# Finward Bancorp: Form 10-Q for the period ended Sep 30, 2024

- Company: [Finward Bancorp](/companies/fnwd.md) (CIK 919864)
- Form: 10-Q
- Filed: 2024-11-14
- Accepted by EDGAR: Nov 14, 2024, 16:30 ET
- Period: 2024-09-30
- Accession: 0001437749-24-035334
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/919864/000143774924035334/fnwd20240930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/919864/000143774924035334/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | −$207.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $756.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $606.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $10.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.14 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $2.35 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.14 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $2.35 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 4,281,148 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 4,271,664 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$1.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $2.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2024-01-01 to 2024-09-30 | $1.6m | us-gaap:PaymentsOfDividendsCommonStock |
| Total assets | at 2024-09-30 | $2.07bn | us-gaap:Assets |
| Total liabilities | at 2024-09-30 | $1.92bn | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | $159.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 80,542 characters.

### Summary

Finward Bancorp (the “Bancorp”) is a financial holding company registered with the Board of Governors of the Federal Reserve System. Peoples Bank (“the Bank”), an Indiana commercial bank, is a wholly-owned subsidiary of the Bancorp. The Bancorp has no other business activity other than being a holding company for the Bank. The following management’s discussion and analysis presents information concerning our financial condition as of September 30, 2024 and December 31, 2023, and the results of operations for the three and nine months ending September 30, 2024, and September 30, 2023. This discussion should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein and with the financial statements and other financial data, as well as the Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2023.

At September 30, 2024, the Bancorp had total assets of $2.1 billion, loans receivable, net of deferred fees and costs, of $1.5 billion and total deposits of $1.7 billion. Stockholders' equity totaled $159.6 million or 7.7% of total assets, with a book value per share of $36.99. Net income for the quarter ended September 30, 2024, was $606 thousand, or $0.14 earnings per diluted common share. For the quarter ended September 30, 2024, the return on average assets (ROA) was 0.12%, while the return on average stockholders’ equity (ROE) was 1.60%. Net income for the nine months ended September 30, 2024, was $10.0 million, or $2.35 earnings per diluted common share. For the nine months ended September 30, 2024, the ROA was 0.64%, while the ROE was 4.50%.

### Regulatory Developments Regarding the Bancorp and the Bank

#### Consent Order

On November 7, 2023, the Bank entered into a Stipulation and Consent to the Issuance of a Consent Order (the “Stipulation”) with the FDIC and the Indiana Department of Financial Institutions (“DFI”), consenting to the issuance of a consent order (the “Order”) relating to the Bank’s compliance with the Bank Secrecy Act and its implementing regulations (collectively, the “BSA”). In consenting to the issuance of the Order, the Bank did not admit or deny any charges of unsafe or unsound banking practices or violations of law or regulation relating to its BSA compliance. The Order is based on findings of the FDIC and DFI during their joint examination commencing in February 2023 (the “Examination”). Since the completion of the Examination, the board of directors and management of the Bancorp and the Bank have aggressively taken an active role in working to address the findings contained in the Examination and have proactively taken steps to comply with the requirements of the Order prior to its effectiveness, as further discussed below.

Under the terms of the Order, the Bank or its board of directors is required to take certain affirmative actions to comply with the Bank’s obligations under the BSA. These affirmative actions include, but are not limited to, the following: strengthening the board of directors’ oversight of the Bank’s BSA activities; developing, adopting, and implementing a revised BSA compliance program; developing a revised system of internal controls designed to ensure full compliance with the BSA; retaining management qualified to oversee the Bank’s BSA compliance program, including retaining a qualified BSA officer; assessing BSA staffing needs and identifying staff positions and personnel for BSA compliance; developing, adopting, and implementing a revised BSA training program; developing, adopting, and implementing a revised suspicious activity reporting program; implementing a board-approved customer due diligence program, and reviewing and enforcing enhanced customer due diligence and risk assessment procedures; eliminating or correcting certain violations of BSA law and regulations, and correcting BSA program weaknesses; ensuring that all reports required by the BSA are accurately and properly filed; and developing and implementing a written plan to review past account and transaction activity to determine whether suspicious activity was properly identified and reported.

Prior to implementation, certain of the actions required by the Order are subject to review by, and approval or non-objection from, the FDIC and the DFI. The Order will remain in effect and enforceable until it is modified, terminated, suspended, or set aside by the FDIC and DFI.

Numerous actions have been taken to date by the Bank to strengthen its BSA and anti-money laundering compliance practices, policies, procedures, and controls. In this regard, the Bank began developing corrective actions prior to the entry of the Order and expects that it will be able to undertake and implement all required actions within the time periods specified in the Order. These actions include, without limitation, the formation of a Risk Management and Compliance Committee of the board of directors, consisting solely of independent directors, to assist the board in overseeing compliance efforts; enhancing the Bank’s risk management and compliance programs through restructuring reporting lines; improving technology and increasing BSA compliance staff, including hiring senior personnel; making additional investments into processes and system upgrades to strengthen anti-money laundering controls; enhancing education and training of the Bank’s employees responsible for BSA and anti-money laundering compliance; and conducting a look-back review of accounts and transaction activity to identify and properly report suspicious activity and appointing a new Senior Vice President, General Counsel, Corporate Secretary, and Chief Risk Officer of the Bancorp and the Bank with oversight responsibility over the Bank’s enhanced risk management infrastructure, including BSA compliance.

The Order is expected to result in additional non-interest BSA compliance expenses for the Bank and the Bancorp. It also may have the effect of limiting or delaying the Bank’s and the Bancorp’s ability to obtain regulatory approval for certain expansionary activities, to the extent desired by the Bancorp. Our failure to comply with the Order or MOU may result in additional regulatory action, including civil money penalties against the Bank and its officers and directors or enforcement through court proceedings, which could have a material and adverse effect on our business, results of operations, financial condition, cash flows, and stock price.

#### Memorandum of Understanding

On August 9, 2024, the Bank entered into a memorandum of understanding (“MOU”) with the FDIC and DFI. The MOU is an informal administrative agreement pursuant to which the Bank has agreed to take various actions and comply with certain requirements to enhance certain areas of the Bank’s operations. 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 and develop and implement certain plans regarding the Bank’s operations, capital, and strategy. The Bank will submit written quarterly progress reports to the FDIC and DFI detailing compliance with the MOU. The MOU will remain in effect until modified or terminated by the FDIC and DFI.

Management does not expect the actions called for by these regulatory actions to have a substantial impact on the Bancorp’s or the Bank’s ongoing day-to-day operations, although they may have the effect of limiting or delaying the Bancorp’s or the Bank’s ability or plans to expand and engage in business combinations.

### Financial Condition

#### General

During the nine months ended September 30, 2024, total assets decreased by $33.6 million (1.6%), with interest-earning assets decreasing by $43.0 million (2.2%). At September 30, 2024, interest-earning assets totaled $1.92 billion compared to $1.96 billion at December 31, 2023. Earning assets represented 92.4% of total assets at September 30, 2024 and 92.9% of total assets at December 31, 2023.

#### Loan Portfolio

Net loans receivable totaled $1.51 billion at both September 30, 2024 and December 31, 2023. The loan portfolio, which is the Bancorp’s largest asset, is the primary source of both interest and fee income. The Bancorp’s lending strategy emphasizes quality loan growth, product diversification, and competitive and profitable pricing.

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

*(Dollars in thousands)*

|  | September 30, 2024 Balance | % Loans | December 31, 2023 Balance | % Loans |
| --- | ---: | ---: | ---: | ---: |
| Residential real estate | $471,156 | 31.3% | $484,948 | 32.1% |
| Home equity | 49,106 | 3.3 | 46,599 | 3.1 |
| Commercial real estate | 539,971 | 35.9 | 503,202 | 33.4 |
| Construction and land development | 87,923 | 5.8 | 115,227 | 7.6 |
| Multifamily | 218,037 | 14.5 | 219,917 | 14.6 |
| Consumer | 522 | 0.0 | 610 | 0.0 |
| Manufactured Homes | 27,462 | 1.8 | 30,845 | 2.0 |
| Commercial business | 97,900 | 6.5 | 97,386 | 6.5 |
| Government | 12,969 | 0.9 | 10,021 | 0.7 |
| Loans receivable | 1,505,047 | 100.0% | 1,508,755 | 100.0% |
| Plus: |  |  |  |  |
| Net deferred loans origination costs | 2,606 |  | 3,705 |  |
| Loan clearing funds | 589 |  | 135 |  |
| Loans receivable, net of deferred fees and costs | $1,508,242 |  | $1,512,595 |  |
| Adjustable rate loans / loans receivable | $772,439 | 51.3% | $745,635 | 49.4% |

|  | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Loans receivable to total assets | 72.7% | 71.7% |
| Loans receivable to earning assets | 78.7% | 77.2% |
| Loans receivable to total deposits | 86.2% | 83.4% |

33

Our total commercial real estate portfolio (which is comprised of loans secured by office space, medical office space, and mixed-use retail/office space) totaled $540.0 million as of September 30, 2024, compared to $503.2 million as of December 31, 2023. Given prevailing market conditions such as continued elevated interest rate levels, reduced occupancy as a result of the increase in hybrid work arrangements, and lower commercial real estate valuations, we are carefully monitoring these loans for signs of deterioration in credit quality.

Commercial real estate loans remained our largest loan segment and accounted for 35.8% of the total loan portfolio at September 30, 2024 and 33.4% at December 31, 2023. A further breakdown of the composition of the commercial real estate loan portfolio as of September 30, 2024 and December 31, 2023 is shown in the table below:

| Commercial Real Estate (CRE)\* ($thousand) CRE Owner Occupied (CRE OO) | September 30, 2024 # Loans | $ Amount | % of Total Gross Loans | December 31, 2023 # Loans | $ Amount | % of Total Gross Loans |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Food Services & Drinking Places | 68 | $31,584 | 2.1% | 67 | $31,171 | 2.1% |
| Ambulatory Health Care Services | 34 | 29,392 | 2.0% | 34 | 28,346 | 1.9% |
| Gasoline Stations & Fuel Dealers | 25 | 26,055 | 1.7% | 23 | 25,673 | 1.7% |
| Repair and Maintenance | 30 | 13,164 | 0.9% | 32 | 11,135 | 0.7% |
| Merchant Wholesalers, Durable Goods | 14 | 12,520 | 0.8% | 16 | 13,412 | 0.9% |
| Specialty Trade Contractors | 30 | 12,287 | 0.8% | 28 | 8,527 | 0.6% |
| Personal and Laundry Services | 32 | 10,979 | 0.7% | 32 | 11,352 | 0.8% |
| Professional, Scientific, and Technical Services | 29 | 10,869 | 0.7% | 30 | 11,461 | 0.8% |
| Truck Transportation | 11 | 10,408 | 0.7% | 10 | 10,499 | 0.7% |
| Other | 192 | 79,762 | 5.3% | 183 | 68,385 | 4.5% |
| **Total CRE Owner Occupied (CRE OO)** | 465 | $237,020 | 15.7% | 455 | $219,961 | 14.6% |
|  |  |  |  |  | $200.0 |  |
| **CRE Non Owner Occupied (CRE NOO)** |  |  |  |  |  |  |
| Strip Centers - Lessors | 160 | $125,382 | 8.3% | 157 | $124,096 | 8.2% |
| Hotels | 18 | 49,305 | 3.3% | 16 | 42,527 | 2.8% |
| Office Properties - Lessors | 57 | 42,364 | 2.8% | 54 | 41,208 | 2.7% |
| Industrial Properties - Lessors | 59 | 40,007 | 2.7% | 59 | 38,895 | 2.6% |
| Special Use - Lessors | 10 | 11,631 | 0.8% | 12 | 10,863 | 0.7% |
| Big Box Retail - Lessors | 2 | 8,288 | 0.6% | 2 | 8,538 | 0.6% |
| MiniWarehouses - Lessors | 17 | 8,118 | 0.5% | 16 | 7,934 | 0.5% |
| Other | 20 | 17,856 | 1.2% | 14 | 9,180 | 0.6% |
| **Total CRE Non Owner Occupied (CRE NOO)** | 343 | $302,951 | 20.1% | 330 | $283,241 | 18.8% |
| **Total Commercial Real Estate (OO & NOO)** | 808 | $539,971 | 35.9% | 785 | $503,202 | 33.4% |
| **Total Gross Loans** |  | **$1,505,047** |  |  | **$1,508,755** |  |

\* North American Industry Classification System (NAICS) classification coding for CRE loans began in 2023, similar NAICS 2022 proforma was not available to report.

The Bank’s Appraisal Policy and Procedures is Board approved annually and reflects current regulatory guidelines and recommendations. As one of the primary factors in commercial loan underwriting is the quality of the asset being pledged as collateral, it is imperative that the appraisal process receive appropriate attention. Appraisals must be prepared in accordance with high professional standards, by appraisers who have the necessary training, experience and knowledge for them to provide an accurate estimate of value. With few exceptions, appraisals are assigned to fee appraisers named in the Board approved appraiser list, which includes the tracking of all required certifications, licenses and insurance. The Bank has engaged with one of the nation’s longest-standing third-party appraisal management companies for ordering, management, fulfillment and review of real estate appraisals and other valuation-related services for the properties securing the Bank’s commercial real estate loans.

Criteria that may require the Bank to obtain a new appraisal or update the existing value for an existing credit include but are not limited to a change in the discount or capitalization rates for a particular location or property type; occupancy or absorption levels; market trends; and/or expense structure. Regarding the necessity of updated valuations for construction financing, factors considered are material changes in construction delays; cost overruns; or reductions in sales prices / rents. This may be done as a part of a renewal, loan workout or as a part of the usual and customary real estate review process that monitors the risks associated with the Bank’s loan portfolios.

The following table sets forth certain information at September 30, 2024, regarding the dollar amount of loans in the Bancorp’s portfolio based on their contractual terms to maturity. Demand loans, loans having no schedule of repayment and no stated maturity, and overdrafts are reported as due in one year or less. Contractual principal repayments of loans do not necessarily reflect the actual term of the loan portfolio. The average life of mortgage loans is substantially less than their contractual terms because of loan prepayments and because of enforcement of due-on-sale clauses, which give the Bancorp the right to declare a loan immediately due and payable in the event, among other things, that the borrower sells the property subject to the mortgage. The amounts are stated in thousands (000’s).

|  | Maturing within one year | After one but within five years | After five but within fifteen years | After fifteen years | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Residential real estate | $5,749 | $24,109 | $89,736 | $351,562 | $471,156 |
| Home equity | 11,108 | 193 | 4,884 | 32,921 | 49,106 |
| Commercial real estate | 24,683 | 149,275 | 365,370 | 644 | 539,972 |
| Construction and land development | 28,276 | 23,295 | 29,611 | 6,741 | 87,923 |
| Multifamily | 16,281 | 86,766 | 114,990 | - | 218,037 |
| Consumer | 188 | 316 | 18 | - | 522 |
| Manufactured Homes | 2 | 128 | 8,926 | 18,406 | 27,462 |
| Commercial business | 34,172 | 44,695 | 18,564 | 469 | 97,900 |
| Government | 1,945 | 9,769 | 1,255 | - | 12,969 |
| Total loans receivable | $122,404 | $338,546 | $633,354 | $410,743 | $1,505,047 |

The Bancorp primarily focuses on originating fixed-rate residential real estate loans for sale on the secondary markets. These loans are identified as held for sale when originated and sold, on a loan-by-loan basis, in the secondary market. The Bancorp will also retain mortgages, which are primarily construction loans and adjustable-rate loans with a fixed-rate period of 7 years or less. During the nine months September 30, 2024, the Bancorp originated $22.5 million in new fixed rate mortgage loans for sale, compared to $30.4 million during the nine months ended September 30, 2023. Net gains realized from the mortgage loan sales totaled $810 thousand for the nine months ended September 30, 2024, compared to $729 thousand for the nine months ended September 30, 2023. The decline in originations and increase in net gains realized from mortgage loan sales for the nine months ended September 30, 2024, compared to the prior year period is due to the receipt of additional gain on sale. based on loan performance. from loans sold to Federal Home Loan Bank of Indianapolis in previous years. At September 30, 2024, the Bancorp had $2.6 million in loans that were classified as held for sale, compared to $340 thousand at December 31, 2023.

#### Asset Quality

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. The Bancorp will at times maintain certain loans on accrual status, despite being over 90 days past due, for short periods of time when management has reason to believe payments are in the process of being received.

The Bancorp's nonperforming loans are summarized below:

*(Dollars in thousands)*

| Loan Segment | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Residential real estate | $3,075 | $2,824 |
| Home equity | 456 | 468 |
| Commercial real estate | 2,614 | 1,545 |
| Construction and land development | 659 | - |
| Multifamily | 3,526 | 3,715 |
| Commercial business | 3,476 | 2,897 |
| Consumer | - | 2 |
| Manufactured homes | - | - |
| Government | - | - |
| Total | $13,806 | $11,451 |
| Nonperforming loans to total loans | 0.92% | 0.76% |
| Nonperforming loans to total assets | 0.66% | 0.54% |

35

Substandard loans include potential problem loans, where information about possible credit issues or other conditions causes management to question the ability of such borrowers to comply with loan covenants or repayment terms. No loans were internally classified as doubtful or loss at September 30, 2024 or December 31, 2023.

The Bancorp's substandard loans are summarized below:

*(Dollars in thousands)*

| Loan Segment | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Residential real estate | $3,165 | $2,098 |
| Home equity | 464 | 479 |
| Commercial real estate | 2,936 | 2,544 |
| Construction and land development | 2,294 | - |
| Multifamily | 3,716 | 4,245 |
| Commercial business | 3,476 | 2,896 |
| Consumer | - | 2 |
| Manufactured homes | 130 | - |
| Government | - | - |
| Total | $16,181 | $12,264 |

In addition to identifying and monitoring non-performing and other classified loans, management maintains a list of special mention loans. Special mention loans represent loans management is closely monitoring due to one or more factors that may cause the loan to become classified as substandard.

The Bancorp's special mention loans are summarized below:

*(Dollars in thousands)*

| Loan Segment | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Residential real estate | $4,542 | $3,084 |
| Home equity | 484 | 168 |
| Commercial real estate | 6,687 | 7,434 |
| Construction and land development | 4,543 | 6,902 |
| Multifamily | 5,356 | - |
| Commercial business | 5,013 | 1,610 |
| Consumer | - | - |
| Manufactured homes | - | - |
| Government | - | - |
| Total | $26,625 | $19,198 |

At September 30, 2024, management is of the opinion that there are no loans where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which will imminently result in such loans being classified as past due or non-accrual. Management does not presently anticipate that any of the non-performing loans or classified loans would materially affect future operations, liquidity or capital resources.

The allowance for credit losses (ACL) is a valuation allowance for expected losses over the estimated life of loan portfolio, increased by the provision for credit losses, and decreased by charge-offs net of recoveries. A loan is charged off against the allowance by management as a loss when deemed uncollectible, although collection efforts continue and future recoveries may occur. The determination of the amounts of the ACL and provisions for credit losses is based on management’s current judgments about the credit quality of the loan portfolio with consideration given to all known relevant internal and external factors that affect loan collectability and reasonable and supportable forecasts as of the reporting date. The appropriateness of the current period provision and the overall adequacy of the ACL are determined through a disciplined and consistently applied quarterly process that reviews the Bancorp’s current credit risk within the loan portfolio and identifies the required allowance for credit losses given the current risk estimates.

The Bancorp's (release of) provision for credit losses for the period ended are summarized below:

*(Dollars in thousands)*

| Loan Segment | Three months ended, September 30, 2024 | Nine months ended September 30, 2024 |
| --- | ---: | ---: |
| Residential real estate | $170 | $462 |
| Home equity | 107 | 136 |
| Commercial real estate | (622) | (766) |
| Construction and land development | (261) | (1,400) |
| Multifamily | 650 | 631 |
| Commercial business | (179) | 369 |
| Consumer | 16 | 51 |
| Manufactured homes | 90 | 66 |
| Government | 28 | 53 |
| Total | $(0) | $(397) |

The Bancorp's provision for credit losses for the period ended are summarized below:

*(Dollars in thousands)*

| Loan Segment | Three months ended, September 30, 2023 | Nine months ended, September 30, 2023 |
| --- | ---: | ---: |
| Residential real estate | $(154) | $(607) |
| Home equity | 41 | 183 |
| Commercial real estate | 426 | 598 |
| Construction and land development | (195) | 416 |
| Multifamily | (115) | (329) |
| Commercial business | 463 | 1,118 |
| Consumer | 18 | 30 |
| Manufactured homes | (12) | 42 |
| Government | 16 | 11 |
| Total | $488 | $1,462 |

37

The Bancorp's charge-off and recovery information is summarized below:

*(Dollars in thousands)*

*(unaudited)*

| Loan Segment | For the three months ended September 30, 2024 Charge-off | Recoveries | Net (Charge-offs) |
| --- | ---: | ---: | ---: |
| Residential real estate | $(28) | $9 | $(19) |
| Home equity | - | - | - |
| Commercial real estate | - | 1 | 1 |
| Construction and land development | - | - | - |
| Multifamily | - | - | - |
| Farmland | - | - | - |
| Commercial business | (2) | 222 | 220 |
| Consumer | (17) | 1 | (16) |
| Manufactured homes | - | - |  |
| Government | - | - | - |
| Total | $(47) | $233 | $186 |

*(Dollars in thousands)*

*(unaudited)*

| Loan Segment | As of the three months ended September 30, 2023 Charge-off | Recoveries | Net (Charge-offs) |
| --- | ---: | ---: | ---: |
| Residential real estate | $- | $11 | $11 |
| Home equity | - | - | - |
| Commercial real estate | 1 | 1 | 2 |
| Construction and land development | - | - | - |
| Multifamily | - | 45 | 45 |
| Farmland | - | - | - |
| Commercial business | (622) | 18 | (604) |
| Consumer | (20) | 1 | (19) |
| Manufactured homes | - | - |  |
| Government | - | - | - |
| Total | $(641) | $76 | $(565) |

38

The Bancorp's charge-off and recovery information is summarized below:

*(Dollars in thousands)*

*(unaudited)*

| Loan Segment | For the nine months ended September 30, 2024 Charge-offs | Recoveries | Net (Charge-offs) |
| --- | ---: | ---: | ---: |
| Residential real estate | $(28) | $30 | $2 |
| Home equity | - | - | - |
| Commercial real estate | - | 3 | 3 |
| Construction and land development | - | - | - |
| Multifamily | (66) | 31 | (35) |
| Commercial business | (2) | 230 | 228 |
| Consumer | (60) | 7 | (53) |
| Manufactured homes | - | - | - |
| Government | - | - | - |
| Total | $(156) | $301 | $145 |

*(Dollars in thousands)*

*(unaudited)*

| Loan Segment | For the nine months ended September 30, 2023 Charge-offs | Recoveries | Net (Charge-offs) |
| --- | ---: | ---: | ---: |
| Residential real estate | $- | $74 | $74 |
| Home equity | - | - | - |
| Commercial real estate | (371) | 2 | (369) |
| Construction and land development | - | - | - |
| Multifamily | - | 131 | 131 |
| Commercial business | (1,065) | 166 | (899) |
| Consumer | (60) | 7 | (53) |
| Manufactured homes | - | - | - |
| Government | - | - | - |
| Total | $(1,496) | $380 | $(1,116) |

The ACL provisions take into consideration management’s current judgments about the credit quality of the loan portfolio, loan portfolio balances, changes in the portfolio mix, and local economic conditions. In determining the provision for credit losses for the current period, management has considered risks associated with the local economy, changes in loan balances and mix, and asset quality.

The Bancorp's allowance to total loans and non-performing loans are summarized below:

*(Dollars in thousands)*

|  | September 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Allowance for credit losses | $18,516 | $18,768 |
| Total loans | $1,508,242 | $1,512,595 |
| Non-performing loans | $13,806 | $11,451 |
| ACL-to-total loans | 1.23% | 1.24% |
| ACL-to-non-performing loans (coverage ratio) | 134.1% | 163.9% |

#### Investment Portfolio

The primary objective of the Bancorp’s investment portfolio is to provide for the liquidity needs of the Bancorp and to contribute to profitability by providing a stable flow of dependable earnings. Funds are generally invested in federal funds, interest bearing balances in other financial institutions, U.S. government securities, federal agency obligations, obligations of state and local municipalities, and corporate securities. The securities portfolio, all of which is designated as available-for-sale, totaled $350.0 million at September 30, 2024, compared to $371.4 million at December 31, 2023, a decrease of $21.3 million (5.7%). The decrease in securities available for sale on a year to date basis was due to a combination of a sale of $15.1 million in securities and portfolio runoff. Unrealized losses were $63.5 million as of September 30, 2024, compared to $67.9 million on December 31, 2023, a decrease of $4.4 million or 6.5%. The yield on the securities portfolio was 2.39% for both the nine months ended September 30, 2024 and the nine months ended September 30, 2023. Management did not execute any securities sale transactions during the quarter but will continue to monitor the securities portfolio for additional restructuring opportunities. At September 30, 2024, the securities portfolio represented 18.3% of interest-earning assets and 16.9% of total assets compared to 19.0% of interest-earning assets and 17.6% of total assets at December 31, 2023.

The Bancorp’s end-of-period investment portfolio and other short-term investments and stock balances were as follows:

*(Dollars in thousands)*

|  | September 30, 2024 Balance | % Securities | December 31, 2023 Balance | % Securities |
| --- | ---: | ---: | ---: | ---: |
| U.S. government sponsored entities | $8,168 | 2.3% | $7,883 | 2.1% |
| Collateralized mortgage obligations and residential mortgage-backed securities | 116,547 | 33.3 | 123,464 | 33.2 |
| Municipal securities | 223,872 | 64.0 | 238,670 | 64.3 |
| Collateralized debt obligations | 1,440 | 0.4 | 1,357 | 0.4 |
| Total securities available-for-sale | $350,027 | 100.0% | $371,374 | 100.0% |

*(Dollars in thousands)*

|  | September 30, 2024 Balance | December 31, 2023 Balance | YTD Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Interest bearing deposits in other financial institutions | $48,025 | $67,647 | $(19,622) | -29.0% |
| Fed funds sold | 553 | 419 | 134 | 32.0% |
| Federal Home Loan Bank stock | 6,547 | 6,547 | - | - |

The decrease in interest bearing deposits in other financial institutions is the result of the timing of cash flows.

The contractual maturities and weighted average yields for the U.S. government agency securities, municipal securities, and collateralized debt obligations at September 30, 2024, are summarized in the table below. Securities not due at a single maturity date, such as mortgage-backed securities and collateralized mortgage obligations, are shown separately. The carrying values are stated in thousands (000’s).

The weighted average yields were calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values. Yields presented are not on a tax-equivalent basis.

|  | Within 1 Year Amount | Yield | 1 - 5 Years Amount | Yield | 5 - 10 Years Amount | Yield | After 10 Years Amount | Yield | Total Amount |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| U.S. government sponsored entities: | $- | 0.00% | $8,168 | 1.00% | $- | 0.00% | $- | 0.00% | $8,168 |
| Collateralized mortgage obligations and residential mortgage- backed securities: | 2 | 3.45% | - | 0.00% | - | 0.00% | 116,546 | 1.56% | $116,548 |
| Municipal Securities: | 249 | 3.78% | 1,849 | 2.29% | 24,185 | 3.13% | 197,588 | 2.67% | 223,872 |
| Trust Preferred | - |  | - |  | - |  | - |  | - |
| Securities: | - | 0.00% | - | 0.00% | - | 0.00% | 1,440 | 7.75% | 1,440 |
| Totals | $251 | 3.81% | $10,017 | 1.24% | $24,185 | 3.13% | $315,574 | 2.70% | $350,027 |

40

#### Deposits

Deposits are a fundamental and cost-effective source of funds for lending and other investment purposes. The Bancorp offers a variety of products designed to attract and retain customers, with the primary focus on building and expanding relationships.

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

*(Dollars in thousands)*

|  | September 30, 2024 | December 31, 2023 | YTD Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Checking | $579,132 | $653,529 | $(74,397) | -11.4% |
| Savings | 279,126 | 302,782 | (23,656) | -7.8% |
| Money market | 328,329 | 324,993 | 3,336 | 1.0% |
| Certificates of deposit | 562,223 | 532,117 | 30,106 | 5.7% |
| Total deposits | $1,748,810 | $1,813,421 | $(64,611) | -3.6% |

As of September 30, 2024, deposits totaled $1.7 billion, compared to $1.8 billion on December 31, 2023 a decrease of $64.6 million or 3.6%. Core deposits totaled $1.2 billion at September 30, 2024 compared to $1.3 billion on December 31, 2023, a decrease of $94.7 million or 7.4%. Core deposits include checking, savings, and money market accounts and represented 67.9% of the Bancorp’s total deposits at September 30, 2024. On September 30, 2024, balances for certificates of deposit totaled $562.2 million, compared to $532.1 million on December 31, 2023, an increase of $30.1 million or 5.7%. The decrease in deposits is primarily related to cyclical inflows and outflows related to a number of municipality depositors and planned adjustments to deposit pricing.

Non-interest checking account balances decreased $74.4 million and interest bearing savings account balances decreased $23.7 million in the first nine months of 2024 as municipal and non-interest bearing customers deployed their excess cash balances. Money market account balances increased by $3.3 million during the first nine months of 2024 due to consumer preferences. Certificates of deposits increased by $30.1 million in the first nine months of 2024 reflecting our increases in offered interest rates. We strive to maintain balances of personal and business checking and savings accounts through our focus on quality customer service, the desire of customers to deal with a local bank, the convenience of our branch network and the breadth and depth of our product line.

Noninterest bearing demand accounts comprised 16.7% of total deposits at September 30, 2024 and 18.6% of total deposits at December 31, 2023. Interest bearing demand accounts, including money market and savings accounts, comprised 51.2% of total deposits at September 30, 2024 and 52.0% at December 31, 2023. Time accounts as a percentage of total deposits were 32.1% at September 30, 2024 and 29.3% at December 31, 2023.

The following table presents the average daily amount of deposits and average rates paid on such deposits for the periods indicated. The amounts are stated in thousands (000’s).

|  | Nine Months Ended September 30, 2024 Amount | Rate % | Year to Date December 31, 2023 Amount | Rate % |
| --- | ---: | ---: | ---: | ---: |
| Noninterest bearing demand deposits | $291,161 | - | $323,694 | - |
| Interest bearing demand deposits | 314,374 | 0.91 | 344,449 | 0.96 |
| MMDA accounts | 320,777 | 3.39 | 284,910 | 2.73 |
| Savings accounts | 292,812 | 0.05 | 343,008 | 0.05 |
| Certificates of deposit | 536,719 | 3.96 | 488,025 | 2.91 |
| Total deposits | $1,755,843 | 2.40 | $1,784,086 | 1.43 |

The increase in deposit rates in the nine months ended September 30, 2024 as compared to full year ending December 31, 2023 is primarily the result of the increase in short-term market interest rates and deposit product migration experienced throughout 2023 and continuing in the first nine months of 2024.

#### Borrowed Funds

The Bancorp’s borrowed funds are primarily used to fund asset growth not supported by deposit generation. The Bancorp’s end-of-period borrowing balances were as follows:

*(Dollars in thousands)*

|  | September 30, 2024 Balance | December 31, 2023 Balance | YTD Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Repurchase agreements | $43,038 | $38,124 | $4,914 | 12.9% |
| Borrowed funds | 85,000 | 80,000 | 5,000 | 6.3% |
| Total borrowed funds | $128,038 | $118,124 | $9,914 | 8.4% |

Borrowings and repurchase agreements totaled $128.0 million at September 30, 2024 compared to $118.1 million at December 31, 2023, an increase of $9.9 million or 8.4%. The change in short-term borrowings from December 31, 2023 was the result of cyclical inflows and outflows of interest-earning assets and interest-bearing liabilities. During the quarter ending September 30, 2024, the Bancorp terminated its involvement in the Bank Term Funding Program (the “BTFP”) and paid off its outstanding balance of $60 million, in full, through a utilization of excess liquidity and FHLB advances. As of September 30, 2024, 72% of our deposits are fully FDIC insured, and another 7% are further backed by the Indiana Public Deposit Insurance Fund. The Bancorp’s liquidity position remains strong with solid core deposit customer relationships, excess cash, debt securities, and access to diversified borrowing sources. As of September 30, 2024, the Bancorp had available liquidity of $686 million including borrowing capacity from the FHLB and Federal Reserve facilities.

Other assets totaled $40.9 million at September 30, 2024, compared to $45.3 million at December 31, 2023. The decrease in other assets is primarily related to decreased fair value of the Bancorp’s interest rate swap contract derivative. Other liabilities totaled $38.3 million at September 30, 2024, compared to $29.4 million at December 31, 2023. The increase in other liabilities is primarily related to the sale-leaseback transaction executed on February 22, 2024 with MountainSeed Real Estate Services, LLC (the “Buyer”). Under the Sale Agreement, the Bank also entered into lease agreements (the “Lease Agreements”) with the Buyer under which the Bank leases 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.

### Market Risk and Interest Rate Sensitivity

#### General

Market risk represents the risk of loss due to changes in market values of assets and liabilities. The Bancorp incurs market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. As of September 30, 2024, the Bancorp has identified interest rate risk as our primary source of market risk.

#### Interest Rate Risk

Interest rate risk is the risk to earnings and value arising from changes in market interest rates. Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities (repricing risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay home mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries and SOFR (basis risk).

The Bancorp’s board of directors establishes broad policy limits with respect to interest rate risk. As part of this policy, the asset liability committee, or ALCO, establishes specific operating guidelines within the parameters of the board of director’s policies. In general, the ALCO focuses on ensuring a stable and steadily increasing flow of net interest income through managing the size and mix of the balance sheet. The management of interest rate risk is an active process which encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints.

An asset sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned on our interest-earning assets would reprice upward more quickly than rates paid on our interest-bearing liabilities, thus expanding our net interest margin. Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on our interest-bearing liabilities would reprice upward more quickly than rates earned on our interest-earning assets, thus compressing our net interest margin.

Interest rate risk measurement is calculated and reported to the ALCO at least quarterly. The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.

#### Evaluation of Interest Rate Risk

We use income simulations, an analysis of core funding utilization, and economic value of equity (EVE) simulations as our primary tools in measuring and managing interest rate risk. These tools are utilized to quantify the potential earnings impact of changing interest rates over a 12-month simulation horizon (income simulations) as well as identify expected earnings trends given longer term rate cycles (long term simulations, core funding utilizations, and EVE simulation). A standard gap report and funding matrix will also be utilized to provide supporting detailed information on the expected timing of cashflow and repricing opportunities.

There are an infinite number of potential interest rate scenarios, each of which can be accompanied by differing economic, political, and regulatory climates; can generate multiple differing behavior patterns by markets, borrowers, depositors, and other market participants; and can last for varying degrees of time. Therefore, by definition, interest rate risk sensitivity cannot be predicted with certainty. Accordingly, the Bancorp’s interest rate risk measurement philosophy focuses on maintaining an appropriate balance between theoretical and practical scenarios; especially given the primary objective of the Bancorp’s overall asset/liability management process is to facilitate meaningful strategy development and implementation.

Therefore, we model a set of interest rate scenarios capturing the financial effects of a range of plausible rate scenarios, the collective impact of which will enable the Bancorp to clearly understand the nature and extent of its sensitivity to interest rate changes. Doing so necessitates an assessment of rate changes over varying time horizons and of varying/sufficient degrees such that the impact of embedded options within the balance sheet are sufficiently examined.

We utilize a simulation model as our primary tool to assess the direction and magnitude of variations in net interest income and EVE resulting from potential changes in market interest rates. Key assumptions in the model, which we believe are reasonable but which may have a significant impact on results, include: (i) the timing of changes in interest rates; (ii) shifts or rotations in the yield curve; (iii) re-pricing characteristics for market-rate-sensitive instruments; (iv) varying loan prepayment speeds for different interest rate scenarios; and (v) the overall growth and mix of assets and liabilities.

We forecast the next twelve months of net interest income under an assumed environment of gradual changes in market interest rates under various scenarios. The resulting change in net interest income is an indication of the sensitivity of our earnings to directional changes in market interest rates. The simulation also measures the change in EVE, or the net present value of our assets and liabilities, under an immediate shift, or shock, in interest rates under various scenarios, as calculated by discounting the estimated future cash flows using market-based discount rates.

The following table shows the impact of changes in interest rates on net interest income over the next twelve months

and EVE based on our balance sheet as of September 30, 2024 (dollars in millions):

| Interest Rate Scenario | EVE\* | Percent Change | Net interest income | Percent Change |
| --- | ---: | ---: | ---: | ---: |
| +300 Bps | $413.0 | -18.4% | $52.3 | -4.7% |
| +200 Bps | $459.0 | -9.3% | $53.7 | -2.2% |
| +100 Bps | $490.0 | -3.2% | $54.6 | -0.5% |
| No change | $506.0 | 0.0% | $54.9 | 0.0% |
| -100 Bps | $511.0 | 1.0% | $54.9 | 0.0% |
| -200 Bps | $499.0 | -1.4% | $55.4 | 0.9% |
| -300 Bps | $471.0 | -6.9% | $56.6 | 3.1% |

\* Economic Value of Equity ("EVE") at Risk

If interest rates were to decrease, this analysis suggests that we are positioned for an improvement in net interest income over the next twelve months. If interest rates were to increase, this analysis suggests we would experience a reduction in net interest income over the next twelve months.

We also forecast the impact of immediate and parallel interest rate shocks on net interest income under various scenarios to measure the sensitivity of our earnings under extreme conditions.

In addition to changes in interest rates, the level of future net interest income is also dependent on a number of other variables, including: the growth, composition and absolute levels of loans, deposits, and other earning assets and interest-bearing liabilities; economic and competitive conditions; potential changes in lending, investing and deposit gathering strategies; and client preferences.

### Liquidity and Capital Resources

For the Bancorp, liquidity management refers to the ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, and pay dividends and operating expenses. Because profit and liquidity are often conflicting objectives, management attempts to maximize the Bank’s net interest margin by making adequate, but not excessive, liquidity provisions. Furthermore, we seek to manage funds so that future profits will not be significantly impacted as funding costs increase. We seek to maintain diversified sources of liquidity that may be used during the ordinary course of business as well as on a contingency basis.

Our primary sources of liquidity are deposits, principal and interest payments on loans and securities, and proceeds from calls, maturities, and sales of securities, subject to market conditions. While maturities and scheduled amortization of loans and securities are predictable sources of liquidity, deposit flows and loan and securities prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are unencumbered cash and due from banks and unpledged securities classified as available for sale, which could be liquidated, subject to market conditions. In the future, our liquidity position will be affected by the level of customer deposits and payments, as well as acquisitions, dividends, and share repurchases in which we may engage. For the next twelve months, we believe that our existing cash resources will be sufficient to meet the liquidity and capital requirements of our operations.

Changes in the liquidity position result from operating, investing and financing activities. Cash flows from operating activities are generally the cash effects of transactions and other events that enter into the determination of net income. The primary investing activities include loan originations, loan repayments, investments in interest bearing balances in other financial institutions, and the purchase, sale, and maturity of investment securities. Financing activities focus almost entirely on the generation of customer deposits. In addition, the Bancorp utilizes borrowings (i.e., repurchase agreements, FHLB advances and federal funds purchased) as a source of funds.

Although customer deposits remain our preferred funding source, maintaining additional sources of liquidity is part of our prudent liquidity risk management practices. We have the ability to borrow from the FHLB. At September 30, 2024, we had seven outstanding advances totaling $85 million and the ability to borrow up to $398.3 million from the FHLB. We also have the ability to borrow from the Federal Reserve Bank of Chicago. At September 30, 2024, we had no outstanding balance from the Federal Reserve Bank of Chicago through the BTFP. At September 30, 2024, cash and cash equivalents were $71.6 million and secured borrowing capacity at the Federal Reserve Bank totaled $246.6 million, providing total liquidity sources of $685.9 million.

The following table shows the Bancorp’s sources of liquidity as of September 30, 2024 and December 31, 2023:

|  | Sources of Liquidity As of September 30, 2024 Outstanding | Additional Capacity | As of December 31, 2023 Outstanding | Additional Capacity |
| --- | ---: | ---: | ---: | ---: |
| FHLB Advances | $85,000 | $398,286 | $- | $592,575 |
| Bank Term Funding and Fed Discount Window | - | 246,629 | 80,000 | 206,440 |
| Fed Funds Lines | - | 16,000 | - | 16,000 |
| Other Line of Credit | - | 25,000 | - | 25,000 |
| Total | $85,000 | $685,915 | $80,000 | $840,015 |

44

During the nine months ended September 30, 2024, cash and cash equivalents decreased by $14.4 million compared to a $40.4 million increase for the nine months ended September 30, 2023. The primary sources of cash and cash equivalents were changes in other borrowings, sales of loans originated for sale, proceeds from the maturity and paydown of securities, and change in repurchase agreements. The primary uses of cash and cash equivalents were loan originations. Cash used in operating activities totaled $1.0 million for the nine months ended September 30, 2024, compared to cash provided of $22.4 million for the nine months ended September 30, 2023. Cash used in operating activities was primarily a result of net income and sale of loans originated for sale, offset by loans originated for sale and net change in accrued expenses and other liabilities. Cash provided by investing activities totaled $43.0 million for the current period, compared to cash provided in investing activities of $363 thousand for the nine months ended September 30, 2023. Cash provided by investing activities for the current nine-month period was primarily related to net change in loans receivable, proceeds from security sales, and proceeds from the sale leaseback transaction. Cash used in financing activities totaled $56.3 million during the current period compared to net cash provided by financing activities of $17.6 million for the nine months ended September 30, 2023. The net cash used in financing activities was primarily the result of net change in deposits and change in other borrowed funds, offset against borrowings of FHLB advances. On a cash basis, the Bancorp paid dividends on common stock of $1.6 million for the nine months ended September 30, 2024, and $4.0 million for the nine months ended September 30, 2023.

At September 30, 2024, outstanding commitments to fund loans totaled $268.3 million. Approximately 54.0% of the commitments were at variable rates. Standby letters of credit, which are conditional commitments issued by the Bancorp to guarantee the performance of a customer to a third-party, totaled $16.7 million at September 30, 2024. Management believes that the Bancorp has sufficient cash flow and borrowing capacity to fund all outstanding commitments and letters of credit, while maintaining proper levels of liquidity.

Management strongly believes that maintaining a high level of capital enhances safety and soundness. During the nine months ended September 30, 2024, stockholders' equity increased by $12.2 million (8.3%). During the nine months ended September 30, 2024, stockholders’ equity was primarily increased by net income of $10.0 million and other comprehensive losses as the result of market value changes within the securities portfolio of $3.4 million offset by dividends declared of $1.6 million. On April 24, 2014, the Bancorp’s Board of Directors authorized a stock repurchase program to repurchase up to 50,000 shares of the Bancorp’s outstanding common stock, from time to time and subject to market conditions, on the open market or in privately negotiated transactions. The stock repurchase program does not expire and is only limited by the number of shares that can be purchased. The stock repurchase program will be reviewed annually by the Board of Directors. No shares were repurchased under the program during the first nine months of 2024 or 2023. During 2024, 14,974 restricted stock shares vested under the Incentive Plan outlined in Note 10 of the financial statements, of which 3,364 of these shares were withheld in the form of a net surrender to cover the withholding tax obligations of the vesting employees. The repurchase of these surrendered shares is considered outside of the scope of the formal board approved stock repurchase program.

The Bank is subject to risk-based capital guidelines adopted by the FDIC. The regulations divide capital into multiple tiers. The first tier (Common Equity Tier 1 Capital) includes common shareholders’ equity, after deductions for various items including goodwill and certain other intangible assets, and after certain other adjustments. Common Equity Tier 1 Capital also includes accumulated other comprehensive income (for organizations that do not make opt-out elections). The next tier (Tier 1 Capital) is comprised of Common Equity Tier 1 Capital plus other qualifying capital instruments such as perpetual noncumulative preferred stock and junior subordinated debt issued to trusts, and other adjustments. The third tier (Tier 2 Capital) includes instruments such as subordinated debt that have a minimum original maturity of at least five years and are subordinated to the claims of depositors and general creditors, total capital minority interest not included in Tier 1 Capital, and limited amounts of the allowance for credit losses, less applicable regulatory adjustments and deductions. Pursuant to the above capital regulations, the Bank is required to maintain a Common Equity Tier 1 Capital ratio of 4.5%, a Tier 1 Capital ratio of 6%, and a Total Capital ratio (comprised of Tier 1 Capital plus Tier 2 Capital) of 8%. In addition, the capital regulations provide for a minimum leverage ratio (Tier 1 capital to adjusted average assets) of 4%.

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions by the institution and certain discretionary bonus payments to management if an institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required the FRB to set minimum capital levels for bank holding companies that are as stringent as those required for insured depository subsidiaries. However, under the FRB’s “Small Bank Holding Company” exemption from consolidated bank holding company capital requirements, bank holding companies and savings and loan holding companies with less than $3 billion in consolidated assets, such as the Bancorp, are exempt from consolidated regulatory capital requirements, unless the FRB determines otherwise in particular cases.

During the nine months ended September 30, 2024, the Bancorp’s and Bank’s risk weighted assets continued to be negatively impacted by regulatory requirements regarding collateralized debt obligations. The regulatory requirements state that for collateralized debt obligations that have been downgraded below investment grade by the rating agencies, increased risk-based asset weightings are required. The Bancorp currently holds pooled collateralized debt obligations with a cost basis of $2.2 million. These investments currently have ratings that are below investment grade. As a result, approximately $7.9 million of risk-based assets are generated by the collateralized debt obligations in the Bancorp’s and Bank’s total risk based capital calculation.

In addition, the following table shows that, at September 30, 2024, and December 31, 2023, the Bank’s capital exceeded all applicable regulatory capital requirements as set forth in 12 C.F.R. § 324.

*(Dollars in thousands)*

| September 30, 2024 | Actual Amount | Ratio | Minimum Required For Capital Adequacy Purposes Amount | Ratio | Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations Amount | Ratio |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Common equity tier 1 capital to risk-weighted assets | $176,335 | 11.10% | $71,924 | 4.50% | $103,890 | 6.50% |
| Tier 1 capital to risk-weighted assets | $176,335 | 11.10% | $95,898 | 6.00% | $127,865 | 8.00% |
| Total capital to risk-weighted assets | $193,963 | 12.14% | $127,865 | 8.00% | $159,831 | 10.00% |
| Tier 1 capital to adjusted average assets | $176,335 | 8.38% | $84,679 | 4.00% | $105,849 | 5.00% |

*(Dollars in thousands)*

| December 31, 2023 | Actual Amount | Ratio | Minimum Required For Capital Adequacy Purposes Amount | Ratio | Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations Amount | Ratio |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Common equity tier 1 capital to risk-weighted assets | $168,263 | 10.43% | $72,643 | 4.50% | $104,928 | 6.50% |
| Tier 1 capital to risk-weighted assets | $168,263 | 10.43% | $96,857 | 6.00% | $129,142 | 8.00% |
| Total capital to risk-weighted assets | $183,315 | 11.36% | $129,142 | 8.00% | $161,428 | 10.00% |
| Tier 1 capital to adjusted average assets | $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. Under Indiana law, the Bank may pay dividends from its undivided profits (generally, earnings less losses, bad debts, taxes and other operating expenses) as is considered expedient by the Bank’s Board of Directors. However, the Bank must obtain the approval of the Indiana Department of Financial Institutions (DFI) if the total of all dividends declared by the Bank during the current year, including the proposed dividend, would exceed the sum of retained net income for the year to date plus its retained net income for the previous two years. For this purpose, “retained net income,” means net income as calculated for call report purposes, less all dividends declared for the applicable period. An exemption from DFI approval would require that the Bank have been assigned a composite uniform financial institutions rating of 1 or 2 as a result of the most recent federal or state examination; the proposed dividend would not result in a Tier 1 leverage ratio below 7.5%; and that the Bank not be subject to any corrective action, supervisory order, supervisory agreement, or board approved operating agreement. In addition, under the terms of the MOU, the Bank must seek regulatory approval prior to paying cash dividends. See “– Regulatory Developments Regarding the Bancorp and the Bank – Memorandum of Understanding” above. 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. Assuming receipt of regulatory approval for all cash dividends declared by the Bank under the terms of the MOU, the aggregate amount of dividends that the Bank is eligible to declare in 2024, without the need for qualifying for a further exemption or prior DFI approval under the terms of Indiana law described above, is its 2024 net income. On September 20, 2024, the Board of Directors of the Bancorp declared the third quarter dividend of $0.12 per share. The Bancorp’s third quarter dividend was paid to shareholders on October 31, 2024 to shareholders of record on October 18, 2024.

### Results of Operations - Comparison of the Quarter Ended September 30, 2024 to the Quarter Ended September 30, 2023

For the quarter ended September 30, 2024, the Bancorp reported net income of $606 thousand, compared to net income of $2.2 million for the quarter ended September 30, 2023, a decrease of $1.6 million (72.3%). For the quarter ended September 30, 2024, the ROA was 0.12%, compared to 0.42 % for the quarter ended September 30, 2023. The ROE was 1.60% for the quarter ended September 30, 2024, compared to 6.55% for the quarter ended September 30, 2023.

Information relating to the average consolidated balance sheet and the yield on average earning assets and cost of average liabilities for the periods indicated are in the following table. Dividing the related interest, on an annualized basis, by the average balance of assets or liabilities drives the disclosed rates. Average balances are derived from daily balances.

*(Dollars in thousands)*

*(unaudited)*

| Quarter Ended ASSETS | Average Balances, Interest, and Rates September 30, 2024 Average Balance | Interest | Rate (%) | September 30, 2023 Average Balance | Interest | Rate (%) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest bearing deposits in other financial institutions | $54,084 | $665 | 4.92 | $33,201 | $347 | 4.18 |
| Federal funds sold | 682 | 9 | 5.28 | 930 | 11 | 4.73 |
| Certificates of deposit in other financial institutions | - | - | - | - | 13 | - |
| Securities available-for-sale | 342,451 | 2,031 | 2.37 | 362,981 | 2,191 | 2.41 |
| Loans receivable | 1,506,967 | 19,660 | 5.22 | 1,526,459 | 19,161 | 5.02 |
| Federal Home Loan Bank stock | 6,547 | 107 | 6.54 | 6,547 | 55 | 3.36 |
| Total interest earning assets | 1,910,731 | $22,472 | 4.70 | 1,930,118 | $21,778 | 4.51 |
| Cash and non-interest bearing deposits in other financial institutions | 22,478 |  |  | 19,116 |  |  |
| Allowance for credit losses | (18,482) |  |  | (19,684) |  |  |
| Other noninterest bearing assets | 155,997 |  |  | 154,221 |  |  |
| Total assets | $2,070,724 |  |  | $2,083,771 |  |  |
| LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |  |
| Interest-bearing deposits | $1,451,414 | $8,946 | 2.47 | $1,451,820 | $7,066 | 1.95 |
| Repurchase agreements | 43,074 | 435 | 4.04 | 46,025 | 441 | 3.83 |
| Borrowed funds | 95,224 | 1,085 | 4.56 | 101,683 | 1,138 | 4.48 |
| Total interest bearing liabilities | 1,589,712 | $10,466 | 2.63 | 1,599,528 | $8,645 | 2.16 |
| Non-interest bearing deposits | 287,507 |  |  | 316,084 |  |  |
| Other noninterest bearing liabilities | 41,696 |  |  | 34,332 |  |  |
| Total liabilities | 1,918,915 |  |  | 1,949,944 |  |  |
| Total stockholders' equity | 151,809 |  |  | 133,827 |  |  |
| Total liabilities and stockholders' equity | $2,070,724 |  |  | $2,083,771 |  |  |
| Return on average assets | 0.12% |  |  | 0.42% |  |  |
| Return on average equity | 1.60% |  |  | 6.55% |  |  |
| Net interest margin (average earning assets) | 2.51% |  |  | 2.72% |  |  |
| Net interest margin (average earning assets) - tax equivalent | 2.66% |  |  | 2.87% |  |  |
| Net interest spread | 2.07% |  |  | 2.35% |  |  |
| Ratio of interest-earning assets to interest-bearing liabilities | 1.20x |  |  | 1.21x |  |  |

In the third quarter 2024 earnings release on October 29, 2024, we reported a September 30, 2024 quarterly average balance in interest bearing deposits in other financial institutions of $44.4 million with an associated rate of 6.00%, quarterly interest earning asset rate of 4.73%, quarterly average balance in cash and non-interest bearing deposits in other financial institutions of $32.2 million, quarterly net interest margin of 2.53%, quarterly net interest margin (tax equivalent) of 2.67%, and net interest spread of 2.10%. Each of these amounts have been revised to reflect the actual average balance and associated yields during the quarter ended September 30, 2024.

Net interest income for the quarter ended September 30, 2024, was $12.0 million, a decrease of $1.1 million (8.6%), compared to $13.1 million for the quarter ended September 30, 2023. The weighted-average yield on interest-earning assets was 4.70% for the quarter September 30, 2024, compared to 4.51% for the quarter ended September 30, 2023. The weighted-average cost of interest-bearing liabilities for the quarter ended September 30, 2024, was 2.63% compared to 2.16% for the quarter ended September 30, 2023. The impact of the 4.70% return on interest-earning assets and the 2.63% cost of interest-bearing liabilities resulted in an interest rate spread of 2.07% for the current quarter, a decrease from the 2.35% spread for the quarter ended September 30, 2023. On a tax adjusted basis, the Bancorp’s net interest margin was 2.66% for the quarter ended September 30, 2024, compared to 2.87% for the quarter ended September 30, 2023. The Bancorp believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully-taxable equivalent basis, as these measures provide useful information to make peer comparisons. Tax adjusted net interest margin represents a non-GAAP financial measure. See the non-GAAP reconciliation table immediately below and the section captioned “Non-GAAP Financial Measures” for further disclosure regarding non-GAAP financial measures.

*(Dollars in thousands)*

*(unaudited)*

| Calculation of tax adjusted net interest margin | Quarter Ended, September 30, 2024 | September 30, 2023 |
| --- | ---: | ---: |
| Net interest income | $12,006 | $13,133 |
| Tax adjusted interest on securities and loans | 678 | 730 |
| Adjusted net interest income | $12,684 | $13,863 |
| Total average earning assets | 1,910,731 | 1,930,118 |
| Tax adjusted net interest margin | 2.66% | 2.87% |

The decreased net interest income and net interest margin for the quarter ended September 30, 2024, was primarily the result of higher cost of interest-bearing liabilities resulting from the higher rate environment year over year. We anticipate that year over year compression in net interest margin may continue, however recent Federal Reserve target rate reductions may reduce or reverse such compression, as our interest-bearing liabilities are able to reprice at lower rates.

The following table shows the change in noninterest income for the quarter ending September 30, 2024, and September 30, 2023.

*(Dollars in thousands)*

| Noninterest income: | Quarter Ended September 30, 2024 | 2023 | 9/30/2024 vs. 9/30/2023 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Fees and service charges | $1,463 | $1,374 | $89 | 6.5% |
| Wealth management operations | 731 | 572 | 159 | 27.8 |
| Gain on sale of loans held-for-sale, net | 338 | 192 | 146 | 76.0 |
| Increase in cash value of bank owned life insurance | 205 | 193 | 12 | 6.2 |
| Gain (loss) on sale of real estate | - | 2 | (2) | (100.0) |
| Other | 130 | 64 | 66 | 103.1 |
| Total noninterest income | $2,867 | $2,397 | $470 | 19.6% |

The increase noninterest income is primarily the result of higher income from fees and service charges, Wealth management operations, and increased gains on sale of loans.

The following table shows the change in noninterest expense for the quarter ending September 30, 2024, and September 30, 2023.

*(Dollars in thousands)*

| Noninterest expense: | Quarter Ended September 30, 2024 | 2023 | 9/30/2024 vs. 9/30/2023 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Compensation and benefits | $6,963 | $6,729 | $234 | 3.5% |
| Occupancy and equipment | 2,170 | 1,711 | 459 | 26.8 |
| Data processing | 1,165 | 1,085 | 80 | 7.4 |
| Marketing | 209 | 235 | (26) | (11.1) |
| Impairment charge on assets held for sale | - | - | - | 0.0 |
| Federal deposit insurance premiums | 435 | 474 | (39) | (8.2) |
| Professional services | - | - | - | 0.0 |
| Net (gain) recognized on sale of premises and equipment | - | - | 0 | 0.0 |
| Other | 3,532 | 3,259 | 273 | 8.4 |
| Total noninterest expense | $14,474 | $13,493 | $981 | 7.3% |

Increases in non-interest expenses during the quarter ended September 30, 2024 were primarily attributable to higher operating cost in occupancy and equipment, higher compensation and benefits expenses, higher data processing, and non-recurring consulting fees and legal expenses offset by lower marketing expenses and federal deposit insurance premiums. Management also continues to maintain discipline in staffing.

The benefit for income taxes was $207 thousand for the quarter ended September 30, 2024, as compared to the benefit of $398 thousand for the quarter ended September 30, 2023. The effective tax rate was negative 51.9% for the quarter ended September 30, 2024, as compared to 3.9% for the quarter ended September 30, 2023. The Bancorp’s lower current effective tax rate for the quarter ended September 30, 2024, is a result of updated estimated tax accrual.

### Results of Operations - Comparison of the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023

For the nine months ended September 30, 2024, the Bancorp reported net income of $10.0 million, an increase of $3.2 million (46.0%) compared the nine months ended September 30, 2023. For the nine months ended September 30, 2024, the ROA was 0.64%, compared to 0.44% for the nine months ended September 30, 2023. The ROE was 4.50% for the nine months ended September 30, 2024, compared to 6.68% for the nine months ended September 30, 2023.

Information relating to the average consolidated balance sheet and the yield on average earning assets and cost of average liabilities for the periods indicated are in the following table. Dividing the related interest, on an annualized basis, by the average balance of assets or liabilities derives the disclosed rates. Average balances are derived from daily balances.

*(Dollars in thousands)*

*(unaudited)*

| Year-to-Date ASSETS | Average Balances, Interest, and Rates September 30, 2024 Average Balance | Interest \` | Rate (%) | September 30, 2023 Average Balance | Interest | Rate (%) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest bearing deposits in other financial institutions | $61,107 | $2,317 | 5.06 | $31,171 | $1,112 | 4.76 |
| Federal funds sold | 919 | 29 | 4.21 | 1,158 | 38 | 4.38 |
| Certificates of deposit in other financial institutions | - | - | - | 1,169 | 44 | 5.02 |
| Securities available-for-sale | 348,269 | 6,239 | 2.39 | 369,897 | 6,631 | 2.39 |
| Loans receivable | 1,504,197 | 57,713 | 5.12 | 1,519,981 | 55,481 | 4.87 |
| Federal Home Loan Bank stock | 6,547 | 285 | 5.80 | 6,547 | 221 | 4.50 |
| Total interest earning assets | 1,921,039 | $66,583 | 4.62 | 1,929,923 | $63,527 | 4.39 |
| Cash and non-interest bearing deposits in other financial institutions | 19,598 |  |  | 18,723 |  |  |
| Allowance for credit losses | (18,670) |  |  | (17,619) |  |  |
| Other noninterest bearing assets | 155,433 |  |  | 154,227 |  |  |
| Total assets | $2,077,400 |  |  | $2,085,254 |  |  |
| LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |  |  |  |  |
| Interest-bearing deposits | $1,464,682 | $26,350 | 2.40 | $1,455,410 | $17,258 | 1.58 |
| Repurchase agreements | 40,879 | 1,204 | 3.93 | 33,170 | 892 | 3.59 |
| Borrowed funds | 90,423 | 3,189 | 4.70 | 102,864 | 3,537 | 4.58 |
| Total interest bearing liabilities | 1,595,984 | $30,743 | 2.57 | 1,591,444 | $21,687 | 1.82 |
| Non-interest bearing deposits | 291,161 |  |  | 326,431 |  |  |
| Other noninterest bearing liabilities | 41,540 |  |  | 30,178 |  |  |
| Total liabilities | 1,928,685 |  |  | 1,948,053 |  |  |
| Total stockholders' equity | 148,715 |  |  | 137,201 |  |  |
| Total liabilities and stockholders' equity | $2,077,400 |  |  | $2,085,254 |  |  |
| Return on average assets | 0.64% |  |  | 0.44% |  |  |
| Return on average equity | 4.50% |  |  | 6.68% |  |  |
| Net interest margin (average earning assets) | 2.49% |  |  | 2.89% |  |  |
| Net interest margin (average earning assets) - tax equivalent | 2.63% |  |  | 3.04% |  |  |
| Net interest spread | 2.05% |  |  | 2.57% |  |  |
| Ratio of interest-earning assets to interest-bearing liabilities | 1.20x |  |  | 1.21x |  |  |

In the third quarter 2024 earnings release on October 29, 2024, we reported a September 30, 2024 nine months ended average balance in interest bearing deposits in other financial institutions of $51.5 million with an associated rate of 6.00%, quarterly interest earning asset rate of 4.64%, quarterly average balance in cash and non-interest bearing deposits in other financial institutions of $29.2 million, quarterly net interest margin of 2.50%, quarterly net interest margin (tax equivalent) of 2.64%, and net interest spread of 2.07%. Each of these amounts have been revised to reflect the actual average balance and associated yields during the nine months ended September 30, 2024.

Net interest income for the nine months ended September 30, 2024, was $35.8 million, a decrease of $6.0 million (14.3%), compared to $41.8 million for the nine months ended September 30, 2023. The weighted-average yield on interest-earning assets was 4.62% for the nine months ended September 30, 2024, compared to 4.39% for the nine months ended September 30, 2023. The weighted-average cost of interest-bearing liabilities for the nine months ended September 30, 2024, was 2.57% compared to 1.82% for the nine months ended September 30, 2023. The impact of the 4.62% return on interest-earning assets and the 2.57% cost of interest-bearing liabilities resulted in an interest rate spread of 2.05% for the nine months ended September 30, 2024, a decrease from the 2.57% spread for the nine months ended September 30, 2023. On a tax adjusted basis, the Bancorp’s net interest margin was 2.63% for the nine months ended September 30, 2024, compared to 3.04% for the nine months ended September 30, 2023. The Bancorp believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully-taxable equivalent basis, as these measures provide useful information to make peer comparisons. Tax adjusted net interest margin represents a non-GAAP financial measure. See the non-GAAP reconciliation table immediately below and the section captioned “Non-GAAP Financial Measures” for further disclosure regarding non-GAAP financial measures.

*(Dollars in thousands)*

*(unaudited)*

| Calculation of tax adjusted net interest margin | Nine months ended, September 30, 2024 | September 30, 2023 |
| --- | ---: | ---: |
| Net interest income | $35,840 | $41,840 |
| Tax adjusted interest on securities and loans | 2,054 | 2,234 |
| Adjusted net interest income | $37,894 | $44,074 |
| Total average earning assets | 1,921,039 | 1,929,923 |
| Tax adjusted net interest margin | 2.63% | 3.04% |

49

The decreased net interest income and net interest margin for the nine months ended September 30, 2024, was primarily the result of higher cost of funds resulting from the higher rate environment year over year. We anticipate that year over year compression in net interest margin may continue, however recent Federal Reserve target rate reductions may reduce or reverse such compression, as our interest-bearing liabilities are able to reprice at lower rates.

The following table shows the change in noninterest income for the nine months ending September 30, 2024, and September 30, 2023.

*(Dollars in thousands)*

| Noninterest income: | Nine Months Ended September 30, 2024 | 2023 | 9/30/2024 vs. 9/30/2023 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Fees and service charges | $3,873 | $4,517 | $(644) | (14.3)% |
| Wealth management operations | 2,127 | 1,812 | 315 | 17.4 |
| Gain on sale of loans held-for-sale, net | 810 | 729 | 81 | 11.1 |
| Loss on sale of securities, net | (531) | (48) | (483) | 1006.3 |
| Increase in cash value of bank owned life insurance | 610 | 573 | 37 | 6.5 |
| Gain (loss) on sale of real estate | 11,873 | (13) | 11,886 | (91430.8) |
| Other | 154 | 441 | (287) | (65.1) |
| Total noninterest income | $18,916 | $8,011 | $10,905 | 136.1% |

The increase in noninterest income was due primarily to the gain on the sale-leaseback transaction executed on February 22, 2024 with MountainSeed, Real Estate Services, LLC (the “Buyer”). The decrease in fees and service charges is primarily the result of decreased fee income from interest rate swap transactions occurring during the nine month period. The increase in gain on sale of loans, for the nine-month period, is the result of higher consumer demand for fixed-rate mortgage products in the lower-rate environment. The increase in the loss on the sale of securities, net for the nine-month period related to management election to sell certain securities for interest rate risk purposes and redeploy proceeds into higher yielding assets.

The following table shows the change in noninterest expense for the nine months ending September 30, 2024, and September 30, 2023.

*(Dollars in thousands)*

| Noninterest expense: | Nine Months Ended September 30, 2024 | 2023 | 9/30/2024 vs. 9/30/2023 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Compensation and benefits | $21,109 | $21,365 | $(256) | (1.2)% |
| Occupancy and equipment | 6,205 | 4,898 | 1,307 | 26.7 |
| Data processing | 3,470 | 3,465 | 5 | 0.1 |
| Marketing | 579 | 649 | (70) | (10.8) |
| Federal deposit insurance premiums | 1,333 | 1,511 | (178) | (11.8) |
| Professional services | 4,064 | 2,858 | 1,206 | 42.2 |
| Net (gain) recognized on sale of premises and equipment | 1,734 | 1,280 | 454 | 35.5 |
| Other | 5,401 | 5,689 | (288) | (5.1) |
| Total noninterest expense | $43,895 | $41,715 | $2,180 | 5.2% |

Increases in non-interest expenses during the nine months ended September 30, 2024, were primarily attributable to higher non-recurring consulting and legal expenses. The increase in occupancy and equipment expenses for the nine months ended September 30, 2024, is primarily related to higher operating costs and additional lease expense associated with sale leaseback transaction. Management also continues to maintain discipline in staffing. Compensation and benefits expense declined by 1.2% for the nine months ended September 30, 2024, compared to September 30, 2023.

The provision for income taxes was $756 thousand for the nine months ended September 30, 2024, as compared to the provision of $21 thousand for the nine months ended September 30, 2023. The effective tax rate was 7.0% for the nine months ended September 30, 2024, as compared to 0.30% for the nine months ended September 30, 2023. The Bancorp’s year-to-date effective tax rate for the nine months ended September 30, 2024, was increased primarily due to an increase in pre tax income along with a reduction in the overall tax benefits recognized during the period.

### Critical Accounting Policies

The notes to the consolidated financial statements included in Item 8 of the Bancorp’s Annual Report on Form 10–K for 2023 contain a summary of the Bancorp’s significant accounting policies. Certain of these policies are important to the portrayal of the Bancorp’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain.

### Forward-Looking Statements

Statements contained in this report that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions are also intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act. The Bancorp cautions readers that forward-looking statements, including without limitation those relating to the Bancorp’s future business prospects, merger and acquisition activities, interest income and expense, net income, liquidity, and capital needs are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements, due to, among other things, factors identified in this report, including those identified in the Bancorp’s 2023 Form 10-K.

### Non-GAAP Financial Measures

This filing includes certain financial measures that are identified as non-GAAP, including adjusted net interest income and tax adjusted net interest margin. The Bancorp provides these non-GAAP performance measures because they are used by management to evaluate and measure the Bancorp’s performance, which the Bancorp believes also is useful to assist investors in assessing the Bancorp’s operating performance. Where non-GAAP financial measures are used in this report, the most comparable GAAP measure, as well as the reconciliation to the most comparable GAAP measure, can be found in the tables referenced herein.

The adjusted net interest income and tax-adjusted net interest margin measures recognize the income tax savings when comparing taxable and tax-exempt assets. Interest income and yields on tax-exempt securities and loans are presented using the current federal income tax rate of 21%. Management believes that it is standard practice in the banking industry to present net interest income and net interest margin on a fully tax-equivalent basis and that it may enhance comparability for peer comparison purposes.

Although these non-GAAP financial measures are frequently used by investors to evaluate a financial institution’s business and performance, they have limitations as analytical tools and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. In addition, these non-GAAP financial measures may differ from those used by other financial institutions to assess their business operations and performance.

## Controls and procedures

As filed, 1,920 characters.

(a) Evaluation of Disclosure Controls and Procedures.

The Bancorp maintains disclosure controls and procedures (as defined in Sections 13a – 15(e) and 15d – 15(e)) of regulations promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”) that are designed to ensure that information required to be disclosed by the Bancorp in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Bancorp in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Bancorp's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. The Bancorp's Chief Executive Officer and Chief Financial Officer evaluate the effectiveness of the Bancorp's disclosure controls and procedures as of the end of each quarter. Based on that evaluation as of September 30, 2024, the Bancorp’s Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures were effective as of that date in ensuring that information required to be disclosed by the Bancorp under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b) Changes in Internal Control Over Financial Reporting.

There was no change in the Bancorp's internal control over financial reporting identified in connection with the Bancorp’s evaluation of controls that occurred during the quarter ended September 30, 2024, that has materially affected, or is reasonably likely to materially affect, the Bancorp's internal control over financial reporting.

Filed Nov 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-035334. Last ingested by Listed: Nov 4, 2026, 19:14 ET. No prices; not investment advice.