credit as of December 31, 2024 and December 31, 2023, respectively:

(Dollars in thousands)

December 31, 2024

Residential real estate

$ 7 $ 22,086 $ 22,093

46,444 5,601 52,045

Commercial real estate

1,365 7,775 9,140

Construction and land development

13,010 35,390 48,400

117 1,058 1,175

28,611 - 28,611

Commercial business

993 81,623 82,616

$ 90,547 $ 153,533 $ 244,080

December 31, 2023

Residential real estate

$ 3 $ 21,980 $ 21,983

48,796 5,636 54,432

Commercial real estate

3,166 11,610 14,776

Construction and land development

24,296 22,427 46,723

884 1,338 2,222

29,586 - 29,586

Commercial business

Commitments to extend credit

$ 228,461 $ 244,080

Standby letters of credit

14,078 18,279

$ 242,539 $ 262,359

Standby letters of credit are conditional commitments issued by the Bancorp to guarantee the performance of a customer to a third party.

At December 31, 2023, and 2022, the Bancorp had standby letters of credit totaling approximately $ 18.3 million and $ 13.7 million, respectively, which are not included in the tables above.

The Bancorp evaluates each customer’s creditworthiness on a case-by-case basis.

The amount of collateral obtained, if deemed necessary by the Bancorp upon extension of credit, is based on management’s credit evaluation of the borrower.

Collateral obtained may include accounts receivable, inventory, property, land or other assets.

Note 15 – 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.

The Company 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 Company 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.

Master netting agreements allow the Company 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 Company 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 Company 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 Company 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 Company 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.

1 unchanged sentence

December 31, 2024

Notational or

Asset derivatives

1 unchanged sentence

(Dollars in thousands)

contractual amount

Statement of Financial Condition classification

1 unchanged sentence

Interest rate swap contracts

$ 89,964 Other assets

$ 5,486 Other liabilities

Interest rate lock commitments

1,426 Other assets

$ 91,390 $ 5,510 $ 5,486

December 31, 2023

Notational or

Asset derivatives

1 unchanged sentence

(Dollars in thousands)

contractual amount

Statement of Financial Condition classification

1 unchanged sentence

Interest rate swap contracts

$ 86,995 Other assets

$ 5,591 Other liabilities

Interest rate lock commitments

2,071 Other assets

$ 89,066 $ 5,626 $ 5,591

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

For the year ended

(Dollars in thousands)

4 unchanged sentences

Gain on sale of loans held-for-sale, net

( 3 ) ( 103 )

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

1 unchanged sentence

Statement of Financial Condition

Gross Amounts of

(Dollars in Gross Amounts of

Gross Amounts Offset in the

Net Amounts of Assets Presented

Cash Collateral

(Dollars in thousands)

Financial Cash Collateral

Recognized Assets

1 unchanged sentence

in the Statement of Financial Condition

Financial Instruments

December 31, 2024

6 unchanged sentences

Statement of Financial Condition

Gross Amounts of

(Dollars in Gross Amounts of

Gross Amounts Offset in the

Net Amounts of Liabilities Presented

Cash Collateral

(Dollars in thousands)

Financial Cash Collateral

Recognized Liabilities

1 unchanged sentence

in the Statement of Financial Condition

Financial Instruments

December 31, 2023

7 unchanged sentences

Statement of Financial Condition

Gross Amounts of

(Dollars in Gross Amounts of

Gross Amounts Offset in the

Net Amounts of Liabilities Presented

Cash Collateral

(Dollars in thousands)

Financial Cash Collateral

Recognized Liabilities

1 unchanged sentence

in the Statement of Financial Condition

Financial Instruments

December 31, 2024

4 unchanged sentences

Statement of Financial Condition

Gross Amounts of

(Dollars in Gross Amounts of

Gross Amounts Offset in the

Net Amounts of Liabilities Presented

Cash Collateral

(Dollars in thousands)

Financial Cash Collateral

Recognized Liabilities

1 unchanged sentence

in the Statement of Financial Condition

Financial Instruments

December 31, 2023

13 unchanged sentences

In certain cases where market data is not readily available because of lack of market activity or little public disclosure, values may be based on unobservable inputs and classified in Level 3 of the fair value hierarchy.

In assessing credit loss, the Company considers, among other things:

Changes in the allowance for credit losses would be recorded as a provision for credit losses.

Losses would be charged against the allowance when management believes the security is uncollectible or management intends to sell or is required to sell the security.

Impairment related to a credit loss must be measured using the discounted cash flow method.

Credit loss recognition is limited to the fair value of the security.

The impairment is recognized by establishing an ACL through provision for credit losses.

Impairment related to noncredit factors is recognized in accumulated other comprehensive income, net of applicable taxes.

The Bank evaluates AFS security impairment on a quarterly basis.

ASC 326 allows for prospective adoption of previously recorded other-than-temporary impairment on AFS securities.

This allows the Bank to maintain the same amortized cost basis of the securities before and after adoption date.

At adoption, the Bank has $ 173 thousand of previously recorded credit impairment on trust preferred AFS securities.

The Bank believes this continues to represent the expected credit losses of the amortized cost basis, therefore, has established an ACL for AFS debt securities.

The Company evaluates AFS security impairment on a quarterly basis.

ASC 326 allows for prospective adoption of previously recorded credit impairment on AFS securities.

This allows the Company to maintain the same amortized cost basis of the securities before and after adoption date.

At adoption, the Company has $ 173 thousand of previously recorded credit impairment on collateralized debt obligations.

The Company believes this continues to represent the expected credit losses of the amortized cost basis, therefore, has established an ACL for AFS debt securities.

The ACL is monitored quarterly and is measured by evaluating the present value of cash flows as compared to the amortized cost basis of the security.

1 unchanged sentence

If any improvements in credit exceed the amount of previously reduced amortized cost bases, recoveries will be recorded through the income statement in the period received.

The table below shows the allowance for collateralized debt credit losses:

(Dollars in thousands)

Allowance for

collateralized debt credit losses

Ending balance, December 31, 2022

Additions not previously recognized

Ending balance, December 31, 2023

The Bancorp’s subordination for each trust preferred security is calculated by taking the total performing collateral and subtracting the sum of the total collateral within the Bancorp’s class and the total collateral within all senior classes, and then stating this result as a percentage of the total performing collateral.

The allowance for collateralized debt credit losses was at $ 173 thousand at December 31, 2024 and December 31, 2023.

The Company’s subordination for each collateralized debt obligation is calculated by taking the total performing collateral and subtracting the sum of the total collateral within the Company’s class and the total collateral within all senior classes, and then stating this result as a percentage of the total performing collateral.

This measure is an indicator of the level of collateral that can default before potential cash flow disruptions may occur.

In addition, management calculates subordination assuming future collateral defaults by utilizing the default/deferral assumptions in the Bancorp’s impairment analysis.

In addition, management calculates subordination assuming future collateral defaults by utilizing the default/deferral assumptions in the Company’s impairment analysis.

Subordination assuming future default/deferral assumptions is calculated by deducting future defaults from the current performing collateral.

2 unchanged sentences

the length of time that the security has been in “payment in kind” status;

and the Bancorp’s class position within each security.

At December 31, 2023 and 2022, the trust preferred securities with a cost basis of $ 2.2 million have been placed in “payment in kind” status.

The Bancorp’s securities that are classified as “payment in kind” are a result of not receiving the scheduled quarterly interest payments.

and the Company’s class position within each security.

At December 31, 2024 and 2023, the collateralized debt obligations with a cost basis of $ 2.2 million have been placed in “payment in kind” status.

The Company’s securities that are classified as “payment in kind” are a result of not receiving the scheduled quarterly interest payments.

For the securities in “payment in kind” status, management anticipates to receive the unpaid contractual interest payments from the issuer, because of the self- correcting cash flow waterfall provisions within the structure of the securities.

When a tranche senior to the Bancorp’s position fails the coverage test, the Bancorp’s interest cash flows are paid to the senior tranche and recorded as a reduction of principal.

The coverage test represents an over collateralization target by stating the balance of the performing collateral as a percentage of the balance of the Bancorp’s tranche, plus the balance of all senior tranches.

When a tranche senior to the Company’s position fails the coverage test, the Company’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 Company’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.

As a result of the principal reduction in the senior tranche, more cash is available for future payments to the Company’s tranche.

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.

The fair value of the Bancorp’s interest rate swap contracts, both assets and liabilities, are valued by a third -party pricing agent using an income approach and are classified within Level 2 of the valuation hierarchy.

The fair value of the Bancorp’s interest rate lock commitments is based on the price of the underlying loans expected to be sold to an investor while taking into consideration the probability the rate lock commitments will close and are classified within Level 2 of the valuation hierarchy.

The Bancorp utilized a third party pricing service for classifying and valuing the fair value of trust preferred securities held.

The fair value of the Company’s interest rate swap contracts, both assets and liabilities, are valued by a third - party pricing agent using an income approach and are classified within Level 2 of the valuation hierarchy.

The fair value of the Company’s interest rate lock commitments is based on the price of the underlying loans expected to be sold to an investor while taking into consideration the probability the rate lock commitments will close and are classified within Level 2 of the valuation hierarchy.

The Company utilized a third party pricing service for classifying and valuing the fair value of collateralized debt obligations held.

These securities were categorized as unobservable Level 3 and priced using an Option-Adjusted Discounted Cash flow model to value these securities.

4 unchanged sentences

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

(Dollars in thousands)

Fair Value Measurements at December 31, 2024 Using

3 unchanged sentences

Identical Assets

Significant Other

Observable Inputs

Significant Other Observable

Interest rate swap contracts

2 unchanged sentences

Available-for-sale debt securities:

government sponsored entities

US government sponsored entities

8,061 - 8,061 -

9 unchanged sentences

$ 5,486 $ - $ 5,486 $ -

(Dollars in thousands)

Fair Value Measurements at December 31, 2023 Using

3 unchanged sentences

Identical Assets

Significant Other

Observable Inputs

Significant Other Observable

Interest rate swap contracts

2 unchanged sentences

Available-for-sale debt securities:

government sponsored entities

US government sponsored entities

7,883 - 7,883 -

treasury securities

Collateralized mortgage obligations and residential mortgage-backed securities

25 unchanged sentences

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

(Dollars in thousands)

Fair Value Measurements at December 31, 2024 Using

3 unchanged sentences

Identical Assets

Significant Other

Observable Inputs

Significant Other Observable

Collateral dependent loans

6 unchanged sentences

Identical Assets

Significant Other

Observable Inputs

Impaired loans

Significant Other Observable

Collateral dependent loans

$ 8,673 $ - $ - $ 8,673

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.

Collateral dependent loans can include accruing loans that exhibit risk characteristics which differ from their pool or non-performing loans with risk characteristics not similar to other special attention loans in their pool.

Individual reserves are determined based on an analysis of the loan’s expected future cash flows, the loan’s observable market value, or the fair value of the collateral less costs to sell.

When foreclosure is probable, impairment is determined based on the collateral’s fair value less costs to sell.

As a practical expedient, fair value less costs to sell may be used when developing the estimate of credit losses.

Significant (Level 3 ) Inputs

The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.

Fair Value at

Valuation Significate Unobservable

Weighted-Average

(Dollars in thousands)

December 31, 2024

Technique Inputs

Collateral dependent loans

Fair value of collateral Discount for type of property and current market conditions

0 % - 80 % 8 %

Fair Value at

Significate Unobservable

Weighted-Average

(Dollars in thousands)

December 31, 2023

Collateral dependent loans

$ 8,673 Fair value of collateral

Discount for type of property and current market conditions

0 % - 80 % 17 %

The following table shows carrying values and related estimated fair values of financial instruments as of the dates indicated.

5 unchanged sentences

Quoted Prices in

Active Markets for

Identical Assets

Active Markets for Identical Assets

Other Observable

25 unchanged sentences

Quoted Prices in

Active Markets for

Identical Assets

Active Markets for Identical Assets

Other Observable

2 unchanged sentences

$ 86,008 $ 86,008 $ 86,008 $ - $ -

Certificates of deposit in other financial institutions

2,456 2,404 - 2,404 -

Loans held-for-sale

15 unchanged sentences

80,000 79,791 - 79,791 -

Interest rate swap agreements

8,972 8,972 - 8,972 -

Accrued interest payable

2 unchanged sentences

Cash and cash equivalent carrying amounts approximate fair value.

Certificates of deposits in other financial institutions fair value amounts are based on estimates of the rate the Bancorp would receive on similar deposits (Level 2 ).

Loans held-for-sale comprise residential mortgages and are priced based on values established by the secondary mortgage markets (Level 2 ).

3 unchanged sentences

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 ).

The fair value of fixed-maturity certificates of deposit (included in interest bearing deposits) are based on estimates of the rate the Company 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 ).

The fair value of FHLB Advances and proceeds from the Federal Reserve BTFP are estimated by discounting the future cash flows using quoted rates for similar advances with similar maturities (Level 2 ).

Longer-term repurchase agreements, with contractual maturity dates of three months or more, are based on estimates of the rate the Company would pay on similar deposits, applied for the time period until maturity (Level 2 ).

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.

7 unchanged sentences

150,543 144,266

Investment in NWIN Risk Management, Inc

Dividends receivable from Peoples Bank

2 unchanged sentences

Dividends payable

$ 516 $ 1,333

Other liabilities

15 unchanged sentences

Dividends from Peoples Bank

$ 4,529 $ 24,263

Dividends from NWIN Risk

5 unchanged sentences

Income before equity in undistributed income of Peoples Bank

Equity in undistributed (distributions in excess of) income of Peoples Bank income of NWIN Risk Management, Inc

Equity in undistributed income of Peoples Bank

income of NWIN Risk Management, Inc.

$ 12,130 $ 8,380

5 unchanged sentences

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

Unrealized loss arising during the period

Unrealized gain (loss) arising during the period

( 9,042 ) 16,630

reclassification adjustment for gains (loss) included in net income

reclassification adjustment for losses included in net income

Net securities gain (loss) during the period

1 unchanged sentence

2,040 ( 3,991 )

Other comprehensive loss, net of tax

Other comprehensive (loss) income, net of tax

( 6,471 ) 12,687

Comprehensive (loss) income, net of tax

Comprehensive income, net of tax

$ 5,659 $ 21,067

9 unchanged sentences

NWIN Risk Management, Inc.

( 729 ) ( 431 )

Stock based compensation expense

Change in intercompany payable

Change in other assets

1,353 ( 218 )

Change in other liabilities

( 213 ) 1,449

Total adjustments

( 9,917 ) ( 3,867 )

Net cash provided by operating activities

Cash flows from investing activities:

Cash and cash equivalents from acquisition activity, net

Net cash used in investing activities

12 unchanged sentences

Cash paid during the period for:

$ 335 $ 1,347

Dividends declared not paid

Note 19 – Subsequent Events

Entry into A Material Definitive Agreement

Sale-Leaseback Transaction - On January 29, 2024, the Bank entered into an agreement for the purchase and sale of property (the “Sale Agreement”), with MountainSeed Real Estate Services, LLC (the “Buyer”), a Georgia limited liability company, which provides for the sale to the Buyer of 5 properties owned and operated as branch locations by the Bank (the “Properties”) for an aggregate purchase price of $ 17.2 million, including certain closing adjustments.

Four of the Properties are located in Lake County, Indiana and one Property is located in Cook County, Illinois.

Under the Sale Agreement, the Bank agreed, concurrently with the closing of the sale of the Properties, to enter into lease agreements (the “Lease Agreements”) with the Buyer under which the Bank will lease each of the Properties.

Each of the Lease Agreements has an initial term of 15 years.

The Bank’s obligations under the Lease Agreements are guaranteed by the Bancorp.

The sale-leaseback transaction closed on February 22, 2024.

The Bancorp did not close any branches or exit any markets as part of the sale-leaseback transaction.

Note 18 – Leases

Under ASC 842, operating lease expense is generally recognized on a straight-line basis over the term of the lease.

On February 22, 2024, the Bank closed its previously announced sale-leaseback transaction with MountainSeed Real Estate Services, LLC (the “Buyer”), pursuant to which the Bank sold to the Buyer five properties owned and operated as branch locations (the “Properties”) for an aggregate purchase price of $ 17.2 million, including customary closing adjustments.

Under the Sale Agreement, the Bank also entered into triple net lease agreements (the “Lease Agreements”) with the Buyer under which the Bank leases each of the Properties, and pursuant to which the Bank is responsible for the insurance, real estate taxes, and maintenance and repairs for each of the properties.

Each of the Lease Agreements became effective upon the closing of the sale-leaseback transaction and have an initial term of 15 years.

The Bank’s obligations under the Lease Agreements are guaranteed by the Company.

As the rate implicit in the leases generally is not readily determinable for our operating leases, the discount rates used to determine the present value of our lease liability are based on our incremental borrowing rate at the lease commencement date and commensurate with the remaining lease term.

Our incremental borrowing rate for a lease is the rate of interest we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and are excluded from our weighted-average remaining lease term.

The following table summarizes supplemental cash flow and other information related to our operating leases:

(Dollars in thousands)

Twelve months ended December 31,

Gain on sale-leaseback transaction, net

$ ( 11,772 ) $ -

Operating cash flows

Cash paid for amounts included in the measurement of lease liabilities for leases

ROU assets obtained in the exchange for lease liabilities - Operating leases (1)

Weighted-average remaining lease terms (in years) - Operating leases

Weighted-average discount rate - Operating leases

7.67 % 3.00 %

Variable lease Payments

Total lease Costs (2)

( 1 ) Right of Use Asset Included in Premises and equipment on the consolidated balance sheet

( 2 ) Included in Occupancy and equipment costs on the consolidated statements of income

The following table represents the maturity of the Company's operating lease liabilities as of December 31, 2024:

(Dollars in thousands)

Maturity Analysis

Present value discount

Lease liability (3)

( 3 ) Included in Other Liabilities on the consolidated balance sheet

Note 19 – Segment Footnote

T he Company's revenue is primarily derived from the business of banking.

The Company's financial performance is monitored on a consolidated basis by the CEO, who is considered to be the Company's Chief Operating Decision Maker ("CODM").

This review is supported by the Chief Financial Officer, Chief Revenue Officer, and Chief Operating Officer.

Financial performance is reported to the CODM monthly.

The presentation of financial performance to the CODM is consistent with amounts and financial statement line items shown in the Company's consolidated balance sheets and consolidated statements of income.

Additionally, the Company's significant expenses are adequately segmented by category and amount in the consolidated statements of income to include all significant items when considering both qualitative and quantitative factors.

Significant expenses of the Company include compensation and benefits, net occupancy expense, equipment costs, data processing fees, and professional fees.

All of the Company’s financial results are similar and considered by management to be aggregated into one reportable operating segment.

The Company's revenue is primarily derived from the business of banking and the Company’s CODM evaluates financial performance on a Company-wide basis.

Accordingly, all of the Company’s operations are considered by management to be aggregated in one reportable operating segment.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

1 unchanged sentence

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 8. Financial Statements and Supplementary Data