Finward Bancorp

Finward Bancorp

Consolidated Statements of Income

(unaudited)

Finward Bancorp

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

Finward Bancorp

Consolidated Statements of Changes in Stockholder's Equity

(unaudited)

Finward Bancorp

Consolidated Statements of Cash Flows

(unaudited)

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note1 - Basis of Presentation

Organization and Description of Business

The consolidated financial statements include the accounts of Finward Bancorp (the “Bancorp” or “FNWD”) 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 hasno other business activity other than being a holding company for the Bank and the Bancorp’s earnings are primarily dependent upon the earnings of the Bank. The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form10-Q and, therefore, donot include all disclosures required by U.S. generally accepted accounting principles for complete presentation of consolidated financial statements. In the opinion of management, the consolidated financial statements contain all adjustments necessary to present fairly the consolidated balance sheets of the Bancorp as of* September 30, 2024,and December 31, 2023,and the consolidated statements of income, comprehensive income (loss), and changes in stockholders’ equity for thethree* andnine months ended* September 30, 2024,and2023,* and consolidated statements of cash flows for thenine months ended* September 30, 2024,and2023.* The income reported for thenine months ended* September 30, 2024,isnot* necessarily indicative of the results to be expected for the full year.

The Notes to the Consolidated Financial Statements appearing in Finward Bancorp’s Annual Report on Form10-K (2023 Annual Report), which include descriptions of significant accounting policies, should be read in conjunction with these interim financial statements. The Consolidated Balance Sheet at* December 31, 2023,has been derived from the audited financial statements at that date but doesnot* include all of the information and footnotes required by GAAP for complete financial statements.

Note2 - Use of Estimates

Preparing financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period, as well as the disclosures provided. Actual results could differ from those estimates. Estimates associated with the allowance for credit losses, fair values of foreclosed real estate, loan servicing rights, investment securities, deferred tax assets, goodwill, and the status of contingencies are particularly susceptible to material change in the near term.

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Note3 – Accounting Pronouncements Recently Adopted or Issued

In* June 2022,the FASB issued ASUNo.* 2022-03 “Fair Value Measurements (Topic820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” These amendments clarify that a contractual restriction on the sale of an equity security isnot considered part of the unit of account of the equity security and, therefore, isnot considered in measuring fair value. This guidance is effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after* December 15, 2023.The Bancorp adopted ASU2022*-03 effective* January 1, 2024*without material effect on its accounting and disclosures.

In* March 2023,the FASB issued Accounting Standards (ASU)No. 2023-02 “Investments Equity Method and Joint Ventures (Topic323*): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. This guidance is effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after* December 15, 2023.The Bancorp adopted ASU2023*-02 effective* January 1, 2024*without material effect on its accounting and disclosures.

In* November 2023,the FASB issued ASU2023*-07, Segment Reporting (Topic280): 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 fiscal2024 and interim periods starting in fiscal2025, with early adoption permitted. We are currently evaluating the impact of this accounting standard, but donot expect it to have a material impact on our consolidated financial statements.

In* December 2023,the FASB issued ASU2023*-09, Income Taxes (Topic740): Improvements to Income Tax Disclosures, which enhances transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid and to improve the effectiveness of income tax disclosures. This accounting standards update will be effective for us for fiscal year2025, with early adoption permitted. We are currently evaluating the impact of this accounting standard, but donot expect it to have a material impact on our consolidated financial statements.

In* March 2024,the FASB issued ASU2024*-01, Compensation—Stock Compensation (Topic718): Scope Application of Profits Interest and Similar Awards, which provides illustrative guidance to help entities determine whether profits interest and similar awards should be accounted for as share-based payment arrangements within the scope of FASB Accounting Standards Codification (FASB ASC)718, Compensation—Stock Compensation. This accounting standards update will be effective for us for fiscal year2025, with early adoption permitted. We are currently evaluating the impact of this accounting standard, but donot expect it to have a material impact on our consolidated financial statements.

In* March 2024,the FASB issued ASU2024*-02, Codification Improvements-Amendments to Remove References to the Concepts Statements, which removes references to various FASB Concepts Statements. Note that this ASU finalizes amendments proposed in Section A of the2019 proposed ASU, Codification Improvements, issued in* November 2019.Amendments are effective for annual periods beginning after December 15, 2024.We are currently evaluating the impact of this accounting standard, but we donot* expect it to have a material impact on our consolidated financial statements.

In* November 2024,the FASB issued ASU2024*-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 donot* expect it to have a material impact on our consolidated financial statements.

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Note4 - Securities

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

The cost basis and estimated fair value of available-for-sale debt securities at* September 30, 2024,by contractual maturity, were as follows. Securitiesnot* due at a single maturity date, primarily collateralized mortgage obligations and residential mortgage-backed securities, are shown separately.

Sales of available-for-sale securities were as follows for the quarter ended:

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Sales of available-for-sale securities were as follows for thenine months ended:

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

Securities with market values of approximately $342.3 million and $324.1 million were pledged as of* September 30, 2024and December 31, 2023,*respectively, as collateral for repurchase agreements, public funds, and for other purposes as permitted or required by law.

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Securities with unrealized losses at* September 30, 2024,and December 31, 2023**not* recognized in income are as follows:

Unrealized losses on securities havenot been recognized into income because the securities are of high credit quality or have undisrupted cash flows. Management has the intent and ability to hold these securities for the foreseeable future, and the decline in fair value is largely due to changes in interest rates and volatility in securities markets. The fair values are expected to recover as the securities approach maturity.

Collateralized debt obligations with a cost basis of $2.2 million and fair value of $1.4 million at* September 30, 2024and December 31, 2023,had previously recorded impairment of $173 thousand, which willnot* be recoverable until maturity of the security.

Accrued interest receivable on AFS debt securities totaled $2.2 million at* September 30, 2024,and $2.4 million at December 31, 2023.*These amounts are excluded from the estimate of credit losses. The Bancorp made the policy election to exclude accrued interest from the amortized cost basis of AFS debt securities and report accrued interest separately on the consolidated balance sheet.

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Note5 - Loans Receivable

The Bancorp’s current lending programs are described below:

Residential Real Estate. A primary lending activity of the Bancorp has been the granting of conventional mortgage loans to enable borrowers to purchase existing homes, refinance existing homes, or construct new homes. Conventional loans are made up to a maximum of 97% of the purchase price or appraised value, whichever is less. For loans made in excess of 80% of value, private mortgage insurance is generally required in an amount sufficient to reduce the Bancorp’s exposure to80% or less of the appraised value of the property. Loans insured by private mortgage insurance companies can be made for up to97% of value. Loans closed with over 20% of equity donot require private mortgage insurance because of the borrower’s level of equity investment.

Fixed rate loans generally conform to Freddie Mac guidelines for loans purchased under the1-4 family program. Loan interest rates are determined based on secondary market yield requirements and local market conditions. Fixed rate mortgage loans* may*be sold and/or classified as held for sale to control exposure to interest rate risk.

The Bancorp’s Adjustable-Rate Mortgage Loans (“ARMs”) include offerings that have a three, five,seven orten year fixed period. The ability of the Bancorp to successfully market ARM’s depends upon loan demand, prevailing interest rates, volatility of interest rates, and terms offered by competitors.

Home Equity Line of Credit. The Bancorp offers a fixed and variable rate revolving line of credit secured by the equity in the borrower’s home. Both products offer an interest only option where the borrower pays interest only on the outstanding balance each month. Equity lines will typically require asecond mortgage appraisal and asecond mortgage lender’s title insurance policy. Loans are generally made up to a maximum of 89% of the appraised value of the property less any outstanding liens.

Fixed-term home improvement and equity loans are made up to a maximum of 85% of the appraised value of the improved property, less any outstanding liens. These loans are offered on both a fixed and variable rate basis with a maximum term of 240 months. All home equity loans are made on a direct basis to borrowers.

Commercial Real Estate and Multifamily Loans. Commercial real estate loans are typically made to a maximum of 80% of the appraised value. Such loans are generally made on an adjustable-rate basis. These loans are typically made for terms of 15 to 25 years. Loans with an amortizing term exceeding 15 years normally have a balloon feature calling for a full repayment within seven toten years from the date of the loan. The balloon feature affords the Bancorp the opportunity to restructure the loan if economic conditions warrant. Commercial real estate loans include loans secured by commercial rental units, apartments, condominium developments, small shopping centers, owner occupied commercial/industrial properties, hospitality units and other retail and commercial developments.

While commercial real estate lending is generally considered to involve a higher degree of risk than single family residential lending due to the concentration of principal in a limited number of loans and the effects of general economic conditions on real estate developers and managers, the Bancorp has endeavored to reduce this risk in several ways. In originating commercial real estate loans, the Bancorp considers the feasibility of the project, the financial strength of the borrowers and lessees, the managerial ability of the borrowers, the location of the project and the economic environment. Management evaluates the debt coverage ratio and analyzes the reliability of cash flows, as well as the quality of earnings. All such loans are made in accordance with well-defined underwriting standards and are generally supported by personal guarantees, which represent a secondary source of repayment.

Loans for the construction of commercial properties are generally located within an area permitting physical inspection and regular review of business records. Projects financed outside of the Bancorp’s primary lending area generally involve borrowers and guarantors who are or were previous customers of the Bancorp or projects that are underwritten according to the Bank’s underwriting standards.

Construction and Land Development. Construction loans on residential properties are made primarily to individuals who are under contract with a general contractor. The maximum loan-to-value ratio is 89% of either the current appraised value or the cost of construction, whichever is less. Residential construction loans are typically made for a period ofone year.

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Loans are also made for the construction of commercial properties. All such loans are made in accordance with well-defined underwriting standards. Generally if the loans arenot owner occupied, these types of loans require proof of intent to lease and a confirmed end-loan takeout. In general, loans made donot exceed 80% of the appraised value of the property. Commercial construction loans are typically made for periodsnot to exceedtwo years or date of occupancy, whichever is less.

Commercial Business and Farmland Loans. Although the Bancorp’s priority in extending various types of commercial business loans changes from time to time, the basic considerations in determining the makeup of the commercial business loan portfolio are economic factors, regulatory requirements and money market conditions. The Bancorp seeks commercial loan relationships from the local business community and from its present customers. Prudent lending policies based upon sound credit analysis governs the extension of commercial credit. The following loans, althoughnot inclusive, are considered preferable for the Bancorp’s commercial loan portfolio: loans collateralized by liquid assets; loans secured by general use machinery and equipment; secured short-term working capital loans to established businesses secured by business assets; short-term loans with established sources of repayment and secured by sufficient equity and real estate; and unsecured loans to customers whose character and capacity to repay are firmly established.

Consumer Loans. The Bancorp offers consumer loans to individuals for personal, household or family purposes. Consumer loans are either secured by adequate collateral, or unsecured. Unsecured loans are based on the strength of the applicant’s financial condition. All borrowers must meet current underwriting standards. The consumer loan program includes both fixed and variable rate products.

**Manufactured Homes.**The Bancorp has purchased fixed rate closed loans from athird-party that are subject to Bancorp’s underwriting requirements and secured by manufactured homes. The maturity date on these loans can range up to 25 years. In addition, these loans are partially secured by a reserve account held at the Bancorp.

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

Loans consist of the following as of* September 30, 2024,and December 31, 2023:*

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

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The following table shows the amortized cost of loans, segregated by portfolio segment, credit quality rating and year of origination as of* September 30, 2024,and December 31, 2023,and gross charge-offs for thenine* months ended* September 30, 2024,and for the year ended December 31, 2023.*

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The Bancorp has established a standard loan grading system to assist management, lenders and review personnel in their analysis and supervision of the loan portfolio. The use and application of these grades by the Bancorp is uniform and conforms to regulatory definitions. The loan grading system is as follows:

1 – Superior Quality

Loans in this category are substantially risk free. Loans fully collateralized by a Bank certificate of deposit or Bank deposits with a hold are substantially risk free.

2 – Excellent Quality

The borrower generates excellent and consistent cash flow for debt coverage, excellent average credit scores, excellent liquidity and net worth and are reputable operators with over15 years' experience. Current and debt to tangible net worth ratios are excellent. Loan to value is substantially below policy and collateral condition is excellent.

3 – Great Quality

The borrower generates more than sufficient cash flow to fund debt service and cash flow is improving. Average credit scores are very strong. Operators are reputable with significant years of experience. Liquidity, net worth, current and debt to tangible net worth ratios are very strong. Loan to value is significantly below policy and collateral condition is significantly above average.

4 – Above Average Quality

The borrower generates more than sufficient cash flow to fund debt service, but cash flow trends* may*be stable or slightly declining. Average credit scores are strong. The borrower is a reputable operator with many years of experience. Liquidity, net worth, current and debt to tangible net worth ratios are strong. Loan to value is below policy and collateral condition is above average.

5 – Average Quality

Borrowers are considered creditworthy and can repay the debt in the normal course of business, however, cash flow trends* may*be inconsistent or fluctuating. Average credit scores are satisfactory, and years of experience is acceptable. Liquidity and net worth are satisfactory. Current and debt to tangible net worth ratios are average. Loan to value is slightly below policy and the collateral condition is slightly above average.

6 – Pass

Borrowers are considered creditworthy, but financial condition* mayshow signs of weakness due to internal or external factors. Cash flow trends maybe declining annually. Average credit scores may*be low but remain acceptable. The borrower has limited years of experience. Liquidity, net worth, current and debt to tangible net worth ratios are below average. Loan to value is nearing policy limits and collateral condition is average.

7 – Special Mention

A special mention asset has identified weaknesses that deserve Management’s close attention. If left uncorrected, these weaknesses* mayresult in deterioration of the repayment prospects for the asset or in the Bancorp’s credit position at some future date. Special mention assets arenot* adversely classified and donot expose the Bancorp to sufficient risk to warrant adverse classification. There is still adequate protection by the current sound worth and paying capacity of the obligor or of the collateral pledged. The Special Mention rating is viewed as transitional and will be monitored closely.

Loans in this category* mayexhibit some of the following risk factors. Cash flow trends maybe consistently declining or maybe questionable. Debt coverage ratios maybe at or near1:1.* Average credit scores* maybe very weak, or the borrower mayhave minimal years of experience. Liquidity, net worth, current and debt to tangible net worth ratios maybe very weak. Loan to value maybe at policy limits or mayexceed policy limits. Collateral condition may*be below average.

8 – Substandard

This classification consists of loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Financial statements normally reveal some or all of the following: poor trends, lack of earnings and cash flow, excessive debt, lack of liquidity, and the absence of creditor protection. Loans are still considered collectible, but due to increased risks and defined weaknesses of the credit, some loss could be incurred in collection if the deficiencies arenot corrected.

9 – Doubtful

Such loans have been placed on nonaccrual status and* may*be heavily dependent upon collateral possessing a value that is difficult to determine or based upon some near-term event which lacks clear certainty. These loans have all of the weaknesses of those classified as Substandard; however, based on existing conditions, these weaknesses make full collection of the principal balance highly improbable.

10 – Loss

Loans that are considered uncollectible and of such little value that continuing to carry them as assets isnot warranted.

Performing loans are loans that are paying as agreed and are approximately less thanninety days past due on payments of interest and principal.

Non-performing loans include those loans that are90 days or more past due and those loans that have been placed on non-accrual status.

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Modifications to Borrowers Experiencing Financial Difficulty

At times the Bank modifies loans to borrowers in financial difficulty by providing principal forgiveness, term extension, an payment delay, or interest rate reduction. In some cases, the Bank provides multiple types of modifications onone loan.

The following table presents the amortized cost basis of loans at* September 30, 2024that were both experiencing financial difficulty and modified during thethree* andnine months ended* September 30, 2024,*by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below:

In thethree months ended* September 30, 2024,the financial effects of payment delay modifications and term extension modifications were forbearance average ofseven* months andfour months weighted average extension to life of loan, respectively. In thenine months ended* September 30, 2024,the financial effects of payment delay modifications and term extension modifications were forbearance average offive* months andfour months weighted average extension to life of loan, respectively. 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. There wereno commitments to lend additional amounts to the borrowers included in the previous tables.

The Bancorp closely monitors the performance of loans that have been modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. Some borrowers with term extensions had their maturity dates extended which resulted in reduced monthly payments or had payments added to the end of the loan which resulted in payment relief. The following table presents the performance of such loans that have been modified in the lasttwelve months as of* September 30, 2024:*

Upon the Bancorp’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. All modified loans are deemed collectible.

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Foreclosures

There were $181 thousand in commercial loans and $51 thousand in residential loans in foreclosure as of* September 30, 2024.*

Acquired Loan Purchase Discounts

As part of the fair value of loans receivable, there was a net fair value discount for loans acquired of $4.6 million at* September 30, 2024,compared to $5.2 million at December 31, 2023.*

Accretable yield, or income recorded for thenine months ended* September 30,*is as follows:

Accretable yield, or income expected to be recorded in the future is as follows:

AllowanceforCredit**Losses

The allowance for credit losses is established for current expected credit losses on the Bancorp’s loan portfolio utilizing guidance in Accounting Standards Codification (ASC) Topic326. The Bancorp adopted ASU2016-13 on* January 1, 2023.*

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. 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 portfolio intonine 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 “current expected credit loss (CECL)” model as required under ASC326, the Bancorp has established atwo-year reasonable and supportable forecast period with aone-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 tables show the changes in the allowance for credit losses, segregated by portfolio segment, for thethree andnine months ended* September 30, 2024,and2023.*

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The Bancorp's activity in the allowance for credit losses, by loan segment, is summarized below for thethree months ended* September 30, 2024:*

The Bancorp's activity in the allowance for credit losses, by loan segment, is summarized below for thethree months ended* September 30, 2023:*

The Bancorp's activity in the allowance for credit losses, by loan segment, is summarized below for thenine months ended* September 30, 2024:*

The Bancorp's activity in the allowance for credit losses, by loan segment, is summarized below for thenine months ended* September 30, 2023:*

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A collateral dependent financial 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; the prospects for support from any financially responsible guarantors; and the nature and degree of protection provided by the cash flow and value of any underlying collateral. However, as other sources of repayment become inadequate over time, the significance of the collateral's value increases and the loan* may*become collateral dependent.

The table below presents the amortized cost basis and allowance for credit losses (“ACL”) allocated for collateral dependent loans in accordance with ASC326, which are individually evaluated to determine expected credit losses.

A deferred cost reserve is maintained for the portfolio of manufactured home loans that have been purchased. This reserve is available for use for manufactured home loan nonperformance and costs associated with nonperformance. If the segment performs in line with expectations, the deferred cost reserve is paid as a premium to thethird-party originator of the loan. The unamortized balance of the deferred cost reserve totaled $3.0 million and $3.5 million as of* September 30, 2024,and December 31, 2023,*respectively, and is included in net deferred loan origination cost.

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The following table presents non–accrual loans and loans past due over90 days still on accrual by class of loans:

Accrued interest receivable on loans totaled $5.2 million on* September 30, 2024,and $5.7 million on December 31, 2023,and is excluded from the estimate of credit losses. The Bancorp made the accounting policy election tonot* measure an ACL for accrued interest receivable. Accrued interest deemed uncollectible will be written off through interest income.

Liability for Credit Losses on Unfunded Loan Commitments

The liability for credit losses inherent in unfunded loan commitments is included in accrued expenses and other liabilities on the Consolidated Balance Sheet. The adequacy of the reserve for unfunded commitments is determined quarterly based on methodology similar to the methodology for determining the ACL. The following table shows the changes in the liability for credit losses on unfunded loan commitments.

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Note6 – Intangibles and Acquisition-Related Accounting

Goodwill is tested annually for impairment. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. The Bancorp’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of the Bancorp to provide quality, cost effective banking services in a competitive marketplace. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. There hasnot been any impairment of goodwill identified or recorded.

In addition to goodwill, a core deposit intangible was established from previous acquisitions. The Bancorp had core deposit intangible balances of $2.2 million and $3.3 million as of* September 30, 2024,and December 31, 2023,*respectively. The table below summarizes the intangibles amortization:

The amortization recorded for the quarter ended* September 30,*is as follows:

The amortization recorded for thenine months ended* September 30,*is as follows:

Amortization to be recorded in future periods, is as follows:

For the previously disclosed acquisition of Royal Financial, Inc., as part of the fair value of certificates of deposit, a fair value premium was established of $1.0 million. Approximately $30 thousand and $49 thousand of amortization was taken as income during the quarter ended* September 30, 2024and2023,* respectively. It is estimated amortization to be recorded in future periods is as follows: $27 thousand for the remainder of2024, $72 thousand in2025, $38 thousand in2026, and $16 thousand thereafter.

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Note7 – Deposits

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

The aggregate amount of retail and brokered certificates of deposit with a balance of*$250* thousand or more was approximately $132.2 million at* September 30, 2024and $137.1 million at December 31, 2023.*

Note8 - Concentrations of Credit Risk

The primary lending area of the Bancorp encompasses Lake County in northwest Indiana and Cook County in northeast Illinois, where collectively a majority of loan activity is concentrated. The Bancorp is also an active lender in Porter County, and to a lesser extent, LaPorte, Newton and Jasper counties in Indiana; and DuPage, Lake, and Will counties in Illinois. Substantially all loans are secured by specific items of collateral including residences, commercial real estate, land development, business assets and consumer assets.

Note9 - Earnings per Share

Earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding. A reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations for the quarter andnine months ended* September 30, 2024and2023,* are as follows:

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Note10 - Stock Based Compensation

The Bancorp’s2015 Stock Option and Incentive Plan (the “Plan”), which was adopted by the Bancorp’s Board of Directors on* February 27, 2015,and approved by the Bancorp’s shareholders on April 24, 2015,permits the grant of equity awards for up to 250,000 shares of common stock. The plan was amended and restated effective February 25, 2022.Awards granted under the Plan may*be in the form of incentive stock options, non-qualified stock options, unrestricted stock, restricted stock, performance shares, performance units, stock appreciation rights or any combination thereof, as provided in the plan

As required by the Stock Compensation Topic, companies are required to record compensation cost for stock options and awards provided to employees in return for employment service. For the quarter ended* September 30, 2024,stock based compensation expense of $138 thousand was recorded, compared to $98 thousand for the quarter ended September 30, 2023.For thenine* months ended* September 30, 2024,stock based compensation expense of $443 thousand was recorded, compared to $646 thousand for thenine* months ended* September 30, 2023.*It is anticipated that current outstanding unvested awards will result in additional compensation expense of approximately $1.1 million with a weighted average life of 1.7 years.

Restricted stock awards are issued with an award price equal to the market price of the Bancorp’s common stock on the award date and vest three years after the grant date. Forfeiture provisions exist for personnel that separate employment before the vesting period expires. A summary of restricted stock activity under the Bancorp’s Plan described above for thenine months ended* September 30, 2024,*follows:

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Note11 – 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* mayhave on net income and the fair value of assets and liabilities. The Bancorp has certain interest rate derivative positions that arenot* designated as hedging instruments. Derivative assets and liabilities are recorded at fair value on the Consolidated Balance Sheet and donot take into account the effects of master netting agreements. Master netting agreements allow the Bancorp to settle all derivative contracts held with a single counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable. These derivative positions relate to transactions in which the Bancorp enters into an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, the Bancorp agrees to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate. At the same time, the Bancorp agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the client to effectively convert a variable rate loan to a fixed rate. Because the terms of the swaps with the customers and the other financial institutions offset each other, with the only difference being counterparty credit risk, changes in the fair value of the underlying derivative contracts arenot materially different and donot significantly impact the Bancorp’s results of operations.

The Bancorp enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (i.e., interest rate lock commitment). The interest rate lock commitments are considered derivatives and are recorded on the accompanying consolidated balance sheets at fair value in accordance with FASB ASC815, Derivatives and Hedging.

The following table shows the amounts of non-hedging derivative financial instruments:

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

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

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

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Note12 - Fair Value

The Fair Value Measurements Topic establishes a hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Topic describesthree levels of inputs that* may*be used to measure fair value:

Level1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level2: Significant other observable inputs other than Level1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that arenot active; or other inputs that are observable or can be corroborated by observable market data.

Level3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values of securities available-for-sale are determined on a recurring basis by obtaining quoted prices on nationally recognized securities exchanges or pricing models utilizing significant observable inputs such as matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Different judgments and assumptions used in pricing could result in different estimates of value. In certain cases where market data isnot readily available because of a lack of market activity or little public disclosure, values* maybe based on unobservable inputs and classified in Level3* of the fair value hierarchy.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

There wereno transfers to or from Levels1 and2 during thenine months ended* September 30, 2024.*Assets measured at fair value on a recurring basis are summarized below:

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A roll forward of available-for-sale securities, which require significant adjustment based on unobservable data, are presented in the following table:

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

Fair value is determined, where possible, using market prices derived from an appraisal or evaluation, which are considered to be Level2 inputs. However, certain assumptions and unobservable inputs are often used by the appraiser, therefore, qualifying the assets as Level3 in the fair value hierarchy. The fair value of foreclosed real estate is similarly determined by using the results of recent real estate appraisals. The numerical range of unobservable inputs for these valuation assumptions isnot meaningful to this presentation.

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The following table shows carrying values and related estimated fair values of financial instrumentsnot carried at fair value in the consolidated balance sheets as of the dates indicated. Estimated fair values are further categorized by the inputs used to measure fair value. Items that arenot financial instruments arenot included.

The following methods were used to estimate the fair value of financial instruments presented in the preceding table at* September 30, 2024and December 31, 2023:*

Cash and cash equivalent carrying amounts approximate fair value. The fair values of securities available-for-sale are obtained from broker pricing (Level2), with the exception of collateralized debt obligations, which are valued by athird-party specialist (Level3). Loans held-for-sale comprise residential mortgages and are priced based on values established by the secondary mortgage markets (Level2). The estimated fair value for net loans receivable is based on the exit price notion which is the exchange price that would be received to transfer the loans at the most advantageous market price in an orderly transaction between market participants on the measurement date (Level3). Federal Home Loan Bank stock is estimated at book value due to restrictions that limit the sale or transfer of the security. Interest rate swap agreements, both assets and liabilities, are valued by athird-party pricing agent using an income approach (Level2). Fair values of accrued interest receivable and payable approximate book value, as the carrying values are determined using the observable interest rate, balance, and last payment date.

Non-interest and interest bearing deposits, which include checking, savings, and money market deposits, are estimated to have fair values based on the amount payable as of the reporting date (Level1). 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 (Level2). 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 (Level1). Longer-term repurchase agreements, with contractual maturity dates of quarter or more, are based on estimates of the rate the Bancorp would pay on similar deposits, applied for the time period until maturity (Level2). Short-term borrowings are generally only held overnight, therefore, their carrying amount is a reasonable estimate of fair value (Level1). 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 (Level2). The estimated fair value of other financial instruments, and off-balance sheet loan commitments, approximate cost and arenot considered significant to this presentation.

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Note13 - Borrowings

At* September 30, 2024,and December 31, 2023,*borrowed funds are summarized below:

At* September 30, 2024,*scheduled maturities of borrowed funds were as follows:

As of* September 30, 2024,the Bancorpno longer has any outstanding balance under the Federal Reserve’s Bank Term Funding Program (“BTFP”). The Bancorp’s liquidity position remains strong with solid core deposit customer relationships, excess cash, debt securities, and access to diversified borrowing sources. The Bancorp has available liquidity of $686.0 million including borrowing capacity from the FHLB and Federal Reserve facilities and other sources. The Bancorp also maintains a $25.0 million line of credit with the Federal Home Loan Bank of Indianapolis. The Bancorp didnot have a balance on the line of credit at September 30, 2024or December 31, 2023.The Bancorp didnot have other borrowings at September 30, 2024,or as of December 31, 2023.*

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Note14 - Leases

Under ASC842, 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 Bancorp.

As the rate implicit in the leases generally isnot 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 of12 months or less arenot 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:

(1) 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* September 30, 2024:*

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