UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X]

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

~~For the quarterly period ended June~~
For the quarterly period ended September 30, 2019 or

[ ]

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from ______ to ______

Commission File Number: 0-26128

~~For the transition period from ______ to ______~~

~~Commission File Number: 0-26128~~

NorthWest Indiana Bancorp

(Exact name of registrant as specified in its charter)

Indiana		35-1927981
(State or other jurisdiction of incorporation		(I.R.S. Employer Identification Number)
or organization)

9204 Columbia Avenue
Munster, Indiana		46321
(Address of principal executive offices)		(ZIP code)

Registrant's telephone number, including area code:(219) 836-4400

	N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:None.

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx [X] No¨ [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yesx [X] No¨ [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer¨ [ ] Accelerated filerx [X] Non-accelerated filer¨ [ ]

Smaller Reporting Companyx [X] Emerging growth company¨ [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨ [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ [ ] Nox [X]

There were 3,451,797 shares of the registrant’s Common Stock, without par value, outstanding at ~~August 7,~~October 28, 2019.

NorthWest Indiana Bancorp

Index

	~~Page~~
	Page Number
PART I. Financial Information

Item 1. Unaudited Financial Statements and Notes		1

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	24	29

Item 3. Quantitative and Qualitative Disclosures about Market Risk	37	43

Item 4. Controls and Procedures	38	43

PART II. Other Information	39	44

SIGNATURES	40	46

EXHIBITS
10.1 NorthWest Indiana Bancorp Executive Change in Control Severance Plan
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1 Section 1350 Certifications
101 XBRL Interactive Data File

NorthWest Indiana Bancorp
Consolidated Balance Sheets

	September 30,
(Dollars in thousands)	2019			December 31,
	(unaudited)			2018
ASSETS

Cash and non-interest bearing deposits in other financial institutions	$	26,839		$	13,260
Interest bearing deposits in other financial institutions		42,953			3,116
Federal funds sold		2,150			763

Total cash and cash equivalents		71,942			17,139

Certificates of deposit in other financial institutions		2,170			2,024

Securities available-for-sale		261,054			241,768
Loans held-for-sale		4,641			2,863
Loans receivable		904,273			764,400
Less: allowance for loan losses		(9,174	)		(7,962	)
Net loans receivable		895,099			756,438
Federal Home Loan Bank stock		3,912			3,460
Accrued interest receivable		3,995			3,632
Premises and equipment		28,914			24,824
Foreclosed real estate		1,098			1,627
Cash value of bank owned life insurance		29,848			23,142
Goodwill		11,109			8,170
Other assets		16,687			11,071

Total assets	$	1,330,469		$	1,096,158

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Non-interest bearing	$	176,878		$	127,277
Interest bearing		975,589			802,509
Total		1,152,467			929,786
Repurchase agreements		14,931			11,628
Borrowed funds		16,000			43,000
Accrued expenses and other liabilities		14,083			10,280

Total liabilities		1,197,481			994,694

Stockholders' Equity:
Preferred stock, no par or stated value; 10,000,000 shares authorized, none outstanding		-			-
Common stock, no par or stated value; 10,000,000 shares authorized; shares issued and outstanding: September 30, 2019 - 3,451,797 December 31, 2018 - 3,029,157		-			-
Additional paid-in capital		29,589			11,927
Accumulated other comprehensive income/(loss)		4,418			(2,796	)
Retained earnings		98,981			92,333

Total stockholders' equity		132,988	��		101,464

Total liabilities and stockholders' equity	$	1,330,469		$	1,096,158

~~NorthWest Indiana Bancorp~~

~~Consolidated Balance Sheets~~

June 30,
(Dollars in thousands) 2019 December 31,
(unaudited) 2018
ASSETS

Cash and non-interest bearing deposits in other financial institutions $ 24,713 $ 13,260
Interest bearing deposits in other financial institutions 27,739 3,116
Federal funds sold 8,720 763

Total cash and cash equivalents 61,172 17,139

Certificates of deposit in other financial institutions 1,970 2,024

Securities available-for-sale 258,742 241,768
Loans held-for-sale 3,835 2,863
Loans receivable 894,274 764,400
Less: allowance for loan losses (8,744 ) (7,962 )
Net loans receivable 885,530 756,438
Federal Home Loan Bank stock 3,912 3,460
Accrued interest receivable 4,131 3,632
Premises and equipment 28,355 24,824
Foreclosed real estate 1,501 1,627
Cash value of bank owned life insurance 29,920 23,142
Goodwill 11,109 8,170
Other assets 19,172 11,071

Total assets $ 1,309,349 $ 1,096,158

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Non-interest bearing $ 178,394 $ 127,277
Interest bearing 948,727 802,509
Total 1,127,121 929,786
Repurchase agreements 20,628 11,628
Borrowed funds 18,000 43,000
Accrued expenses and other liabilities 14,788 10,280

Total liabilities 1,180,537 994,694

Stockholders' Equity:
Preferred stock, no par or stated value; 10,000,000 shares authorized, none outstanding - -
Common stock, no par or stated value; 10,000,000 shares authorized; shares issued and outstanding: June 30, 2019 - 3,451,797 - -
December 31, 2018 - 3,029,157
Additional paid-in capital 29,510 11,927
Accumulated other comprehensive income/(loss) 2,830 (2,796 )
Retained earnings 96,472 92,333

Total stockholders' equity 128,812 101,464

Total liabilities and stockholders' equity $ 1,309,349 $ 1,096,158

~~See accompanying notes to consolidated financial statements.~~

~~NorthWest Indiana Bancorp~~

~~Consolidated Statements of Income~~

~~(unaudited)~~

Three Months Ended Six Months Ended
(Dollars in thousands) June 30, June 30,
2019 2018 2019 2018
Interest income:
Loans receivable
Real estate loans $ 9,653 $ 6,134 $ 18,401 $ 12,051
Commercial loans 1,651 1,119 3,335 2,191
Consumer loans 181 4 292 9
Total loan interest 11,485 7,257 22,028 14,251
Securities 1,777 1,696 3,578 3,418
Other interest earning assets 143 43 285 60

Total interest income 13,405 8,996 25,891 17,729

Interest expense:
Deposits 2,011 838 3,683 1,513
Repurchase agreements 66 45 115 77
Borrowed funds 128 237 294 428

Total interest expense 2,205 1,120 4,092 2,018

Net interest income 11,200 7,876 21,799 15,711
Provision for loan losses 511 297 828 638

Net interest income after provision for loan losses 10,689 7,579 20,971 15,073

Noninterest income:
Fees and service charges $ 1,243 $ 947 $ 2,405 $ 1,839
Wealth management operations 479 424 979 839
Gain on sale of securities, net 301 246 652 1,004
Gain on sale of loans held-for-sale, net 400 359 642 570
Increase in cash value of bank owned life insurance 179 120 342 228
Gain on sale of foreclosed real estate, net 13 68 40 100
Other 54 39 178 72
Total noninterest income $ 2,669 $ 2,203 $ 5,238 $ 4,652

Noninterest expense:
Compensation and benefits $ 4,600 $ 3,516 $ 9,401 $ 7,376
Occupancy and equipment 1,169 842 2,291 1,695
Data processing 351 703 1,947 1,064
Marketing 176 166 613 300
Federal deposit insurance premiums 177 75 268 159
Other 1,951 1,604 4,193 3,279
Total noninterest expense $ 8,424 $ 6,906 $ 18,713 $ 13,873

Income before income tax expenses 4,934 2,876 7,496 5,852
Income tax expenses 911 365 1,251 780
Net income $ 4,023 $ 2,511 $ 6,245 $ 5,072

Earnings per common share:
Basic $ 1.17 $ 0.88 $ 1.84 $ 1.77
Diluted $ 1.17 $ 0.88 $ 1.84 $ 1.77

Dividends declared per common share $ 0.31 $ 0.30 $ 0.61 $ 0.59

See accompanying notes to consolidated financial statements.

NorthWest Indiana Bancorp
Consolidated Statements of Income
(unaudited)

	Three Months Ended				Nine Months Ended
(Dollars in thousands)	September 30,				September 30,
	2019		2018		2019		2018
Interest income:
Loans receivable
Real estate loans	$	9,452	$	7,189	$	27,853	$	19,240
Commercial loans		1,654		1,266		4,989		3,457
Consumer loans		229		97		521		106
Total loan interest		11,335		8,552		33,363		22,803
Securities		1,659		1,709		5,237		5,127
Other interest earning assets		326		74		611		134

Total interest income		13,320		10,335		39,211		28,064

Interest expense:
Deposits		2,353		1,018		6,036		2,531
Repurchase agreements		64		47		179		124
Borrowed funds		108		254		402		682

Total interest expense		2,525		1,319		6,617		3,337

Net interest income		10,795		9,016		32,594		24,727
Provision for loan losses		494		312		1,322		950

Net interest income after provision for loan losses		10,301		8,704		31,272		23,777

Noninterest income:
Fees and service charges	$	1,203	$	991	$	3,608	$	2,830
Wealth management operations		447		414		1,426		1,253
Gain on sale of loans held-for-sale, net		681		451		1,323		1,021
Gain on sale of securities, net		102		151		754		1,155
Increase in cash value of bank owned life insurance		177		130		519		358
Benefit from bank owned life insurance		205		-		205		-
Gain on sale of foreclosed real estate, net		43		54		83		154
Other		39		32		217		104
Total noninterest income	$	2,897	$	2,223	$	8,135	$	6,875

Noninterest expense:
Compensation and benefits	$	4,932	$	4,669	$	14,333	$	12,045
Occupancy and equipment		1,231		829		3,522		2,524
Data processing		806		1,012		2,753		2,076
Marketing		170		223		783		523
Federal deposit insurance premiums		18		91		286		250
Other		2,112		2,233		6,305		5,512
Total noninterest expense	$	9,269	$	9,057	$	27,982	$	22,930

Income before income tax expenses		3,929		1,870		11,425		7,722
Income tax expenses		351		245		1,602		1,025
Net income	$	3,578	$	1,625	$	9,823	$	6,697

Earnings per common share:
Basic	$	1.04	$	0.54	$	2.88	$	2.29
Diluted	$	1.04	$	0.54	$	2.88	$	2.29

Dividends declared per common share	$	0.31	$	0.30	$	0.92	$	0.89

See accompanying notes to consolidated financial statements.

NorthWest Indiana Bancorp
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)

	Three Months Ended						Nine Months Ended
(Dollars in thousands)	September 30,						September 30,
	2019			2018			2019			2018

Net income	$	3,578		$	1,625		$	9,823		$	6,697

Net change in net unrealized gains and losses on securities available-for-sale:
Unrealized gains/(losses) arising during the period		2,112			(2,071	)		9,878			(7,301	)
Less: reclassification adjustment for gains included in net income		(102	)		(151	)		(754	)		(1,155	)
Net securities gain/(loss) during the period		2,010			(2,222	)		9,124			(8,456	)
Tax effect		(422	)		467			(1,910	)		1,780
Net of tax amount		1,588			(1,755	)		7,214			(6,676	)

Comprehensive income/(loss), net of tax	$	5,166		$	(130	)	$	17,037		$	21

See accompanying notes to consolidated financial statements.

NorthWest Indiana Bancorp

Consolidated Statements of Changes in Stockholders' Equity

(unaudited)

	Three Months Ended
						Accumulated
			Additional			Other
	Common		Paid-in			Comprehensive			Retained			Total
(Dollars in thousands, except per share data)	Stock		Capital			(Loss)/Income			Earnings			Equity


Balance at June 30, 2018	$	-	$	4,925		$	(4,237	)	$	89,889		$	90,577

Comprehensive income:
Net income		-		-			-			1,625			1,625
Net unrealized loss on securities available-for- sale, net of reclassification and tax effects		-		-			(1,755	)		-			(1,755	)
Comprehensive income													(130	)
Net surrender value of 629 restricted stock awards				(27	)								(27	)
Stock-based compensation expense		-		50			-			-			50
Issuance of 161,875 shares at $42.80 per share, for acquisition of First Personal Financial Corporation		-		6,928			-			-			6,928
Cash dividends, $0.30 per share		-		-			-			(911	)		(911	)

Balance at September 30, 2018	$	-	$	11,876		$	(5,992	)	$	90,603		$	96,487

Balance at June 30, 2019	$	-	$	29,510		$	2,830		$	96,472		$	128,812

Comprehensive income:
Net income		-		-			-			3,578			3,578
Net unrealized gain on securities available-for- sale, net of reclassification and tax effects		-		-			1,588			-			1,588
Comprehensive income													5,166
Stock-based compensation expense		-		79			-			-			79
Cash dividends, $0.31 per share		-		-			-			(1,069	)		(1,069	)

Balance at September 30, 2019	$	-	$	29,589		$	4,418		$	98,981		$	132,988

	Nine Months Ended
						Accumulated
			Additional			Other
	Common		Paid-in			Comprehensive			Retained			Total
(Dollars in thousands, except per share data)	Stock		Capital			(Loss)/Income			Earnings			Equity


Balance at January 1, 2018	$	-	$	4,867		$	684		$	86,509		$	92,060

Comprehensive income:
Net income		-		-			-			6,697			6,697
Net unrealized gain on securities available-for- sale, net of reclassification and tax effects		-		-			(6,676	)		-			(6,676	)
Comprehensive income													21
Net surrender value of 1,658 restricted stock awards		-		(72	)		-			-			(72	)
Stock-based compensation expense		-		153			-			-			153
Issuance of 161,875 shares at $42.80 per share, for acquisition of First Personal Financial Corporation				6,928									6,928
Cash dividends, $0.89 per share		-		-			-			(2,603	)		(2,603	)

Balance at September 30, 2019	$	-	$	11,876		$	(5,992	)	$	90,603		$	96,487


Balance at January 1, 2019	$	-	$	11,927		$	(2,796	)	$	92,333		$	101,464

Comprehensive income:
Net income		-		-			-			9,823			9,823
Net unrealized gain on securities available-for- sale, net of reclassification and tax effects		-		-			7,214			-			7,214
Comprehensive income													17,037
Net surrender value of 1,245 restricted stock awards		-		(63	)		-			-			(63	)
Stock-based compensation expense		-		233			-			-			233
Issuance of 416,478 shares at $42.00 per share, for acquisition of AJS Bancorp, Inc		-		17,492			-			-			17,492
Cash dividends, $0.92 per share		-		-			-			(3,175	)		(3,175	)

Balance at September 30, 2019	$	-	$	29,589		$	4,418		$	98,981		$	132,988

See accompanying notes to consolidated financial statements.

NorthWest Indiana Bancorp
Consolidated Statements of Cash Flows
(unaudited)

	Nine Months Ended
(Dollars in thousands)	September 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	9,823		$	6,697
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Origination of loans for sale		(54,555	)		(41,823	)
Sale of loans originated for sale		54,123			39,953
Depreciation and amortization, net of accretion		2,382			1,902
Amortization of mortgage servicing rights		48			48
Stock based compensation expense		233			154
Net surrender value of restricted stock awards		(63	)		(72	)
Gain on sale of securities, net		(754	)		(1,155	)
Gain on sale of loans held-for-sale, net		(1,323	)		(1,021	)
Gain on sale of premises and equipment, net		(126	)		-
Gain on sale of foreclosed real estate, net		(83	)		(154	)
Benefit from bank owned life insurance		(205	)		-
Provision for loan losses		1,322			950
Net change in:
Interest receivable		(363	)		(298	)
Other assets		(1,546	)		(345	)
Accrued expenses and other liabilities		2,322			(2,544	)
Total adjustments		1,412			(4,405	)
Net cash - operating activities		11,235			2,292

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of certificates of deposits in other financial institutions		(146	)		1,150
Proceeds from maturities and pay downs of securities available-for-sale		20,627			17,747
Proceeds from sales of securities available-for-sale		35,859			29,049
Purchase of securities available-for-sale		(63,377	)		(48,464	)
Net change in loans receivable		(52,399	)		(28,385	)
Purchase of Federal Home Loan Bank Stock		59			(17	)
Purchase of premises and equipment, net		(2,116	)		(624	)
Proceeds on sale of premises and equipment, net		228			-
Proceeds from sale of foreclosed real estate, net		960			1,273
Cash and cash equivalents from acquisition activity, net		52,195			18,261
Change in cash value of bank owned life insurance		(66	)		(358	)
Net cash - investing activities		(8,176	)		(10,368	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits		78,455			(15,180	)
Proceeds from FHLB advances		-			62,000
Repayment of FHLB advances		(27,000	)		(44,000	)
Change in other borrowed funds		3,303			10,718
Dividends paid		(3,014	)		(2,523	)
Net cash - financing activities		51,744			11,015
Net change in cash and cash equivalents		54,803			2,939
Cash and cash equivalents at beginning of period		17,139			11,025
Cash and cash equivalents at end of period	$	71,942		$	13,964

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	6,608		$	3,258
Income taxes		1,485			1,080
Acquisition activity:
Fair value of assets acquired, including cash and cash equivalents	$	172,560		$	137,449
Value of goodwill and other intangible assets		5,856			8,481
Fair value of liabilities assumed		145,546			130,313
Cash paid for acquisition		15,743			8,689
Issuance of common stock for acquisition		17,492			6,928
Noncash activities:
Transfers from loans to foreclosed real estate	$	262		$	253

See accompanying notes to consolidated financial statements.

NorthWest Indiana Bancorp

~~Consolidated Statements of Comprehensive Income~~

~~(unaudited)~~

Three Months Ended Six Months Ended
(Dollars in thousands) June 30, June 30,
2019 2018 2019 2018

Net income $ 4,023 $ 2,511 $ 6,245 $ 5,072

Net change in net unrealized gains and losses on securities available-for-sale:
Unrealized gains/(losses) arising during the period 3,584 (880 ) 7,766 (5,230 )
Less: reclassification adjustment for gains included in net income (301 ) (246 ) (652 ) (1,004 )
Net securities gain/(loss) during the period 3,283 (1,126 ) 7,114 (6,234 )
Tax effect (690 ) 237 (1,488 ) 1,313
Net of tax amount 2,593 (889 ) 5,626 (4,921 )

Comprehensive income/(loss), net of tax $ 6,616 $ 1,622 $ 11,871 $ 151

~~See accompanying notes to consolidated financial statements.~~

~~NorthWest Indiana Bancorp~~

~~Consolidated Statements of Changes in Stockholders' Equity~~

~~(unaudited)~~

Accumulated
Additional Other
Common Paid-in Comprehensive Retained Total
(Dollars in thousands, except per share data) Stock Capital (Loss)/Income Earnings Equity

Balance at January 1, 2018 $ - $ 4,867 $ 684 $ 86,509 $ 92,060

Comprehensive income:
Net income - - - 2,561 2,561
Net unrealized loss on securities available-for-sale, net of reclassification and tax effects - - (4,032 ) - (4,032 )
Comprehensive income (1,471 )
Stock-based compensation expense - 52 - - 52
Cash dividends, $0.29 per share - - - (833 ) (833 )

Balance at March 31, 2018 �� $ - $ 4,919 $ (3,348 ) $ 88,237 $ 89,808

Comprehensive income:
Net income - - - 2,511 2,511
Net unrealized loss on securities available-for-sale, net of reclassification and tax effects - - (889 ) - (889 )
Comprehensive income 1,622
Net surrender value of 1,029 restricted stock awards (45 ) (45 )
Stock-based compensation expense - 51 - - 51
Cash dividends, $0.30 per share - - - (859 ) (859 )

Balance at June 30, 2018 $ - $ 4,925 $ (4,237 ) $ 89,889 $ 90,577

Balance at January 1, 2019 $ - $ 11,927 $ (2,796 ) $ 92,333 $ 101,464

Comprehensive income:
Net income - - - 2,222 2,222
Net unrealized gain on securities available-for-sale, net of reclassification and tax effects - - 3,033 - 3,033
Comprehensive income 5,255
Stock-based compensation expense - 71 - - 71
Issuance of 416,478 shares at $42.00 per share, for acquisition of AJS Bancorp, Inc. 17,492 17,492
Cash dividends, $0.30 per share - - - (1,035 ) (1,035 )

Balance at March 31, 2019 $ - $ 29,490 $ 237 $ 93,520 $ 123,247

Comprehensive income:
Net income - - - 4,023 4,023
Net unrealized gain on securities available-for-sale, net of reclassification and tax effects - - 2,593 - 2,593
Comprehensive income 6,616
Net surrender value of 1,245 restricted stock awards (63 ) (63 )
Stock-based compensation expense - 83 - - 83
Cash dividends, $0.31 per share - - - (1,071 ) (1,071 )

Balance at June 30, 2019 $ - $ 29,510 $ 2,830 $ 96,472 $ 128,812

~~See accompanying notes to consolidated financial statements.~~

~~NorthWest Indiana Bancorp~~

~~Consolidated Statements of Cash Flows~~

~~(unaudited)~~

Six Months Ended
(Dollars in thousands) June 30,
2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,245 $ 5,072
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Origination of loans for sale (29,585 ) (24,266 )
Sale of loans originated for sale 29,252 22,099
Depreciation and amortization, net of accretion 1,516 1,312
Amortization of mortgage servicing rights 33 32
Stock based compensation expense 154 104
Net surrender value of restricted stock awards (63 ) (45 )
Gain on sale of securities, net (652 ) (1,004 )
Gain on sale of loans held-for-sale, net (642 ) (570 )
Gain on sale of foreclosed real estate, net (40 ) (100 )
Provision for loan losses 828 638
Net change in:
Interest receivable (499 ) 9
Other assets (3,567 ) (17 )
Accrued expenses and other liabilities 3,026 2,468
Total adjustments (239 ) 660
Net cash - operating activities 6,006 5,732

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of certificates of deposits in other financial institutions 54 150
Proceeds from maturities and pay downs of securities available-for-sale 11,747 10,314
Proceeds from sales of securities available-for-sale 30,281 22,545
Purchase of securities available-for-sale (48,347 ) (32,339 )
Net change in loans receivable (42,336 ) (27,002 )
Purchase of Federal Home Loan Bank Stock 59 (17 )
Purchase of premises and equipment, net (962 ) (398 )
Proceeds from sale of foreclosed real estate, net 514 965
Cash and cash equivalents from acquisition activity, net 52,195 -
Change in cash value of bank owned life insurance (343 ) (228 )
Net cash - investing activities 2,862 (26,010 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits 53,109 12,973
Proceeds from FHLB advances - 44,000
Repayment of FHLB advances (25,000 ) (29,000 )
Change in other borrowed funds 9,000 2,734
Dividends paid (1,944 ) (1,662 )
Net cash - financing activities 35,165 29,045
Net change in cash and cash equivalents 44,033 8,767
Cash and cash equivalents at beginning of period 17,139 11,025
Cash and cash equivalents at end of period $ 61,172 $ 19,792

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 4,112 $ 1,949
Income taxes 650 955
Acquisition activity:
Fair value of assets acquired, including cash and cash equivalents $ 172,560 $ -
Value of goodwill and other intangible assets 5,856 -
Fair value of liabilities assumed 145,546 -
Cash paid for acquisition 15,743 -
Issuance of common stock for acquisition 17,492 -
Noncash activities:
Transfers from loans to foreclosed real estate $ 193 $ 253

~~See accompanying notes to consolidated financial statements.~~

~~NorthWest Indiana Bancorp~~

Notes to Consolidated Financial Statements

(unaudited)

Note 1 - Basis of Presentation

The consolidated financial statements include the accounts of NorthWest Indiana Bancorp (the “Bancorp” or “NWIN”), its wholly-owned subsidiaries NWIN Risk Management, Inc. (a captive insurance subsidiary) and Peoples Bank SB (the “Bank”), and the Bank’s wholly-owned subsidiaries, Peoples Service Corporation, NWIN, LLC, NWIN Funding, Incorporated, Columbia Development Company, ~~LLC.,~~LLC, and Alliance NMTC Investment Fund, LLC. The Bancorp’s business activities include being a holding company for the Bank as well as a holding company for NWIN Risk Management, Inc. The Bancorp’s earnings are primarily dependent upon the earnings of the Bank. The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by U.S. generally accepted accounting principles for complete presentation of consolidated financial statements. In the opinion of management, the consolidated financial statements contain all adjustments necessary to present fairly the consolidated balance sheets of the Bancorp as of ~~June~~September 30, 2019 and December 31, 2018, and the consolidated statements of income and comprehensive income for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, and consolidated statements of cash flows and changes in stockholders’ equity for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018. The income reported for the ~~six~~nine month period ended ~~June~~September 30, 2019 is not necessarily indicative of the results to be expected for the full year.

Note 2 -Use of Estimates

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

Note 3 - Acquisition Activity

On July 26, 2018, the Bancorp completed its acquisition of First Personal Financial Corp., a Delaware corporation (“First Personal”), pursuant to an Agreement and Plan of Merger dated February 20, 2018 between the Bancorp and First Personal (the “First Personal Merger Agreement”). Pursuant to the terms of the First Personal Merger Agreement, First Personal merged with and into the Bancorp, with the Bancorp as the surviving corporation. Simultaneous with the First Personal Merger, First Personal Bank, an Illinois state chartered commercial bank and wholly-owned subsidiary of First Personal, merged with and into the Bank, with the Bank as the surviving institution.

In connection with the First Personal Merger, each First Personal stockholder holding 100 or more shares of First Personal common stock received fixed consideration of (i) 0.1246 shares of Bancorp common stock, and (ii) $6.67 per share in cash for each outstanding share of First Personal common stock. Stockholders holding less than 100 shares of First Personal common stock received $12.12 in cash and no stock consideration for each outstanding share of First Personal common stock. Any fractional shares of Bancorp common stock that a First Personal stockholder would have otherwise received in the First Personal Merger were cashed out in the amount of such fraction multiplied by $42.95.

The Bancorp issued a total of approximately 161,875 shares of Bancorp common stock to the former First Personal stockholders, and paid cash consideration of approximately $8.7 million. Based upon the closing price of Bancorp’s common stock on July 25, 2018, the transaction had an implied valuation of approximately $15.6 million. The acquisition costs related to the First Personal Merger equaled approximately $1.8 million. The acquisition represented the Bank’s first expansion into the South Suburban Chicagoland market, and expanded the Bank’s full-service retail banking network to 19 banking centers. Additionally, upon the closing of the merger the three former First Personal Bank branches in Cook County, Illinois became branches of Peoples Bank, thereby expanding the Peoples Bank branch network into Illinois.

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on ~~preliminary~~the valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the final purchase price for the First Personal acquisition is allocated as follows:

ASSETS
Cash and due from banks $ 30,178
Investment securities, available for sale 2

Commercial 53,026
Residential mortgage 32,542
Consumer 9,004
Total Loans 94,572

Premises and equipment, net 5,799
FHLB stock 219
Goodwill 5,437
Core deposit intangible 3,044
Interest receivable 274
Other assets 6,405
Total assets purchased $ 145,930
Common shares issued 6,928
Cash paid 8,689
Total purchase price $ 15,617

ASSETS
Cash and due from banks			$	30,178
Investment securities, available for sale				2

Commercial				53,026
Residential mortgage				32,542
Consumer				9,004
Total Loans				94,572

Premises and equipment, net				5,799
FHLB stock				219
Goodwill				5,437
Core deposit intangible				3,044
Interest receivable				274
Other assets				6,405
Total assets purchased			$	145,930
Common shares issued				6,928
Cash paid				8,689
Total purchase price			$	15,617

LIABILITIES
Deposits
Non-interest bearing	$	14,517	$	14,517
NOW accounts		22,177		22,177
Savings and money market		41,852		41,852
Certificates of deposits		46,355		46,355
Total Deposits		124,901		124,901


Borrowings		4,124		4,124
Interest payable		32		32
Other liabilities		1,256		1,256






Total liabilities assumed	$	130,313	$	130,313

As part of the First Personal merger, the Bancorp acquired First Personal Statutory Trust I. NWIN guaranteed the payment of distributions on the trust preferred securities issued by First Personal Statutory Trust I. First Personal Statutory Trust I issued $4.124 million in trust preferred securities in May 2004. The trust preferred securities carried a variable rate of interest priced at the three-month LIBOR plus 275 basis points, payable quarterly and due to mature on June 17, 2034. Management of the Bancorp determined that the continued maintenance of the trust preferred securities issued by First Personal Statutory Trust I and the corresponding junior subordinated debentures was unnecessary to the Bancorp’s ongoing operations. As a result, the Bancorp’s board of directors approved the redemption of the junior subordinated debentures, which resulted in the trustee of the First Personal Statutory Trust I redeeming all $4.124 million of the trust preferred securities as of December 17, 2018.

On January 24, 2019, the Bancorp completed its previously announced acquisition of AJS Bancorp, Inc., a Maryland corporation (“AJSB”), pursuant to an Agreement and Plan of Merger dated July 30, 2018 between the Bancorp and AJSB (the “AJSB Merger Agreement”). Pursuant to the terms of the AJSB Merger Agreement, AJSB merged with and into NWIN, with NWIN as the surviving corporation. Simultaneously with the AJSB Merger, A.J. Smith Federal Savings Bank, a federally chartered savings bank and wholly-owned subsidiary of AJSB, merged with and into Peoples Bank SB, with Peoples Bank as the surviving bank.

In connection with the AJSB Merger, each AJSB stockholder holding 100 or more shares of AJSB common stock received fixed consideration of (i) 0.2030 shares of NWIN common stock, and (ii) $7.20 per share in cash for each outstanding share of AJSB’s common stock. Stockholders holding less than 100 shares of AJSB common stock received $16.00 in cash and no stock consideration for each outstanding share of AJSB common stock. Any fractional shares of NWIN common stock that an AJSB stockholder would have otherwise received in the AJSB Merger were cashed out in the amount of such fraction multiplied by $43.01.

The Bancorp issued 416,478 shares of Bancorp common stock to the former AJSB stockholders, and paid cash consideration of approximately ~~$15.4~~$15.7 million. Based upon the closing price of NWIN’s common stock on January 23, 2019, the transaction had an implied valuation of approximately ~~$32.9~~$33.2 million, which includes unallocated shares held by the AJSB Employee Stock Ownership Plan (“ESOP”), some of which were cancelled in connection with the closing to satisfy the ESOP’s outstanding loan balance. As of ~~June~~September 30, 2019, acquisition costs related to the AJSB Merger ~~equaled~~were approximately $2.1 million. The acquisition further expanded the Bank’s banking center network in Cook County, Illinois, expanding the Bank’s full-service retail banking network to 22 banking centers.

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on preliminary valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the final purchase price for the AJSB acquisition is allocated as follows:

ASSETS
Cash and due from banks	$	68,303	$	68,303
Investment securities, available for sale		3,432		3,432

Commercial		712		712
Residential mortgage		85,635		85,635
Multifamily		1,442		1,442
Consumer		57		57
Total Loans		87,846		87,846

Premises and equipment, net		3,542		3,542
FHLB stock		512		512
Goodwill		2,939		2,939
Core deposit intangible		2,917		2,917
Interest receivable		351		351
Other assets		8,939		8,939
Total assets purchased	$	178,781	$	178,781
Common shares issued		17,492		17,492
Cash paid		15,743		15,743
Total purchase price	$	33,235	$	33,235

LIABILITIES
Deposits
Non-interest bearing			$	24,502
NOW accounts				10,712
Savings and money market				68,875
Certificates of deposits				40,137
Total Deposits				144,226

Interest payable				50
Other liabilities				1,270

Total liabilities assumed			$	145,546

LIABILITIES
Deposits
Non-interest bearing $ 24,502
NOW accounts 10,712
Savings and money market 68,875
Certificates of deposits 40,137
Total Deposits 144,226

Interest payable 50
Other liabilities 1,270

Total liabilities assumed $ 145,546

During the second quarter of 2019, it was discovered that $365 thousand that was paid to the holders of AJSB stock options as of the effective time of the merger (during the first quarter of 2019) for the cash-out of those options, per the terms of the AJSB Merger Agreement had not been recognized as part of the consideration paid in connection with the acquisition. This was corrected during the second quarter and properly applied as an adjustment to goodwill and an increase in the consideration paid for AJSB.

Final estimates of fair value on the date of acquisition have not been finalized yet. Prior to the end of the one year measurement period for finalizing the purchase price allocation, if information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be included in the purchase price allocation prospectively. If any adjustments are made to the preliminary assumptions (provisional amounts), disclosures will be made in the notes to the financial statements of the amounts recorded in the current period earnings by line item that have been recorded in previous reporting periods if the adjustments to the provisional amounts had been recognized as of the acquisition date.

Note 4 - Securities

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

	(Dollars in thousands)									(Dollars in thousands)
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Cost		Unrealized		Unrealized			Fair		Cost		Unrealized		Unrealized			Fair
June 30, 2019	Basis		Gains		Losses			Value
										Basis		Gains		Losses			Value
September 30, 2019
Money market fund	$	5,598	$	-	$	-		$	5,598	$	5,771	$	-	$	-		$	5,771
U.S. government sponsored entities		12,986		96		-			13,082		14,420		96		(3	)		14,513
U.S. treasury securities		599		-		-			599
Collateralized mortgage obligations and residential mortgage-backed securities		144,079		1,368		(273	)		145,174		138,832		1,894		(105	)		140,621
Municipal securities		88,451		3,819		(28	)		92,242		92,999		5,119		(39	)		98,079
Collateralized debt obligations		3,455		-		(1,408	)		2,047		3,448		-		(1,378	)		2,070
Total securities available-for-sale	$	255,168	$	5,283	$	(1,709	)	$	258,742	$	255,470	$	7,109	$	(1,525	)	$	261,054

										(Dollars in thousands)
	(Dollars in thousands)											Gross		Gross			Estimated
			Gross		Gross			Estimated		Cost		Unrealized		Unrealized			Fair
	Cost		Unrealized		Unrealized			Fair		Basis		Gains		Losses			Value
December 31, 2018	Basis		Gains		Losses			Value
Money market fund	$	2,480	$	-	$	-		$	2,480	$	2,480	$	-	$	-		$	2,480
U.S. government sponsored entities		7,997		28		(131	)		7,894		7,997		28		(131	)		7,894
U.S. treasury securities		-		-		-			-
Collateralized mortgage obligations and residential mortgage-backed securities		137,834		135		(2,688	)		135,281		137,834		135		(2,688	)		135,281
Municipal securities		93,516		1,072		(524	)		94,064		93,516		1,072		(524	)		94,064
Collateralized debt obligations		3,481		-		(1,432	)		2,049		3,481		-		(1,432	)		2,049
Total securities available-for-sale	$	245,308	$	1,235	$	(4,775	)	$	241,768	$	245,308	$	1,235	$	(4,775	)	$	241,768

The estimated fair value of available-for-sale debt securities at ~~June~~September 30, 2019, by contractual maturity, were as follows. Securities not due at a single maturity date, primarily collateralized mortgage obligations and residential mortgage-backed securities, are shown separately.

	(Dollars in thousands)				(Dollars in thousands)
	Available-for-sale				Available-for-sale
	Estimated				Estimated
	Fair		Tax-Equivalent		Fair		Tax-Equivalent
June 30, 2019	Value		Yield (%)
September 30, 2019					Value		Yield (%)
Due in one year or less	$	9,263		2.71	$	8,840		2.71
Due from one to five years		3,311		4.91		3,397		4.95
Due from five to ten years		17,524		3.79		20,270		3.71
Due over ten years		83,470		4.06		87,926		4.02
Collateralized mortgage obligations and residential mortgage-backed securities		145,174		2.69		140,621		2.70
Total	$	258,742		3.24	$	261,054		3.25

Sales of available-for-sale securities were as follows for the ~~six~~nine months ended:

	(Dollars in thousands)					(Dollars in thousands)
	June 30,			June 30,		September 30,			September 30,
	2019			2018		2019			2018

Proceeds	$	30,281		$	22,545	$	35,859		$	29,049
Gross gains		733			1,004		838			1,159
Gross losses		(81	)		-		(84	)		(4	)

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

	(Dollars in thousands)			(Dollars in thousands)
	Unrealized gain/(loss)			Unrealized gain/(loss)
Ending balance, December 31, 2018	$	(2,796	)	$	(2,796	)
Current period change		5,626			7,214
Ending balance, June 30, 2019	$	2,830
Ending balance, September 30, 2019				$	4,418

Securities with carrying values of approximately ~~$76.2~~$69.2 million and $16.3 million were pledged as of ~~June~~September 30, 2019 and December 31, 2018, respectively, as collateral for repurchase agreements, public funds, and for other purposes as permitted or required by law. The increase in pledged securities for ~~June~~September 30, 2019, was the result of new pledging requirements for Indiana public funds deposits.

Securities with gross unrealized losses at ~~June~~September 30, 2019 and December 31, 2018 not recognized in income are as follows:

	(Dollars in thousands)															(Dollars in thousands)
	Less than 12 months					12 months or longer					Total					Less than 12 months					12 months or longer					Total
	Estimated					Estimated					Estimated					Estimated					Estimated					Estimated
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
June 30, 2019	Value		Losses			Value		Losses			Value		Losses
																Value		Losses			Value		Losses			Value		Losses
September 30, 2019
U.S. government sponsored entities	$	-	$	-		$	-	$	-		$	-	$	-		$	1,427	$	(3	)	$	-	$	-		$	1,427	$	(3	)
Collateralized mortgage obligations and residential mortgage-backed securities		-		-			34,364		(273	)		34,364		(273	)		5,727		(34	)		17,351		(71	)		23,078		(105	)
Municipal securities		-		-			607		(28	)		607		(28	)		2,579		(39	)		-		-			2,579		(39	)
Collateralized debt obligations		-		-			2,047		(1,408	)		2,047		(1,408	)		-		-			2,070		(1,378	)		2,070		(1,378	)
Total temporarily impaired	$	-	$	-		$	37,018	$	(1,709	)	$	37,018	$	(1,709	)	$	9,733	$	(76	)	$	19,421	$	(1,449	)	$	29,154	$	(1,525	)
Number of securities				0					31					31					8					19					27

	(Dollars in thousands)
	Less than 12 months					12 months or longer					Total
	Estimated					Estimated					Estimated
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
December 31, 2018	Value		Losses			Value		Losses			Value		Losses
U.S. government sponsored entities	$	-	$	-		$	3,866	$	(131	)	$	3,866	$	(131	)
Collateralized mortgage obligations and residential mortgage-backed securities		28,388		(304	)		89,234		(2,384	)		117,622		(2,688	)
Municipal securities		22,678		(367	)		3,495		(157	)		26,173		(524	)
Collateralized debt obligations		-		-			2,049		(1,432	)		2,049		(1,432	)
Total temporarily impaired	$	51,066	$	(671	)	$	98,644	$	(4,104	)	$	149,710	$	(4,775	)
Number of securities				52					75					127

	(Dollars in thousands)
	Less than 12 months					12 months or longer					Total
	Estimated					Estimated					Estimated
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
December 31, 2018
U.S. government sponsored entities	$	-	$	-		$	3,866	$	(131	)	$	3,866	$	(131	)
Collateralized mortgage obligations and residential mortgage-backed securities		28,388		(304	)		89,234		(2,384	)		117,622		(2,688	)
Municipal securities		22,678		(367	)		3,495		(157	)		26,173		(524	)
Collateralized debt obligations		-		-			2,049		(1,432	)		2,049		(1,432	)
Total temporarily impaired	$	51,066	$	(671	)	$	98,644	$	(4,104	)	$	149,710	$	(4,775	)
Number of securities				52					75					127

Unrealized losses on securities have not been recognized into income because the securities are of high credit quality or have undisrupted cash flows. Management has the intent and ability to hold those securities for the foreseeable future, and the decline in fair value is largely due to changes in interest rates and volatility in securities markets. The fair values are expected to recover as the securities approach maturity.

Note 5 - Loans Receivable

Loans receivable are summarized below:

(Dollars in thousands)
	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Loans secured by real estate:
Residential real estate	$	301,770		$	224,082		$	298,138		$	224,082
Home equity		50,093			45,423			49,719			45,423
Commercial real estate		275,954			253,104			282,536			253,104
Construction and land development		71,655			64,433			79,351			64,433
Multifamily		51,149			47,234			50,878			47,234
Farmland		234			240			230			240
Total loans secured by real estate		750,855			634,516			760,852			634,516
Commercial business		112,238			103,628			109,485			103,628
Consumer		10,273			5,293			763			495
Manufactured homes								12,882			4,798
Government		19,284			21,101			17,609			21,101
Subtotal		892,650			764,538			901,591			764,538
Less:
Net deferred loan origination fees		1,804			530			2,813			530
Undisbursed loan funds		(180	)		(668	)		(131	)		(668	)
Loans receivable	$	894,274		$	764,400		$	904,273		$	764,400

(Dollars in thousands)	Beginning Balance		Charge-offs			Recoveries		Provisions			Ending Balance

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended September 30, 2019:

Allowance for loan losses:
Residential real estate	$	1,660	$	(62	)	$	5	$	149		$	1,752
Home equity		202		-			2		23			227
Commercial real estate		3,529		-			-		178			3,707
Construction and land development		806		-			-		188			994
Multifamily		453		-			-		51			504
Farmland		-		-			-		-			-
Commercial business		1,517		(9	)		8		405			1,921
Consumer		51		(13	)		5		7			50
Manufactured homes		505		-			-		(505	)		-
Government		21		-			-		(2	)		19
Total	$	8,744	$	(84	)	$	20	$	494		$	9,174

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended September 30, 2018:

Allowance for loan losses:
Residential real estate	$	1,523	$	(30	)	$	-	$	82		$	1,575
Home equity		183		-			-		10			193
Commercial real estate		3,170		-			22		48			3,240
Construction and land development		611		-			-		(32	)		579
Multifamily		607		-			-		(150	)		457
Farmland		4		-			-		(1	)		3
Commercial business		1,264		-			8		61			1,333
Consumer		36		(19	)		8		298			323
Manufactured homes		-		-			-		-			-
Government		50		-			-		(4	)		46
Total	$	7,448	$	(49	)	$	38	$	312		$	7,749

(Dollars in thousands) Beginning Balance Charge-offs Recoveries Provisions Ending Balance

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended June 30, 2019:

Allowance for loan losses:
Residential real estate $ 1,680 $ (18 ) $ 4 $ (6 ) $ 1,660
Home equity 194 - 2 6 202
Commercial real estate 3,485 - - 44 3,529
Construction and land development 777 - - 29 806
Multifamily 434 - - 19 453
Farmland - - - - -
Commercial business 1,391 - 10 116 1,517
Consumer 254 (7 ) 6 303 556
Government 21 - - - 21
Total $ 8,236 $ (25 ) $ 22 $ 511 $ 8,744

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended June 30, 2018:

Allowance for loan losses:
Residential real estate $ 1,493 $ (38 ) $ - $ 68 $ 1,523
Home equity 159 (5 ) - 29 183
Commercial real estate 2,996 - 2 172 3,170
Construction and land development 661 - - (50 ) 611
Multifamily 615 - - (8 ) 607
Farmland 4 - - - 4
Commercial business 1,077 (3 ) 107 83 1,264
Consumer 35 (14 ) 5 10 36
Government 57 - - (7 ) 50
Total $ 7,097 $ (60 ) $ 114 $ 297 $ 7,448

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the six months ended June 30, 2019:

Allowance for loan losses:
Residential real estate $ 1,715 $ (66 ) $ 18 $ (7 ) $ 1,660
Home equity 202 - 2 (2 ) 202
Commercial real estate 3,335 - - 194 3,529
Construction and land development 756 - - 50 806
Multifamily 472 - - (19 ) 453
Farmland - - - - -
Commercial business 1,362 - 16 139 1,517
Consumer 82 (25 ) 9 490 556
Government 38 - - (17 ) 21
Total $ 7,962 $ (91 ) $ 45 $ 828 $ 8,744

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the six months ended June 30, 2018:

Allowance for loan losses:
Residential real estate $ 1,568 $ (106 ) $ - $ 61 $ 1,523
Home equity 166 (24 ) - 41 183
Commercial real estate 3,125 (119 ) 2 162 3,170
Construction and land development 618 - - (7 ) 611
Multifamily 622 - - (15 ) 607
Farmland - - - 4 4
Commercial business 1,298 (529 ) 117 378 1,264
Consumer 31 (22 ) 9 18 36
Government 54 - - (4 ) 50
Total $ 7,482 $ (800 ) $ 128 $ 638 $ 7,448

(Dollars in thousands)	Beginning Balance		Charge-offs			Recoveries		Provisions			Ending Balance

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the nine months ended September 30, 2019:

Allowance for loan losses:
Residential real estate	$	1,715	$	(128	)	$	23	$	142		$	1,752
Home equity		202		-			4		21		$	227
Commercial real estate		3,335		-			-		372		$	3,707
Construction and land development		756		-			-		238		$	994
Multifamily		472		-			-		32		$	504
Farmland		-		-			-		-		$	-
Commercial business		1,362		(9	)		24		544		$	1,921
Consumer		41		(38	)		14		33		$	50
Manufactured homes		41		-			-		(41	)	$	-
Government		38		-			-		(19	)	$	19
Total	$	7,962	$	(175	)	$	65	$	1,322		$	9,174

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the nine months ended September 30, 2018:

Allowance for loan losses:
Residential real estate	$	1,568	$	(136	)	$	-	$	143		$	1,575
Home equity		166		(24	)		-		51			193
Commercial real estate		3,125		(119	)		24		210			3,240
Construction and land development		618		-			-		(39	)		579
Multifamily		622		-			-		(165	)		457
Farmland		-		-			-		3			3
Commercial business		1,298		(529	)		125		439			1,333
Consumer		31		(41	)		17		316			323
Manufactured homes		-		-			-		-			-
Government		54		-			-		(8	)		46
Total	$	7,482	$	(849	)	$	166	$	950		$	7,749

The Bancorp's impairment analysis is summarized below:

															Ending Balances
		Ending Balances
(Dollars in thousands)		Individually evaluated for impairment reserves		Collectively evaluated for impairment reserves		Loan receivables		Loans individually evaluated for impairment		Purchased credit impaired loans individually evaluated for impairment		Loans collectively evaluated for impairment			Individually evaluated for impairment reserves		Collectively evaluated for impairment reserves		Loan receivables		Individually evaluated for impairment		Purchased credit impaired individually evaluated for impairment		Collectively evaluated for impairment

The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at June 30, 2019:
The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at September 30, 2019:														The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at September 30, 2019:

Residential real estate		$	22	$	1,638	$	301,488	$	547	$	1,894	$	299,047		$	17	$	1,735	$	297,830	$	628	$	1,747	$	295,455
Home equity			11		191		50,155		214		225		49,716			9		218		49,781		282		220		49,279
Commercial real estate			196		3,333		275,954		1,651		485		273,818			218		3,489		282,536		1,352		486		280,698
Construction and land development			-		806		71,655		-		-		71,655			-		994		79,351		-		-		79,351
Multifamily			-		453		51,149		-		701		50,448			-		504		50,878		-		684		50,194
Farmland			-		-		234		-		-		234			-		-		230		-		-		230
Commercial business			334		1,183		112,076		1,753		1,152		109,171			967		954		109,359		2,436		1,147		105,776
Consumer			-		556		12,279		-		-		12,279			-		50		1,334		-		-		1,334
Manufactured homes																-		-		15,365		-		-		15,365
Government			-		21		19,284		-		-		19,284			-		19		17,609		-		-		17,609
Total		$	563	$	8,181	$	894,274	$	4,165	$	4,457	$	885,652		$	1,211	$	7,963	$	904,273	$	4,698	$	4,284	$	895,291


The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2018:	The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2018:													The Bancorp's allowance for loan losses impairment evaluation and loan receivables are summarized below at December 31, 2018:

Residential real estate		$	22		1,693		223,323	$	570	$	980	$	221,773		$	22		1,693		223,323	$	570	$	980	$	221,773
Home equity			9		193		45,483		141		123		45,219			9		193		45,483		141		123		45,219
Commercial real estate			210		3,125		253,104		1,703		402		250,999			210		3,125		253,104		1,703		402		250,999
Construction and land development			-		756		64,433		-		-		64,433			-		756		64,433		-		-		64,433
Multifamily			-		472		47,234		-		-		47,234			-		472		47,234		-		-		47,234
Farmland			-		-		240		-		-		240			-		-		240		-		-		240
Commercial business			5		1,357		103,439		423		1,440		101,576			5		1,357		103,439		423		1,440		101,576
Consumer			-		82		6,043		-		-		6,043			-		82		643		-		-		643
Manufactured homes																-		-		5,400		-		-		5,400
Government			-		38		21,101		-		-		21,101			-		38		21,101		-		-		21,101
Total		$	246	$	7,716	$	764,400	$	2,837	$	2,945	$	758,618		$	246	$	7,716	$	764,400	$	2,837	$	2,945	$	758,618

The Bancorp's credit quality indicators are summarized below at ~~June~~September 30, 2019 and December 31, 2018:

	Credit Exposure - Credit Risk Portfolio By Creditworthiness Category																Credit Exposure - Credit Risk Portfolio By Creditworthiness Category
	June 30, 2019																September 30, 2019
(Dollars in thousands)	2		3		4		5		6		7		8				2		3		4		5		6		7		8

Loan Segment	Moderate		Above average acceptable		Acceptable		Marginally acceptable		Pass/monitor		Special mention		Substandard		Total		Moderate		Above average acceptable		Acceptable		Marginally acceptable		Pass/monitor		Special mention		Substandard		Total
Residential real estate	$	881	$	115,857	$	105,661	$	13,342	$	55,872		3,900		5,975	$	301,488	$	940	$	114,219	$	105,136	$	13,338	$	54,445		4,304		5,448	$	297,830
Home equity		64		7,639		39,725		258		1,161		744		564		50,155		110		7,293		39,736		253		997		810		582		49,781
Commercial real estate		-		4,336		85,845		126,413		53,058		4,253		2,049		275,954		2,575		2,398		85,479		129,731		56,424		4,091		1,838		282,536
Construction and land development		-		310		23,891		32,407		15,047		-		-		71,655		-		573		21,143		42,371		15,264		-		-		79,351
Multifamily		-		934		18,915		27,298		3,161		140		701		51,149		-		920		18,426		27,673		3,042		133		684		50,878
Farmland		-		-		-		-		234		-		-		234		-		-		-		-		230		-		-		230
Commercial business		9,634		21,596		20,230		36,348		20,081		2,423		1,764		112,076		8,326		19,337		20,804		35,889		20,381		2,500		2,122		109,359
Consumer		2,155		2,666		6,371		190		897		-		-		12,279		689		3		637		-		5		-		-		1,334
Manufactured homes																		2,483		2,571		9,256		186		869		-		-		15,365
Government		-		1,889		13,485		3,910		-		-		-		19,284		-		1,889		12,560		3,160		-		-		-		17,609
Total	$	12,734	$	155,227	$	314,123	$	240,166	$	149,511	$	11,460	$	11,053	$	894,274	$	15,123	$	149,203	$	313,177	$	252,601	$	151,657	$	11,838	$	10,674	$	904,273


	December 31, 2018																December 31, 2018
(Dollars in thousands)	2		3		4		5		6		7		8				2		3		4		5		6		7		8

Loan Segment	Moderate		Above average acceptable		Acceptable		Marginally acceptable		Pass/monitor		Special mention		Substandard		Total		Moderate		Above average acceptable		Acceptable		Marginally acceptable		Pass/monitor		Special mention		Substandard		Total
Residential real estate	$	261	$	58,276	$	100,374	$	10,404	$	44,734	$	3,908	$	5,366	$	223,323	$	261	$	58,276	$	100,374	$	10,404	$	44,734	$	3,908	$	5,366	$	223,323
Home equity		192		3,736		40,165		37		323		657		373		45,483		192		3,736		40,165		37		323		657		373		45,483
Commercial real estate		-		5,042		78,611		110,984		51,982		4,715		1,770		253,104		-		5,042		78,611		110,984		51,982		4,715		1,770		253,104
Construction and land development		-		322		24,271		29,383		10,457		-		-		64,433		-		322		24,271		29,383		10,457		-		-		64,433
Multifamily		-		569		19,255		23,417		3,844		149		-		47,234		-		569		19,255		23,417		3,844		149		-		47,234
Farmland		-		-		-		-		240		-		-		240		-		-		-		-		240		-		-		240
Commercial business		10,655		19,127		20,941		34,996		14,034		2,958		728		103,439		10,655		19,127		20,941		34,996		14,034		2,958		728		103,439
Consumer		925		2,953		1,040		196		909		20		-		6,043		202		-		441		-		-		-		-		643
Manufactured homes																		723		2,953		599		196		909		20		-		5,400
Government		-		2,111		14,795		4,195		-		-		-		21,101		-		2,111		14,795		4,195		-		-		-		21,101
Total	$	12,033	$	92,136	$	299,452	$	213,612	$	126,523	$	12,407	$	8,237	$	764,400	$	12,033	$	92,136	$	299,452	$	213,612	$	126,523	$	12,407	$	8,237	$	764,400

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 – Minimal Risk

Borrower demonstrates exceptional credit fundamentals, including stable and predictable profit margins, strong liquidity and a conservative balance sheet with superior asset quality. Excellent cash flow coverage of existing and projected debt service. Historic and projected performance indicates borrower is able to meet obligations under almost any economic circumstances.

2 – Moderate risk

Borrower consistently internally generates sufficient cash flow to fund debt service, working assets, and some capital expenditures. Risk of default considered low.

3 – Above average acceptable risk

Borrower generates sufficient cash flow to fund debt service and some working assets and/or capital expansion needs. Profitability and key balance sheet ratios are at or slightly above peers. Current trends are positive or stable. Earnings may be level or trending down slightly or be erratic; however, positive strengths are offsetting. Risk of default is reasonable but may warrant collateral protection.

4 – Acceptable risk

Borrower generates sufficient cash flow to fund debt service, but most working asset and all capital expansion needs are provided from external sources. Profitability ratios and key balance sheet ratios are usually close to peers but one or more ratios (e.g. leverage) may be higher than peer. Earnings may be trending down over the last three years. Borrower may be able to obtain similar financing from other banks with comparable or less favorable terms. Risk of default is acceptable but requires collateral protection.

5 – Marginally acceptable risk

Borrower may exhibit excessive growth, declining earnings, strained cash flow, increasing leverage and/or weakening market position that indicate above average risk. Limited additional debt capacity, modest coverage, and average or below average asset quality, margins and market share. Interim losses and/or adverse trends may occur, but not to the level that would affect the Bank’s position. The potential for default is higher than normal but considered marginally acceptable based on prospects for improving financial performance and the strength of the collateral.

6 – Pass/monitor

The borrower has significant weaknesses resulting from performance trends or management concerns. The financial condition of the company has taken a negative turn and may be temporarily strained. Cash flow may be weak but cash reserves remain adequate to meet debt service. Management weaknesses are evident. Borrowers in this category will warrant more than the normal level of supervision and more frequent reporting.

7 – Special mention (watch)

Special mention credits are considered bankable assets with no apparent loss of principal or interest envisioned but requiring a high level of management attention. Assets in this category are currently protected but are potentially weak. These borrowers are subject to economic, industry, or management factors having an adverse impact upon their prospects for orderly service of debt. The perceived risk in continued lending is considered to have increased beyond the level where such loans would normally be granted. These assets constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of Substandard.

8 – Substandard

This classification consists of loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Financial statements normally reveal some or all of the following: poor trends, lack of earnings and cash flow, excessive debt, lack of liquidity, and the absence of creditor protection. Loans are still considered collectible, but due to increased risks and defined weaknesses of the credit, some loss could be incurred in collection if the deficiencies are not corrected.

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

During the first ~~six~~nine months of 2019, ~~three~~five home equity loans and one commercial business loan totaling ~~$128~~$472 thousand were renewed as troubled debt ~~restructurings. No~~restructurings and two loans, consisting of one commercial business and one residential loan, totaling $135 thousand were restructured as new TDR loans. Two troubled debt restructurings totaling $163 thousand have subsequently defaulted during the periods presented. All of the loans classified as troubled debt restructurings are also considered impaired. The valuation basis for the Bancorp’s troubled debt restructurings is based on the present value of cash flows, unless consistent cash flows are not present, then the fair value of the collateral securing the loan is the basis for valuation.

The Bancorp's individually evaluated impaired loans are summarized below:

							For the six months ended										For the nine months ended
	As of June 30, 2019						June 30, 2019				As of September 30, 2019						September 30, 2019
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	2,284	$	3,762	$	-	$	1,813	$	31	$	2,222	$	3,697	$	-	$	1,915	$	55
Home equity		375		398		-		344		3		439		462		-		368		6
Commercial real estate		1,665		2,264		-		1,655		33		1,380		1,976		-		1,586		41
Construction and land development		-		-		-		-		-		-		-		-		-		-
Multifamily		701		783		-		472		3		684		766		-		525		12
Farmland		-		-		-		-		-		-		-		-		-		-
Commercial business		2,565		2,695		-		1,967		43		1,832		1,942		-		1,933		63
Consumer		-		-		-		-		-		-		-		-		-		-
Manufactured homes												-		-		-		-		-
Government		-		-		-		-		-		-		-		-		-		-

With an allowance recorded:
Residential real estate		157		157		22		159		2		153		153		17		158		3
Home equity		64		64		11		59		1		63		63		9		60		1
Commercial real estate		471		471		196		478		-		458		458		218		473		-
Construction and land development		-		-		-		-		-		-		-		-		-		-
Multifamily		-		-		-		-		-		-		-		-		-		-
Farmland		-		-		-		-		-		-		-		-		-		-
Commercial business		340		340		334		145		-		1,751		1,751		967		547		3
Consumer		-		-		-		-		-		-		-		-		-		-
Manufactured homes												-		-		-		-		-
Government		-		-		-		-		-		-		-		-		-		-

Total:
Residential real estate	$	2,441	$	3,919	$	22	$	1,972	$	33	$	2,375	$	3,850	$	17	$	2,073	$	58
Home equity	$	439	$	462	$	11	$	403	$	4	$	502	$	525	$	9	$	428	$	7
Commercial real estate	$	2,136	$	2,735	$	196	$	2,133	$	33	$	1,838	$	2,434	$	218	$	2,059	$	41
Construction & land development	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Multifamily	$	701	$	783	$	-	$	472	$	3	$	684	$	766	$	-	$	525	$	12
Farmland	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Commercial business	$	2,905	$	3,035	$	334	$	2,112	$	43	$	3,583	$	3,693	$	967	$	2,480	$	66
Consumer	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Manufactured homes											$	-	$	-	$	-	$	-	$	-
Government	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

For the six months ended
As of December 31, 2018 June 30, 2018
(Dollars in thousands) Recorded
Investment Unpaid Principal
Balance Related Allowance Average Recorded
Investment Interest Income
Recognized
With no related allowance recorded:
Residential real estate $ 1,389 $ 3,628 $ - $ 1,108 $ 16
Home equity 207 214 - 45 -
Commercial real estate 1,624 2,222 - 561 -
Construction & land development - - - 89 -
Multifamily - - - - -
Farmland - - - - -
Commercial business 1,799 2,038 - 257 -
Consumer - - - - -
Government - - - - -

With an allowance recorded:
Residential real estate 161 161 22 114 10
Home equity 57 57 9 20 -
Commercial real estate 481 481 210 160 16
Construction & land development - - - - -
Multifamily - - - - -
Farmland - - - - -
Commercial business 64 64 5 186 8
Consumer - - - - -
Government - - - - -

Total:
Residential real estate $ 1,550 $ 3,789 $ 22 $ 1,222 $ 26
Home equity $ 264 $ 271 $ 9 $ 65 $ -
Commercial real estate $ 2,105 $ 2,703 $ 210 $ 721 $ 16
Construction & land development $ - $ - $ - $ 89 $ -
Multifamily $ - $ - $ - $ - $ -
Farmland $ - $ - $ - $ - $ -
Commercial business $ 1,863 $ 2,102 $ 5 $ 443 $ 8
Consumer $ - $ - $ - $ - $ -
Government $ - $ - $ - $ - $ -

							For the nine months ended
	As of December 31, 2018						September 30, 2018
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	1,389	$	3,628	$	-	$	1,208	$	61
Home equity		207		214		-		87		1
Commercial real estate		1,624		2,222		-		1,114		46
Construction & land development		-		-		-		67		-
Multifamily		-		-		-		-		-
Farmland		-		-		-		-		-
Commercial business		1,799		2,038		-		651		20
Consumer		-		-		-		-		-
Manufactured homes		-		-		-		-		-
Government		-		-		-		-		-

With an allowance recorded:
Residential real estate		161		161		22		114		4
Home equity		57		57		9		29		-
Commercial real estate		481		481		210		280		3
Construction & land development		-		-		-		-		-
Multifamily		-		-		-		-		-
Farmland		-		-		-		-		-
Commercial business		64		64		5		159		1
Consumer		-		-		-		-		-
Manufactured homes		-		-		-		-		-
Government		-		-		-		-		-

Total:
Residential real estate	$	1,550	$	3,789	$	22	$	1,322	$	65
Home equity	$	264	$	271	$	9	$	116	$	1
Commercial real estate	$	2,105	$	2,703	$	210	$	1,394	$	49
Construction & land development	$	-	$	-	$	-	$	67	$	-
Multifamily	$	-	$	-	$	-	$	-	$	-
Farmland	$	-	$	-	$	-	$	-	$	-
Commercial business	$	1,863	$	2,102	$	5	$	810	$	21
Consumer	$	-	$	-	$	-	$	-	$	-
Manufactured homes	$	-	$	-	$	-	$	-	$	-
Government	$	-	$	-	$	-	$	-	$	-

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

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Total Loans		Recorded Investments Greater than 90 Days Past Due and Accruing
September 30, 2019
Residential real estate	$	2,179	$	1,716	$	4,268	$	8,163	$	289,667	$	297,830	$	318
Home equity		300		20		582		902		48,879		49,781		136
Commercial real estate		6,655		-		976		7,631		274,905		282,536		63
Construction and land development		-		299		-		299		79,052		79,351		-
Multifamily		282		133		31		446		50,432		50,878		31
Farmland		-		-		-		-		230		230		-
Commercial business		535		133		2,186		2,854		106,505		109,359		237
Consumer		-		-		-		-		1,334		1,334		-
Manufactured homes		165		128		-		293		15,072		15,365		-
Government		-		-		-		-		17,609		17,609		-
Total	$	10,116	$	2,429	$	8,043	$	20,588	$	883,685	$	904,273	$	785

December 31, 2018
Residential real estate	$	3,659	$	909	$	4,362	$	8,930	$	214,393	$	223,323	$	122
Home equity		143		5		304		452		45,031		45,483		50
Commercial real estate		842		18		611		1,471		251,633		253,104		-
Construction and land development		491		533		-		1,024		63,409		64,433		-
Multifamily		-		149		-		149		47,085		47,234		-
Farmland		-		-		-		-		240		240		-
Commercial business		733		260		436		1,429		102,010		103,439		149
Consumer		1		-		-		1		642		643		-
Manufactured homes		-		72		-		72		5,328		5,400		-
Government		-		-		-		-		21,101		21,101		-
Total	$	5,869	$	1,946	$	5,713	$	13,528	$	750,872	$	764,400	$	321

The Bancorp's loans on nonaccrual status are summarized below:

(Dollars in thousands)
	September 30, 2019		December 31, 2018
Residential real estate	$	5,132	$	5,135
Home equity		547		270
Commercial real estate		913		695
Construction and land development		-		-
Multifamily		260		-
Farmland		-		-
Commercial business		1,951		495
Consumer		-		-
Manufactured homes		-		-
Government		-		-
Total	$	8,803	$	6,595

As a result of acquisition activity, the Bancorp acquired loans for which there was evidence of credit quality deterioration since origination and it was determined that it was probable that the Bancorp would be unable to collect all contractually required principal and interest payments. At ~~June~~September 30, 2019, total purchased credit impaired loans with unpaid principal balances totaled ~~$6.8~~$6.6 million with a recorded investment of ~~$4.5~~$4.3 million. At December 31, 2018, purchased credit impaired loans with unpaid principal balances totaled $6.0 million with a recorded investment of $2.9 million.

~~The Bancorp's age analysis of past due loans~~

Accretable interest taken from the purchase credit impaired portfolio, or income recorded for the nine months ended September 30, is ~~summarized below:~~as follows:

(Dollars in thousands) 30-59 Days Past
Due 60-89 Days Past
Due Greater Than 90
Days Past Due Total Past Due Current Total Loans Recorded
Investments
Greater than 90
Days Past Due
and Accruing
June 30, 2019
Residential real estate $ 4,342 $ 1,597 $ 4,612 $ 10,551 $ 290,937 $ 301,488 $ 294
Home equity 245 6 426 677 49,478 50,155 -
Commercial real estate 753 174 1,146 2,073 273,881 275,954 220
Construction and land development 248 - - 248 71,407 71,655 -
Multifamily - - 438 438 50,711 51,149 173
Farmland - - - - 234 234 -
Commercial business 372 331 1,320 2,023 110,053 112,076 238
Consumer 181 34 - 215 12,064 12,279 -
Government - - - - 19,284 19,284 -
Total $ 6,141 $ 2,142 $ 7,942 $ 16,225 $ 878,049 $ 894,274 $ 925

December 31, 2018
Residential real estate $ 3,659 $ 909 $ 4,362 $ 8,930 $ 214,393 $ 223,323 $ 122
Home equity 143 5 304 452 45,031 45,483 50
Commercial real estate 842 18 611 1,471 251,633 253,104 -
Construction and land development 491 533 - 1,024 63,409 64,433 -
Multifamily - 149 - 149 47,085 47,234 -
Farmland - - - - 240 240 -
Commercial business 733 260 436 1,429 102,010 103,439 149
Consumer 1 72 - 73 5,970 6,043 -
Government - - - - 21,101 21,101 -
Total $ 5,869 $ 1,946 $ 5,713 $ 13,528 $ 750,872 $ 764,400 $ 321

(dollars in thousands)	First Personal
2018	$	26
2019		118

~~The Bancorp's loans on nonaccrual status are summarized below:~~Accretable interest taken from the purchase credit impaired portfolio, or income expected to be recorded in the future is as follows:

(Dollars in thousands)
June 30, 2019 December 31, 2018
Residential real estate $ 5,720 $ 5,135
Home equity 543 270
Commercial real estate 926 695
Construction and land development - -
Multifamily 265 -
Farmland - -
Commercial business 1,521 495
Consumer - -
Government - -
Total $ 8,975 $ 6,595

(dollars in thousands)	First Personal
2019	$	(25	)
2020		(100	)
2021		(25	)
Total	$	(150	)

For the acquisitions of First Federal Savings & Loan (“First Federal”), Liberty Savings Bank (“Liberty Savings”), First Personal Bank (“First Personal”), and A.J. Smith Federal Savings Bank (“AJ Smith”), as part of the fair value of loans receivable, a net fair value discount was established for loans as summarized below:

(dollars in thousands)	First Federal				Liberty Savings				First Personal				AJ Smith
(dollars in thousands)																	First Federal				Liberty Savings				First Personal				AJ Smith
																	Net fair value		Accretable period		Net fair value		Accretable period		Net fair value		Accretable period		Net fair value		Accretable period
	Net fair value discount		Accretable period in months		Net fair value discount		Accretable period in months		Net fair value discount		Accretable period in months		Net fair value discount		Accretable period in months		discount		in months		discount		in months		discount		in months		discount		in months
Residential real estate	$	1,062		59	$	1,203		44	$	948		56	$	3,734		52	$	1,062		59	$	1,203		44	$	948		56	$	3,734		52
Home equity		44		29		5		29		51		50		141		32		44		29		5		29		51		50		141		32
Commercial real estate		-		-		-		-		208		56		8		9		-		-		-		-		208		56		8		9
Construction and land development		-		-		-		-		1		30		-		-		-		-		-		-		1		30		-		-
Multifamily		-		-		-		-		11		48		2		48		-		-		-		-		11		48		2		48
Consumer		-		-		-		-		146		50		1		5		-		-		-		-		146		50		1		5
Commercial business		-		-		-		-		348		24		-		-		-		-		-		-		348		24		-		-
Purchased credit impaired loans		-		-		-		-		424		32		-		-		-		-		-		-		424		32		-		-
Total	$	1,106			$	1,208			$	2,137			$	3,886			$	1,106			$	1,208			$	2,137			$	3,886

Accretable yield, or income recorded for the ~~six~~nine months ended ~~June~~September 30, is as follows:

(dollars in thousands) First Federal Liberty Savings First Personal AJ Smith Total
2018 $ 36 $ 68 $ - $ - $ 104
2019 22 42 357 451 $ 872

(dollars in thousands)	First Federal		Liberty Savings		First Personal		AJ Smith		Total
2018	$	105	$	200	$	114	$	-	$	419
2019		22		42		402		843	$	1,309

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

(dollars in thousands)	First Personal		AJ Smith		Total		First Personal		AJ Smith		Total
2019	$	281	$	455	$	736	$	112	$	216	$	328
2020		538		879		1,417		402		833		1,236
2021		345		871		1,216		341		826		1,167
2022		334		871		1,205		330		826		1,156
2023		75		359		434		74		341		415
Total	$	1,573	$	3,435	$	5,008	$	1,259	$	3,043	$	4,303

Note 6 - Foreclosed Real Estate

Foreclosed real estate at period-end is summarized below:

	(Dollars in thousands)				(Dollars in thousands)
	June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Residential real estate	$	1,155	$	1,132	$	752	$	1,132
Commercial real estate		126		126		346		346
Construction and land development		-		149		-		149
Commercial business		220		220
Total	$	1,501	$	1,627	$	1,098	$	1,627

Note 7 – ~~Intangibles~~Intangibles and Acquisition Related Accounting

The Bancorp established a goodwill balance totaling $11.1 million with the acquisitions of AJSB, First Personal, First Federal, and Liberty Savings. Goodwill of $2.9 million, $5.4 million, $2.0 million, and $804 thousand were established with the acquisition of AJSB, First Personal, First Federal, and Liberty Savings, respectively. Goodwill is tested annually for impairment. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. The Bancorp’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of the Bancorp to provide quality, cost effective banking services in a competitive marketplace. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. There has not been any impairment of goodwill identified or recorded. Goodwill totaled $11.1 million and $8.2 million as of ~~June~~September 30, 2019 and December 31, 2018, respectively.

In addition to goodwill, a core deposit intangible of $93 thousand for the acquisition of First Federal was established and is being amortized over an initial period of 7.9 years on a straight line basis. A core deposit intangible of $471 thousand for the acquisition of Liberty Savings was established and is being amortized over an initial period of 8.2 years on a straight line basis. A core deposit intangible of $3.0 million for the acquisition of First Personal was established and is being amortized over an initial period of 6.4 years on a straight line basis. A core deposit intangible of $2.9 million for the acquisition of AJSB was established and is being amortized over an initial period of 6.5 years on a straight line basis. The table below summarizes the annual amortization:

(dollars in thousands) First Federal Liberty Savings First Personal AJ Smith Total
Current period $ 6 $ 29 $ 238 $ 187 $ 460
Remainder 2019 6 29 237 224 496
2020 12 58 475 449 994
2021 12 58 475 449 994
2022 1 58 475 449 983
2023 - 38 475 449 962
2024 - - 470 449 919
2025 - - - 261 261
Total $ 37 $ 270 $ 2,845 $ 2,917 $ 6,069

Amortization recorded for the nine months ended September 30, is as follows:

(dollars in thousands)		First Federal				Liberty Savings				First Personal				AJ Smith				Total
Current period		$	9			$	44			$	356			$	299			$	708

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

(dollars in thousands)	First Federal		Liberty Savings		First Personal		AJ Smith		Total
Remainder 2019		3		14		119		112		248
2020		12		58		475		449		994
2021		12		58		475		449		994
2022		1		58		475		449		983
2023		-		38		475		449		962
2024		-		-		470		449		919
2025		-		-		-		261		261
Total	$	28	$	226	$	2,489	$	2,618	$	5,361

For the First Personal acquisition, as part of the fair value of certificates of deposit, a fair value premium was established of $133 thousand that is being amortized over 8 months on a straight line basis. Approximately $53 thousand of amortization was taken as income during the ~~six~~nine months ended ~~June~~September 30, 2019. The premium has been fully amortized as of ~~June~~September 30, 2019. For the AJSB acquisition, as part of the fair value of certificates of deposit, a fair value premium was established of $174 thousand that is being amortized over 14 months on a straight line basis. Approximately ~~$64~~$102 thousand of amortization was taken as income during the ~~six~~nine months ended ~~June~~September 30, 2019. It is estimated that an additional ~~$76~~$38 thousand of amortization will occur during 2019 and an additional $34 thousand of amortization will occur during 2020.

Note 8 - 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 Lake and Will counties in Illinois. Substantially all loans are secured by specific items of collateral including residences, commercial real estate, land development, business assets and consumer assets.

Note 9 - 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 three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 are as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,				Three Months Ended				Nine Months Ended
(Dollars in thousands, except per share data)	2019		2018		2019		2018		September 30,				September 30,
									2019		2018		2019		2018
Basic earnings per common share:
Net income as reported	$	4,023	$	2,511	$	6,245	$	5,072	$	3,578	$	1,625	$	9,823	$	6,697
Weighted average common shares outstanding		3,451,961		2,868,250		3,397,872		2,867,834		3,451,797		3,029,369		3,416,045		2,922,271
Basic earnings per common share	$	1.17	$	0.88	$	1.84	$	1.77	$	1.04	$	0.54	$	2.88	$	2.29
Diluted earnings per common share:						-								-
Net income as reported	$	4,023	$	2,511	$	6,245	$	5,072	$	3,578	$	1,625	$	9,823	$	6,697
Weighted average common shares outstanding		3,451,961		2,868,250		3,397,872		2,867,834		3,451,797		3,029,369		3,416,045		2,922,271
Weighted average common and dilutive potential common shares outstanding		3,451,961		2,868,250		3,397,872		2,867,834		3,451,797		3,029,369		3,416,045		2,922,271
Diluted earnings per common share	$	1.17	$	0.88	$	1.84	$	1.77	$	1.04	$	0.54	$	2.88	$	2.29

Note 10 - Stock Based Compensation

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

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 ~~six~~nine months ended ~~June~~September 30, 2019, stock based compensation expense of ~~$154~~$233 thousand was recorded, compared to $104 thousand for the ~~six~~nine months ended ~~June~~September 30, 2018. It is anticipated that current outstanding unvested awards will result in additional compensation expense of approximately ~~$556~~$478 thousand through 2022 ~~with an additional $139~~as follows: $68 thousand in 2019, ~~$246~~$242 thousand in 2020, ~~$152~~$149 thousand in 2021, and $19 thousand in 2022.

There were no incentive stock options granted during the first ~~six~~nine months of 2019 or 2018. When options are granted, the cost is measured at the fair value of the options when granted, and this cost is expensed over the employment service period, which is normally the vesting period of the options or awards. At ~~June~~September 30, 2019, there were no outstanding incentive stock options.

There were 7,407 shares of restricted stock granted during the first ~~six~~nine months of 2019 compared to 4,433 shares granted during the first ~~six~~nine months of 2018. Restricted stock awards are issued with an award price equal to the market price of the Bancorp’s common stock on the award date and vest between three and five years after the grant date. Forfeiture provisions exist for personnel that separate employment before the vesting period expires. A summary of restricted stock activity under the Bancorp’s Plan described above for the year ended December 31, 2018 and ~~six~~nine months ended ~~June~~September 30, 2019 ~~follows~~:follows:

Non-vested Shares	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Non-vested at January 1, 2018		30,690		$	28.51		30,690		$	28.51
Granted		4,433			43.50		4,433			43.50
Vested		(7,700	)		22.64		(7,700	)		22.64
Forfeited		-			-		-			-
Non-vested at December 31, 2018		27,423		$	32.58		27,423		$	32.58

Non-vested at January 1, 2019		27,423		$	32.58		27,423		$	32.58
Granted		7,407			43.00		7,407			43.00
Vested		(4,310	)		28.37		(4,625	)		29.37
Forfeited		-			-		-			-
Non-vested at June 30, 2019		30,520		$	35.70
Non-vested at September 30, 2019							30,205		$	35.63

Note 11 11–Change in Accounting Principles

In May 2014, Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 and ASU 2015-14,Revenue from Contracts with Customers (Topic 606), superseding the current revenue recognition requirements in Topic 605, Revenue Recognition. The ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new guidance was effective for the Bancorp's year ending December 31, 2018 and has been adopted as of January 1, 2018. The use of the modified retrospective approach has been used for implementing this standard. Interest income is outside of the scope of the new standard and was not impacted by the adoption of the standard. Management mapped noninterest income accounts to their associated income streams and applied the five step model to identify the contract, identify the performance obligations in the contract, determine the total transaction price, allocate the transaction price to each performance obligation, and ensure revenue is recognized when the performance obligation is satisfied. A review of the Bancorp’s noninterest income has not resulted in a change in revenue recognition since adoption.

In January 2016, FASB issued ASU No. 2016-01,Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU covers various changes to the accounting, measurement, and disclosures related to certain financial instruments, including requiring equity investments to be accounted for at fair value with changes recorded through earnings, the use of the exit price when measuring fair value, and disaggregation of financial assets and liabilities by category for disclosure purposes. The new guidance was effective for the Bancorp's year ending December 31, 2018 and was adopted on January 1, 2018. The adoption of this ASU has not had a material impact on the consolidated financial statements, as the Bancorp does not hold any equity securities with unrealized gains or losses. The new reporting requirements have been incorporated into the fair value of financial instruments table and disclosures.

In February 2016, FASB issued ASU No. 2016-02,Leases, which superseded the lease requirements in ASC 840. The ASU requires lessees to recognize a right-of-use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases are classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of operations. Prior to this ASU, leases were classified as either capital or operating, with only capital leases recognized on the balance sheet. The reporting of lease-related expenses in the statements of operations and cash flows under the new guidance is generally consistent with the prior guidance. The new guidance is effective for the Bancorp's year ending December 31, 2019 and was adopted on January 1, 2019. The adoption of this ASU has not had a material impact on the consolidated financial statements, as the Bancorp does not engage in the leasing of property or in leasing of any significant furniture, fixtures, equipment, or software.

Note 12 - Upcoming Accounting Standards

In June 2016, FASB issued ASU No. 2016-13,Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU includes increased disclosures and various changes to the accounting and measurement of financial assets including the Bancorp’s loans and available-for-sale and held-to-maturity debt securities. Each financial asset presented on the balance sheet would have a unique allowance for credit losses valuation account that is deducted from the amortized cost basis to present the net carrying value at the amount expected to be collected on the financial asset. The amendments in this ASU also eliminate the probable initial recognition threshold in current GAAP and instead, reflect an entity’s current estimate of all expected credit losses using reasonable and supportable forecasts. ~~The new credit loss guidance will be effective for the Bancorp's year ending December 31, 2020. However, in July~~In October 2019, the FASB voted and approved proposed changes to the effective date of this ASU for smaller reporting companies, such as the Bancorp, and other non-SEC reporting entities. The ~~proposal would delay~~approval changed the effective date of ~~this~~the ASU to fiscal years beginning after December ~~31,~~15, 2022, including interim periods within those fiscal periods. AsThe new credit loss guidance will be effective for the ~~Bancorp is a smaller reporting company, the proposed delay would be applicable to the Bancorp if it is approved by the FASB.~~Bancorp's year ending December 31, 2023. Upon adoption, the ASU will be applied using a modified retrospective transition method to the beginning of the first reporting period in which the guidance is effective. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. Early adoption for all institutions is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management is in the process of evaluating the impact adoption of this update will have on the Bancorp’s consolidated financial statements. This process of evaluation has engaged multiple areas of the Bancorp’s management in discussing loss estimation methods and the application of these methods to specific segments of the loans receivable portfolio. Management has been actively monitoring developments and evaluating the use of different methods allowed. Due to continuing development of understanding of application, additional time is required to understand how this ASU will affect the Bancorp’s financial statements. Management plans on running parallel calculations during the year and finalizing a method or methods of adoption in time for the effective date.

In January 2017, the FASB issued ASU 2017-04,Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This Standard simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill under Step 2, an entity, prior to the amendments in ASU No. 2017-04, had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, in accordance with the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. However, under the amendments in this ASU, an entity should

(1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, ASU No. 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. Finally, this ASU amends the Overview and Background sections of the Accounting Standards Codification as part of the FASB’s initiative to unify and improve such sections across Topics and Subtopics. The new guidance will be effective for the Company’s year ending December 31, 2020.

In March 2017, the FASB issued ASU 2017-08,Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. This Standard amends the amortization period for certain purchased callable debt securities held at a premium. In particular, the amendments in this ASU require the premium to be amortized to the earliest call date. The amendments do not, however, require an accounting change for securities held at a discount; instead, the discount continues to be amortized to maturity. The amendments in this ASU more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. In fact, in most cases, market participants price securities to the call date that produces the worst yield when the coupon is above current market rates (i.e., the security is trading at a premium), and price securities to maturity when the coupon is below market rates (i.e., the security is trading at a discount), in anticipation that the borrower will act in its economic best interest. The new guidance will be effective for the Company’s year ending December 31, 2020. Management will recognize amortization expense as dictated by the amount of premiums and the differences between maturity and call dates at the time of adoption.

Note 13 13- Fair Value

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

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values of securities available-for-sale are determined on a recurring basis by obtaining quoted prices on nationally recognized securities exchanges or pricing models utilizing significant observable inputs such as matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Different judgments and assumptions used in pricing could result in different estimates of value. In certain cases where market data is not readily available because of a lack of market activity or little public disclosure, values may be based on unobservable inputs and classified in Level 3 of the fair value hierarchy.

At the end of each reporting period, securities held in the investment portfolio are evaluated on an individual security level for other-than-temporary impairment in accordance with GAAP. Impairment is other-than-temporary if the decline in the fair value is below its amortized cost and it is probable that all amounts due according to the contractual terms of a debt security will not be received. Significant judgments are required in determining impairment, which include making assumptions regarding the estimated prepayments, loss assumptions and the change in interest rates. The Bancorp considers the following factors when determining an other-than-temporary impairment for a security: the length of time and the extent to which the market value has been less than amortized cost; the financial condition and near-term prospects of the issuer; the underlying fundamentals of the relevant market and the outlook for such market for the near future; an assessment of whether the Bancorp (1) has the intent to sell the debt securities or (2) more likely than not will be required to sell the debt securities before their anticipated market recovery. If either of these conditions is met, management will recognize other-than-temporary impairment. If, in management’s judgment, an other-than-temporary impairment exists, the cost basis of the security will be written down for the credit loss, and the unrealized loss will be transferred from accumulated other comprehensive loss as an immediate reduction of current earnings.

The Bancorp’s management utilizes a specialist to perform an other-than-temporary impairment analysis for each of its pooled trust preferred securities. The analysis is performed annually during December and utilizes analytical models used to project future cash flows for the pooled trust preferred securities based on current assumptions for prepayments, default and deferral rates, and recoveries. The projected cash flows are then tested for impairment consistent with GAAP. The other-than-temporary impairment testing compares the present value of the cash flows from quarter to quarter to determine if there is a “favorable” or “adverse” change. Other-than-temporary impairment is recorded if the projected present value of cash flows is lower than the book value of the security. To perform the annual other-than-temporary impairment analysis, management utilizes current reports issued by the trustee, which contain principal and interest tests, waterfall distributions, note valuations, collection detail and credit ratings for each pooled trust preferred security. In addition, a detailed review of the performing collateral was performed. Based on current market conditions and a review of the trustee reports, management performed an analysis of the pooled trust preferred securities and no additional impairment was taken at December 31, 2018. A specialist will be used to review all pooled trust preferred securities again at December 31, 2019.

The table below shows the credit loss roll forward on a year-to-date basis for the Bancorp’s pooled trust preferred securities that have been classified with other-than-temporary impairment:

	(Dollars in thousands)		(Dollars in thousands)
	Collateralized		Collateralized
	debt obligations		debt obligations
	other-than-temporary		other-than-temporary
	impairment		impairment
Ending balance, December 31, 2018	$	235	$	235
Additions not previously recognized		-		-
Ending balance, June, 2019	$	235
Ending balance, September, 2019			$	235

At ~~June~~September 30, 2019, trust preferred securities with a cost basis of ~~$3.5~~$3.4 million continue to be in “payment in kind” status. These trust preferred securities classified as “payment in kind” are a result of not receiving the scheduled quarterly interest payments. For these trust preferred securities in “payment in kind” status, management anticipates to receive the unpaid contractual interest payments from the issuer, because of the self-correcting cash flow waterfall provisions within the structure of the securities. When a tranche senior to the Bancorp’s position fails the coverage test, the Bancorp’s interest cash flows are paid to the senior tranche and recorded as a reduction of principal. The coverage test represents an over collateralization target by stating the balance of the performing collateral as a percentage of the balance of the Bancorp’s tranche, plus the balance of all senior tranches. The principal reduction in the senior tranche continues until the appropriate coverage test is passed. As a result of the principal reduction in the senior tranche, more cash is available for future payments to the Bancorp’s tranche. Consistent with GAAP, management considered the failure of the issuer of the security to make scheduled interest payments in determining whether a credit loss existed. Management will not capitalize the “payment in kind” interest payments to the book value of the securities and will keep these securities in non-accrual status until the quarterly interest payments resume on a consistent basis.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

There were no transfers to or from Levels 1 and 2 during the ~~six~~nine months ended ~~June~~September 30, 2019. Assets measured at fair value on a recurring basis are summarized below:

			Fair Value Measurements at June 30, 2019 Using								Fair Value Measurements at September 30, 2019 Using
(Dollars in thousands)	Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale debt securities:
Money market fund	$	5,598	$	5,598	$	-	$	-	$	5,771	$	5,771	$	-	$	-
U.S. treasury securities		599		-		599		-		-		-		-		-
U.S. government sponsored entities		13,082		-		13,082		-		14,513		-		14,513		-
Collateralized mortgage obligations and residential mortgage-backed securities		145,174		-		145,174		-		140,621		-		140,621		-
Municipal securities		92,242		-		92,242		-		98,079		-		98,079		-
Collateralized debt obligations		2,047		-		-		2,047		2,070		-		-		2,070
Total securities available-for-sale	$	258,742	$	5,598	$	251,097	$	2,047	$	261,054	$	5,771	$	253,213	$	2,070

			Fair Value Measurements at December 31, 2018 Using								Fair Value Measurements at December 31, 2018 Using
(Dollars in thousands)	Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale debt securities:
Money market fund	$	2,480	$	2,480	$	-	$	-	$	2,480	$	2,480	$	-	$	-
U.S. treasury securities		-		-		-		-		-		-		-		-
U.S. government sponsored entities		7,894		-		7,894		-		7,894		-		7,894		-
Collateralized mortgage obligations and residential mortgage-backed securities		135,281		-		135,281		-		135,281		-		135,281		-
Municipal securities		94,064		-		94,064		-		94,064		-		94,064		-
Collateralized debt obligations.		2,049		-		-		2,049
Collateralized debt obligations										2,049		-		-		2,049
Total securities available-for-sale	$	241,768	$	2,480	$	237,239	$	2,049	$	241,768	$	2,480	$	237,239	$	2,049

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

(Dollars in thousands)	Estimated Fair Value Measurements Using Significant Unobservable Inputs (Level 3)			Estimated Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Available-for- sale securities			Available-for- sale securities
Beginning balance, January 1, 2018	$	3,439		$	3,439
Principal payments		(51	)		(51	)
Total unrealized gains, included in other comprehensive income		(36	)		(36	)
Transfers in and/or (out) of Level 3		(1,303	)		(1,303	)
Ending balance, December 31, 2018	$	2,049		$	2,049

Beginning balance, January 1, 2019	$	2,049		$	2,049
Principal payments		(26	)		(33	)
Total unrealized gains, included in other comprehensive income		24			54
Sale out of Level 3		-			-
Ending balance, June 30, 2019	$	2,047
Ending balance, September 30, 2019				$	2,070

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

			(Dollars in thousands)								(Dollars in thousands)
			Fair Value Measurements at June 30, 2019 Using								Fair Value Measurements at September 30, 2019 Using
(Dollars in thousands)	Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	8,059	$	-	$	-	$	8,059	$	7,771	$	-	$	-	$	7,771
Foreclosed real estate		1,501		-		-		1,501		1,098		-		-		1,098

			(Dollars in thousands)
			Fair Value Measurements at December 31, 2018 Using
(Dollars in thousands)	Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	5,536	$	-	$	-	$	5,536
Foreclosed real estate		1,627		-		-		1,627

The fair value of impaired loans with specific allocations of the allowance for loan losses or loans for which charge-offs have been taken is generally based on a present value of cash flows or, for collateral dependent loans, based on recent real estate appraisals. Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. The recorded investment in impaired loans was approximately ~~$8.6~~$9.0 million and the related specific reserves totaled approximately ~~$563 thousand,~~$1.2 million, resulting in a fair value of impaired loans totaling approximately ~~$8.1~~$7.8 million, at ~~June~~September 30, 2019. The recorded investment of impaired loans was approximately $5.8 million and the related specific reserves totaled approximately $246 thousand, resulting in a fair value of impaired loans totaling approximately $5.5 million, at December 31, 2018. Fair value is determined, where possible, using market prices derived from an appraisal or evaluation, which are considered to be Level 2 inputs. However, certain assumptions and unobservable inputs are often used by the appraiser, therefore, qualifying the assets as Level 3 in the fair value hierarchy. The fair value of foreclosed real estate is similarly determined by using the results of recent real estate appraisals. The numerical range of unobservable inputs for these valuation assumptions is not meaningful to this presentation.

The following table shows carrying values and related estimated fair values of financial instruments as of the dates indicated. Estimated fair values are further categorized by the inputs used to measure fair value. Items that are not financial instruments are not included.

	June 30, 2019				Estimated Fair Value Measurements at June 30, 2019 Using						September 30, 2019				Estimated Fair Value Measurements at September 30, 2019 Using
(Dollars in thousands)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	61,172	$	61,172	$	61,172	$	-	$	-	$	71,942	$	71,942	$	71,942	$	-	$	-
Certificates of deposit in other financial institutions		1,970		1,940		-		1,940		-		2,170		2,137		-		2,137		-
Securities available-for-sale		258,742		258,742		5,598		251,097		2,047		261,054		261,054		5,771		253,213		2,070
Loans held-for-sale		3,835		3,920		3,920		-		-		4,641		4,761		4,761		-		-
Loans receivable, net		885,530		891,109		-		-		891,109		895,099		907,899		-		-		907,899
Federal Home Loan Bank stock		3,912		3,912		-		3,912		-		3,912		3,912		-		3,912		-
Interest rate swap agreements												1,860		1,860		-		1,860		-
Accrued interest receivable		4,131		4,131		-		4,131		-		3,995		3,995		-		3,995		-

Financial liabilities:
Non-interest bearing deposits		178,394		178,394		178,394		-		-		176,878		176,878		176,878		-		-
Interest bearing deposits		948,727		947,957		631,162		316,795		-		975,589		975,443		638,314		337,129		-
Repurchase agreements		20,628		20,628		18,863		1,765		-		14,931		14,931		13,158		1,773		-
Borrowed funds		18,000		18,081		-		18,081		-		16,000		16,105		-		16,105		-
Interest rate swap agreements												1,860		1,860		-		1,860		-
Accrued interest payable		166		166		-		166		-		166		166		-		166		-

	December 31, 2018				Estimated Fair Value Measurements at December 31, 2018 Using						December 31, 2018				Estimated Fair Value Measurements at December 31, 2018 Using
(Dollars in thousands)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	17,139	$	17,139	$	17,139	$	-	$	-	$	17,139	$	17,139	$	17,139	$	-	$	-
Certificates of deposit in other financial institutions		2,024		2,001		-		2,001		-		2,024		2,001		-		2,001		-
Securities available-for-sale		241,768		241,768		2,480		237,239		2,049		241,768		241,768		2,480		237,239		2,049
Loans held-for-sale		2,863		2,910		2,910		-		-		2,863		2,910		2,910		-		-
Loans receivable, net		756,438		747,553		-		-		747,553		756,438		747,553		-		-		747,553
Federal Home Loan Bank stock		3,460		3,460		-		3,460		-		3,460		3,460		-		3,460		-
Interest rate swap agreements												196		196		-		196
Accrued interest receivable		3,632		3,632		-		3,632		-		3,632		3,632		-		3,632		-

Financial liabilities:
Non-interest bearing deposits		127,277		127,277		127,277		-		-		127,277		127,277		127,277		-		-
Interest bearing deposits		802,509		800,349		543,617		256,732		-		802,509		800,349		543,617		256,732		-
Repurchase agreements		11,628		11,626		9,867		1,759		-		11,628		11,626		9,867		1,759		-
Borrowed funds		43,000		42,888		-		42,888		-		43,000		42,888		-		42,888		-
Interest rate swap agreements												196		196				196
Accrued interest payable		186		186		-		186		-		186		186		-		186		-

The following methods were used to estimate the fair value of financial instruments presented in the preceding table for the periods ended ~~June~~September 30, 2019 and December 31, 2018:

Cash and cash equivalent carrying amounts approximate fair value. Certificates of deposits in other financial institutions carrying amounts approximate fair value (Level 2). The fair values of securities available-for-sale are obtained from broker pricing (Level 2), with the exception of collateralized debt obligations, which are valued by a third-party specialist (Level 3). Loans held-for-sale comprise residential mortgages and are priced based on values established by the secondary mortgage markets (Level 1). The estimated fair value for net loans receivable is based on the exit price notion which is the exchange price that would be received to transfer the loans at the most advantageous market price in an orderly transaction between market participants on the measurement date (Level 3). Federal Home Loan Bank stock is estimated at book value due to restrictions that limit the sale or transfer of the security. Interest rate swap agreements, both assets and liabilities, are valued by a third-party pricing agent using an income approach (Level 2). Fair values of accrued interest receivable and payable approximate book value, as the carrying values are determined using the observable interest rate, balance, and last payment date.

Non-interest and interest bearing deposits, which include checking, savings, and money market deposits, are estimated to have fair values based on the amount payable as of the reporting date (Level 1). The fair value of fixed-maturity certificates of deposit (included in interest bearing deposits) are based on estimates of the rate the Bancorp would pay on similar deposits, applied for the time period until maturity (Level 2). Estimated fair values for short-term repurchase agreements, which represent sweeps from demand deposits to accounts secured by pledged securities, are estimated based on the amount payable as of the reporting date (Level 1). Longer-term repurchase agreements, with contractual maturity dates of three months or more, are based on estimates of the rate the Bancorp would pay on similar deposits, applied for the time period until maturity (Level 2). Short-term borrowings are generally only held overnight, therefore, their carrying amount is a reasonable estimate of fair value (Level 1). The fair value of FHLB Advances are estimated by discounting the future cash flows using quoted rates from the FHLB for similar advances with similar maturities (Level 2). The estimated fair value of other financial instruments, and off-balance sheet loan commitments, approximate cost and are not considered significant to this presentation.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Summary

NorthWest Indiana Bancorp (the “Bancorp”) is a financial holding company registered with the Board of Governors of the Federal Reserve System. Peoples Bank SB (“the Bank”), an Indiana savings bank, and NWIN Risk Management, Inc., a captive insurance company, are wholly-owned subsidiaries of the Bancorp. The Bancorp has no other business activity other than being a holding company for the Bank and NWIN Risk Management, Inc. The following management’s discussion and analysis presents information concerning our financial condition as of ~~June~~September 30, 2019, as compared to December 31, 2018, and the results of operations for the quarter and ~~six~~nine months ending ~~June~~September 30, 2019, and ~~June~~September 30, 2018. This discussion should be read in conjunction with the consolidated financial statements and other financial data presented elsewhere herein and with the financial statements and other financial data, as well as the Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

At ~~June~~September 30, 2019, the Bancorp had total assets of $1.3 billion, total loans receivable of ~~$894.3~~$904.3 million and total deposits of ~~$1.1~~$1.2 billion. Stockholders' equity totaled ~~$128.8~~$133.0 million or ~~9.84%~~10.00% of total assets, with a book value per share of ~~$42.52.~~$38.53. Net income for the quarter ended ~~June~~September 30, 2019, was ~~$4.0~~$3.6 million, or ~~$1.17~~$1.04 earnings per common share for both basic and diluted calculations. For the quarter ended ~~June~~September 30, 2019, the return on average assets (ROA) was ~~1.27%~~1.08%, while the return on average stockholders’ equity (ROE) was ~~12.77%~~11.05%. Net income for the ~~six~~nine months ended ~~June~~September 30, 2019, was ~~$6.2~~$9.8 million, or ~~$1.84~~$2.88 earnings per common share for both basic and diluted calculations. For the ~~six~~nine months ended ~~June~~September 30, 2019, the ROA was ~~1.00%~~1.03%, while the ROE was ~~10.25%.~~

~~Recent Developments~~

~~Acquisition of AJSB.~~On January 24, 2019, the Bancorp completed its acquisition of AJSB, pursuant to an Agreement and Plan of Merger dated July 30, 2018 (the “AJSB Merger Agreement”) between the Bancorp and AJSB. Pursuant to the terms of the AJSB Merger Agreement, AJSB merged with and into the Bancorp, with the Bancorp as the surviving corporation (the “AJSB Merger”)10.54%. Simultaneous with the AJSB Merger, A.J. Smith Federal Savings Bank, a federally chartered savings bank and wholly-owned subsidiary of AJSB, merged with and into the Bank, with the Bank as the surviving institution.

In connection with the AJSB Merger, each AJSB stockholder holding 100 or more shares of AJSB common stock received fixed consideration of (i) 0.2030 shares of the Bancorp common stock, and (ii) $7.20 per share in cash for each outstanding share of AJSB common stock. Stockholders holding less than 100 shares of AJSB common stock received $16.00 in cash and no stock consideration for each outstanding share of AJSB common stock. Any fractional shares of Bancorp common stock that an AJSB stockholder would have otherwise received in the AJSB Merger were cashed out in the amount of such fraction multiplied by $43.01.

The Bancorp issued 416,478 shares of Bancorp common stock to the former AJSB stockholders, and paid cash consideration of approximately $15.7 million. Based upon the closing price of NWIN’s common stock on January 23, 2019, the transaction had an implied valuation of approximately $32.9 million, which includes unallocated shares held by the AJSB Employee Stock Ownership Plan (“ESOP”), some of which were cancelled in connection with the closing to satisfy the ESOP’s outstanding loan balance. As of June 30, 2019, acquisition costs related to the AJSB Merger equaled approximately $2.1 million. The acquisition further expanded the Bank’s banking center network in Cook County, Illinois, expanding the Bank’s full-service retail banking network to 22 banking centers.

~~Acquisition of First Personal.~~On July 26, 2018, the Bancorp completed its previously announced acquisition of First Personal, pursuant to an Agreement and Plan of Merger dated February 20, 2018 (the “First Personal Merger Agreement”) between the Bancorp and First Personal. Pursuant to the terms of the First Personal Merger Agreement, First Personal merged with and into the Bancorp, with the Bancorp as the surviving corporation (the “First Personal Merger”). Simultaneous with the First Personal Merger, First Personal Bank, an Illinois state chartered commercial bank and wholly-owned subsidiary of First Personal, merged with and into Peoples Bank SB, with Peoples Bank as the surviving institution. The acquisition represented the Bank’s first expansion into the South Suburban Chicagoland market, and expanded the Bank’s full-service retail banking network to 19 banking centers.

The Bancorp issued a total of 161,875 shares of Bancorp common stock to the former First Personal stockholders, and paid cash consideration of approximately $8.7 million. Based upon the closing price of Bancorp’s common stock on July 25, 2018, the transaction had an implied valuation of approximately $15.6 million.

Financial Condition

During the ~~six~~nine months ended ~~June~~September 30, 2019, total assets increased by ~~$213.2~~$234.3 million ~~(19.4%~~(21.4%), with interest-earning assets increasing by ~~$180.8~~$202.8 million ~~(17.8%~~(19.9%). At ~~June~~September 30, 2019, interest-earning assets totaled $1.2 billion compared to $1.0 billion at December 31, 2018. Earning assets represented ~~91.6%~~91.8% of total assets at ~~June~~September 30, 2019 and 92.9% of total assets at December 31, 2018. The increase in total assets and interest earning assets for the ~~six~~nine months was primarily the result of the completion of the acquisition of AJSB as well as internally generated growth.

Net loans receivable totaled ~~$885.5~~$895.1 million at ~~June~~September 30, 2019, compared to $756.4 million at December 31, 2018. 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:

	June 30,										September 30,
	2019					December 31,					2019					December 31,
(Dollars in thousands)	(unaudited)					2018					(unaudited)					2018
	Balance		% Loans			Balance		% Loans			Balance		% Loans			Balance		% Loans

Residential real estate	$	301,488		33.7	%		223,323		29.2	%	$	297,830		32.9	%		223,323		29.2	%
Home equity		50,155		5.6	%		45,483		6.0	%		49,781		5.5	%		45,483		6.0	%
Commercial real estate		275,954		30.9	%		253,104		33.1	%		282,536		31.2	%		253,104		33.1	%
Construction and land development		71,655		8.0	%		64,433		8.4	%		79,351		8.8	%		64,433		8.4	%
Multifamily.		51,149		5.7	%		47,234		6.2	%
Multifamily												50,878		5.6	%		47,234		6.2	%
Farmland		234		0.0	%		240		0.0	%		230		0.0	%		240		0.0	%
Consumer		12,279		1.4	%		6,043		0.8	%		1,334		0.2	%		643		0.1	%
Manufactured homes												15,365		1.7	%		5,400		0.7	%
Commercial business		112,076		12.5	%		103,439		13.5	%		109,359		12.1	%		103,439		13.5	%
Government		19,284		2.2	%		21,101		2.8	%		17,609		2.0	%		21,101		2.8	%
Loans receivable	$	894,274		100.0	%	$	764,400		100.0	%	$	904,273		100.0	%	$	764,400		100.0	%

Adjustable rate loans / loans receivable	$	490,694		54.9	%	$	348,559		45.6	%	$	499,900		55.3	%	$	348,559		45.6	%

June 30,
2019 December 31,
(unaudited) 2018

Loans receivable to total assets 68.3 % 69.7 %
Loans receivable to earning assets 74.6 % 75.1 %
Loans receivable to total deposits 79.3 % 82.2 %

	September 30,
	2019			December 31,
	(unaudited)			2018

Loans receivable to total assets		68.0	%		69.7	%
Loans receivable to earning assets		74.1	%		75.1	%
Loans receivable to total deposits		78.5	%		82.2	%

The Bancorp is primarily a portfolio lender. Mortgage banking activities historically have been limited to the sale of fixed rate mortgage loans with contractual maturities greater than 15 years. These loans are identified as held for sale when originated and sold, on a loan-by-loan basis, in the secondary market. The Bancorp will also retain fixed rate mortgage loans with a contractual maturity greater than 15 years on a limited basis. During the ~~six~~nine months ended ~~June~~September 30, 2019, the Bancorp originated ~~$29.6~~$54.6 million in new fixed rate mortgage loans for sale, compared to ~~$24.3~~$41.8 million during the ~~six~~nine months ended ~~June~~September 30, 2018. Net gains realized from the mortgage loan sales totaled ~~$642 thousand~~$1.3 million for the ~~six~~nine months ended ~~June~~September 30, 2019, compared to ~~$570 thousand~~$1.0 million for the ~~six~~nine months ended ~~June~~September 30, 2018. At ~~June~~September 30, 2019, the Bancorp had ~~$3.8~~$4.6 million in loans that were classified as held for sale, compared to $2.9 million at December 31, 2018.

Non-performing loans include those loans that are 90 days or more past due and those loans that have been placed on non-accrual status. At ~~June~~September 30, 2019, non-performing loans that remained accruing and more than 90 days past due include ~~four~~three residential real estate loans totaling ~~$294~~$318 thousand, one commercial business loan totaling ~~$238~~$237 thousand, ~~three~~one commercial real estate ~~loans~~loan totaling ~~$220~~$63 thousand, one multifamily loan totaling $31 thousand, and two ~~multifamily~~home equity loans totaling ~~$173~~$136 thousand. The Bancorp will at times leave notes accruing, despite being over 90 days past due, for short periods of time when management has reason to believe payments are in process of being received.

The Bancorp's nonperforming loans are summarized below:	The Bancorp's nonperforming loans are summarized below:							The Bancorp's nonperforming loans are summarized below:

(Dollars in thousands)
Loan Segment		(unaudited) June 30, 2019			December 31, 2018				(unaudited) September 30, 2019			December 31, 2018
Residential real estate		$	6,014		$	5,257			$	5,450		$	5,257
Home equity			543			320				683			320
Commercial real estate			1,146			695				976			695
Construction and land development			-			-				-			-
Multifamily			438			-				291			-
Farmland			-			-				-			-
Commercial business			1,759			644				2,188			644
Consumer			-			-				-			-
Manufactured homes										-
Government			-			-				-			-
Total		$	9,900		$	6,916			$	9,588		$	6,916
Nonperforming loans to total loans			1.11	%		0.90	%			1.06	%		0.90	%
Nonperforming loans to total assets			0.76	%		0.63	%			0.72	%		0.63	%

Substandard loans include non-performing loans and potential problem loans, where information about possible credit issues or other conditions causes management to question the ability of such borrowers to comply with loan covenants or repayment terms. No loans were internally classified as doubtful or loss at ~~June~~September 30, 2019 or December 31, 2018.

The Bancorp's substandard loans are summarized below:	The Bancorp's substandard loans are summarized below:					The Bancorp's substandard loans are summarized below:

(Dollars in thousands)
Loan Segment		(unaudited) June 30, 2019		December 31, 2018			(unaudited) September 30, 2019		December 31, 2018
Residential real estate		$	5,975	$	5,366		$	5,448	$	5,366
Home equity			564		373			582		373
Commercial real estate			2,049		1,770			1,838		1,770
Construction and land development			-		-			-		-
Multifamily			701		-			684		-
Farmland			-		-			-		-
Commercial business			1,764		728			2,122		728
Consumer			-		-			-		-
Manufactured homes								-		-
Government			-		-			-		-
Total		$	11,053	$	8,237		$	10,674	$	8,237

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 (unaudited)
June 30, 2019 December 31,
2018
Residential real estate $ 3,900 $ 3,908
Home equity 744 657
Commercial real estate 4,253 4,715
Construction and land development - -
Multifamily 140 149
Farmland - -
Commercial business 2,423 2,958
Consumer - 20
Government - -
Total $ 11,460 $ 12,407

The Bancorp's special mention loans are summarized below:

(Dollars in thousands)

Loan Segment	(unaudited) September 30, 2019		December 31, 2018
Residential real estate	$	4,304	$	3,908
Home equity		810		657
Commercial real estate		4,091		4,715
Construction and land development		-		-
Multifamily		133		149
Farmland		-		-
Commercial business		2,500		2,958
Consumer		-		-
Manufactured homes		-		20
Government		-		-
Total	$	11,838	$	12,407

A loan is considered impaired when, based on current information and events, it is probable that a borrower will be unable to pay all amounts due according to the contractual terms of the loan agreement. Typically, management does not individually classify smaller-balance homogeneous loans, such as residential mortgages or consumer loans, as impaired, unless they are troubled debt restructurings.

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date. Purchased loans with evidence of credit quality deterioration since origination are considered purchased credit impaired loans. Expected future cash flows at the purchase date in excess of the fair value of loans are recorded as interest income over the life of the loans if the timing and amount of the future cash flows is reasonably estimable (“accretable yield”). The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference and represents probable losses in the portfolio. In determining the acquisition date fair value of purchased credit impaired loans, and in subsequent accounting, the Bancorp aggregates these purchased loans into pools of loans by common risk characteristics, such as credit risk rating and loan type. Subsequent to the purchase date, increases in cash flows over those expected at the purchase date are recognized as interest income prospectively. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses.

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

(Dollars in thousands)
Loan Segment (unaudited)
June 30, 2019 December 31,
2018
Residential real estate $ 2,441 $ 1,550
Home equity 439 264
Commercial real estate 2,136 2,105
Construction and land development - -
Multifamily 701 -
Farmland - -
Commercial business 2,905 1,863
Consumer - -
Government - -
Total $ 8,622 $ 5,782

The Bancorp's impaired loans, including purchased credit impaired loans, are summarized below:
(Dollars in thousands)
Loan Segment	(unaudited) September 30, 2019		December 31, 2018
Residential real estate	$	2,375	$	1,550
Home equity		502		264
Commercial real estate		1,838		2,105
Construction and land development		-		-
Multifamily		684		-
Farmland		-		-
Commercial business		3,583		1,863
Consumer		-		-
Manufactured homes		-		-
Government		-		-
Total	$	8,982	$	5,782

At times, the Bancorp will modify the terms of a loan to forego a portion of interest or principal or reduce the interest rate on the loan to a rate materially less than market rates, or materially extend the maturity date of a loan as part of a troubled debt restructuring. The valuation basis for the Bancorp’s troubled debt restructurings is based on the present value of expected future cash flows; unless consistent cash flows are not present, then the fair value of the collateral securing the loan is the basis for valuation.

The Bancorp's troubled debt restructured loans are summarized below:

(Dollars in thousands)
Loan Segment (unaudited)
June 30, 2019 December 31,
2018
Residential real estate $ 348 $ 598
Home equity 104 -
Commercial real estate 1,037 1,074
Construction and land development - -
Multifamily - -
Farmland - -
Commercial business 360 359
Consumer - -
Government - -
Total $ 1,849 $ 2,031

The Bancorp's troubled debt restructured loans are summarized below:
(Dollars in thousands)
Loan Segment	(unaudited) September 30, 2019		December 31, 2018
Residential real estate	$	436	$	457
Home equity		178		141
Commercial real estate		840		1,074
Construction and land development		-		-
Multifamily		-		-
Farmland		-		-
Commercial business		647		359
Consumer		-		-
Manufactured homes		-		-
Government		-		-
Total	$	2,101	$	2,031

The ~~decrease~~increase in the troubled debt restructure loans reflected in the table above for the ~~six~~nine months ending ~~June~~September 30, 2019 was ~~the result~~due to five home equity loans and one commercial business loan totaling $472 thousand which were renewed as troubled debt restructurings and two loans, consisting of one commercial business and one residential loan, totaling $135 thousand which were approved as new TDR loans, which was offset by scheduled payments totaling ~~$88~~$138 thousand, the payoff of one commercial real estate loan totaling $176 thousand and the removal of the TDR status for two residential and four home equity loans totaling $222 thousand due to positive payment ~~performance, which was offset by the addition of one commercial business loan and three home equity loans totaling $128 thousand that were renewed with cash flow difficulties.~~performance. These restructurings along with ~~two~~nine commercial business loans to ~~one customer~~five customers and the AJSB purchased credit impaired loans all contributed to the increase in impaired loans.

The increase in the nonperforming, substandard, and impaired loans reflected in the tables above for the ~~six~~nine months ending ~~June~~September 30, 2019, are ~~the result of~~due primarily to the completion of the AJSB acquisition as well as ~~two~~ten commercial business loans to ~~one customer which~~five customers .The majority of new additions to these loan categories after AJSB acquisition were not related to the acquisition. ~~The reduction in the watch loans for the six months ending June 30, 2019, are the result of the movement of various loans out of watch, which was offset by the AJSB acquisition.~~ AJSB loans totaling ~~$1.0~~$1.2 million and ~~two~~eleven commercial business loans to ~~one customer~~six customers totaling ~~$1.2~~$2.1 million contributed to the ~~June~~September 30, 2019 increase in nonperforming loans. AJSB loans totaling $1.5 million and ~~two~~ten commercial business loans to ~~one customer~~five customers totaling ~~$1.2~~$1.8 million contributed to the ~~June~~September 30, 2019 increase in substandard loans. The movement of various loans out of watch totaling ~~$3.0~~$3.5 million contributed to the ~~June~~September 30, 2019 decrease in watch loans, which was offset by AJSB loans totaling ~~$1.0~~$1.1 million, five commercial business loans totaling $933 thousand and various residential loans totaling $1.1 million. AJSB purchased credit impaired loans totaling $1.6 million and ~~two~~eleven commercial business loans to ~~one customer~~six customers totaling ~~$1.2 million~~$2.1million contributed to the ~~June~~September 30, 2019 increase in impaired loans.

At ~~June~~September 30, 2019, management is of the opinion that there are no loans, except certain of those discussed above, where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which will imminently result in such loans being classified as past due, non-accrual or a troubled debt restructure. Management does not presently anticipate that any of the non-performing loans or classified loans would materially affect future operations, liquidity or capital resources.

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

The Bancorp's provision for loan losses for the six months ended are summarized below:

(Dollars in thousands)

Loan Segment (unaudited)
June 30, 2019 (unaudited)
June 30, 2018
Residential real estate $ (7 ) $ 61
Home equity (2 ) 41
Commercial real estate 194 162
Construction and land development 50 (7 )
Multifamily (19 ) (15 )
Farmland - 4
Commercial business 139 378
Consumer 490 18
Government (17 ) (4 )
Total $ 828 $ 638

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

The Bancorp's provision for loan losses for the nine months ended are									The Bancorp's provision for loan losses for the nine months ended are
summarized below:
(Dollars in thousands)	(unaudited)
	As of June 30, 2019
Loan Segment	Charge-off			Recoveries		Net Charge-offs				(unaudited) September 30, 2019			(unaudited) September 30, 2018
Residential real estate	$	(66	)	$	18	$	(48	)		$	142		$	143
Home equity		-			2		2				21			51
Commercial real estate		-			-		-				372			210
Construction and land development		-			-		-				238			(39	)
Multifamily		-			-		-				32			(165	)
Farmland		-			-		-				-			3
Commercial business		-			16		16				544			439
Consumer		(25	)		9		(16	)			33			316
Manufactured homes											(41	)		-
Government		-			-		-				(19	)		(8	)
Total	$	(91	)	$	45	$	(46	)		$	1,322		$	950

The Bancorp's charge-off and recovery information is summarized below:
(Dollars in thousands)	(unaudited)
	As of September 30, 2019
Loan Segment	Charge-off			Recoveries		Net Charge-offs
Residential real estate	$	(128	)	$	23	$	(105	)
Home equity		-			4		4
Commercial real estate		-			-		-
Construction and land development		-			-		-
Multifamily		-			-		-
Farmland		-			-		-
Commercial business		(9	)		24		15
Consumer		(38	)		14		(24	)
Manufactured homes		-			-
Government		-			-		-
Total	$	(175	)	$	65	$	(110	)

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

In addition, management considers reserves that are not part of the ALL that have been established from acquisition activity. The Bancorp acquired loans for which there was evidence of credit quality deterioration since origination and it was determined that it was probable that the Bancorp would be unable to collect all contractually required principal and interest payments. At ~~June~~September 30, 2019, total purchased credit impaired loans ~~reserves~~nonaccretable and accretable discount totaled $2.3 million compared to $3.1 million at December 31, 2018. Additionally, the Bancorp has acquired loans where there was ~~not~~no evidence of credit quality deterioration since origination and has marked these loans to their fair values. As part of the fair value of loans receivable, a net fair value discount was established for loans acquired of ~~$4.8~~$4.3 million at ~~June~~September 30, 2019, compared to $1.8 million at December 31, 2018. The increase in the fair value discount and purchase credit impaired discounts, as of September 30, 2019, is the result of the AJSB acquisition. Details on these fair value marks and the additional reserves created can be found in Note 5, Loans Receivable.

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

(Dollars in thousands)
(unaudited)
June 30, 2019 December 31,
2018

Allowance for loan losses $ 8,744 $ 7,962
Total loans $ 894,274 $ 764,400
Non-performing loans $ 9,900 $ 6,916
ALL-to-total loans 0.98 % 1.04 %
ALL-to-non-performing loans (coverage ratio) 88.3 % 115.1 %

A deferred cost reserve is maintained for manufactured home loans. This reserve is available for use for manufactured home loan nonperformance and costs associated with nonperformance. As the manufactured home loan segment performs a portion of this reserve is paid as an origination cost.

The Bancorp's allowance to total loans and non-performing loans are
summarized below:
(Dollars in thousands)
	(unaudited) September 30, 2019			December 31, 2018

Allowance for loan losses	$	9,174		$	7,962
Total loans	$	904,273		$	764,400
Non-performing loans	$	9,588		$	6,916
ALL-to-total loans		1.01	%		1.04	%
ALL-to-non-performing loans (coverage ratio)		95.7	%		115.1	%

The ~~June 30, 2019~~ balance in the ALL account is considered adequate by management after evaluation of the loan portfolio, past experience, current economic and market conditions, and additional reserves from acquisition accounting as described in the immediately preceding paragraph. While management may periodically allocate portions of the allowance for specific problem loans, the whole allowance is available for any loan charge offs that occur. The allocation of the ALL reflects performance and growth trends within the various loan categories, as well as consideration of the facts and circumstances that affect the repayment of individual loans, and loans which have been pooled as of the evaluation date, with particular attention given to non-performing loans and loans which have been classified as substandard, doubtful or loss. Management has allocated reserves to both performing and non-performing loans based on current information available.

At ~~June~~September 30, 2019, foreclosed real estate totaled ~~$1.5~~$1.1 million, which was comprised of ~~twenty-four~~nineteen properties, compared to $1.6 million and twenty-four properties at December 31, 2018. Net gains from the sale of foreclosed real estate totaled ~~$40~~$83 thousand for the ~~six~~nine months ended ~~June~~September 30, 2019. At the end of ~~June~~September 2019, all of the Bancorp’s foreclosed real estate is located within its primary market area, which has been expanded into the Cook County, Illinois and Chicagoland metropolitan area with the acquisition of First Personal and AJSB.

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 ~~$258.7~~$261.1 million at ~~June~~September 30, 2019, compared to $241.8 million at December 31, 2018, an increase of ~~$17.0~~$19.3 million ~~(7.0%~~(8.0%). The increase in the securities portfolio during the year is a result of market value adjustments and the AJSB acquisition. At ~~June~~September 30, 2019, the securities portfolio represented ~~21.6%~~21.4% of interest-earning assets and ~~19.8%~~19.6% of total assets compared to 23.7% of interest-earning assets and 22.1% of total assets at December 31, 2018.

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

	June 30,										September 30,
	2019					December 31,					2019					December 31,
(Dollars in thousands)	(unaudited)					2018					(unaudited)					2018
	Balance		% Securities			Balance		% Securities			Balance		% Securities			Balance		% Securities

Money market fund	$	5,598		2.2	%	$	2,480		1.0	%	$	5,771		2.2	%	$	2,480		1.0	%
U.S. treasury securities		599		0.2	%		-		0.0	%
U.S. government sponsored entities		13,082		5.1	%		7,894		3.3	%		14,513		5.6	%		7,894		3.3	%
Collateralized mortgage obligations and residential mortgage-backed securities		145,174		56.1	%		135,281		56.0	%		140,621		53.9	%		135,281		56.0	%
Municipal securities		92,242		35.7	%		94,064		38.9	%		98,079		37.6	%		94,064		38.9	%
Collateralized debt obligations		2,047		0.7	%		2,049		0.8	%		2,070		0.7	%		2,049		0.8	%
Total securities available-for-sale	$	258,742		100.0	%	$	241,768		100.0	%	$	261,054		100.0	%	$	241,768		100.0	%

June 30,
2019 December 31, YTD
(Dollars in thousands) (unaudited) 2018 Change
Balance Balance $ %

Interest bearing deposits in other financial institutions $ 27,739 $ 3,116 $ 24,623 790.2 %
Fed funds sold 8,720 763 7,957 1042.9 %
Certificates of deposit in other financial institutions 1,970 2,024 (54 ) -2.7 %
Federal Home Loan Bank stock 3,912 3,460 452 13.1 %

	September 30,
	2019		December 31,		YTD
(Dollars in thousands)	(unaudited)		2018		Change
	Balance		Balance		$		%

Interest bearing deposits in other financial institutions	$	42,953	$	3,116	$	39,837		1278.5	%
Fed funds sold		2,150		763		1,387		181.8	%
Certificates of deposit in other financial institutions		2,170		2,024		146		7.2	%
Federal Home Loan Bank stock		3,912		3,460		452		13.1	%

The net increase in interest bearing deposits in other financial institutions and fed funds sold is primarily the result of the AJSB acquisition and timing of liquidity needs. The increase in Federal Home Loan Bank stock corresponds to stock ownership requirements based the AJSB acquisition.

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:

	June 30,									September 30,
	2019		December 31,		YTD					2019		December 31,		YTD
(Dollars in thousands)	(unaudited)		2018		Change					(unaudited)		2018		Change
	Balance		Balance		$		%			Balance		Balance		$		%

Checking	$	409,458	$	341,677	$	67,781		19.8	%	$	399,102	$	341,677	$	57,425		16.8	%
Savings		214,107		160,490		53,617		33.4	%		212,517		160,490		52,027		32.4	%
Money market		185,991		168,727		17,264		10.2	%		203,573		168,727		34,846		20.7	%
Certificates of deposit		317,565		258,892		58,673		22.7	%		337,275		258,892		78,383		30.3	%
Total deposits	$	1,127,121	$	929,786	$	197,335		21.2	%	$	1,152,467	$	929,786	$	222,681		23.9	%

The overall increase in total deposits is primarily a result of the acquisition of AJSB, along with internally generated growth. This increase also reflects the cyclical nature and timing of municipality deposits.

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:

	June 30,										September 30,
	2019		December 31,		YTD						2019		December 31,		YTD
(Dollars in thousands)	(unaudited)		2018		Change						(unaudited)		2018		Change
	Balance		Balance		$			%			Balance		Balance		$			%

Repurchase agreements	$	20,628	$	11,628	$	9,000			77.4	%	$	14,931	$	11,628	$	3,303			28.4	%
Borrowed funds		18,000		43,000		(25,000	)		-58.1	%		16,000		43,000		(27,000	)		-62.8	%
Total borrowed funds	$	38,628	$	54,628	$	(16,000	)		-29.3	%	$	30,931	$	54,628	$	(23,697	)		-43.4	%

Repurchase agreements increased as part of normal account fluctuations within that product line. Borrowed funds decreased as FHLB advances were paid down and matured during the quarter.

Liquidity and Capital Resources

For the Bancorp, liquidity management refers to the ability to generate sufficient cash to fund current loan demand, meet deposit withdrawals, and pay dividends and operating expenses. Because profit and liquidity are often conflicting objectives, management attempts to maximize the Bank’s net interest margin by making adequate, but not excessive, liquidity provisions. Furthermore, funds are managed so that future profits will not be significantly impacted as funding costs increase.

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

During the ~~six~~nine months ended ~~June~~September 30, 2019, cash and cash equivalents increased by ~~$44.0~~$54.8 million compared to a ~~$8.8~~$2.9 million increase for the ~~six~~nine months ended ~~June~~September 30, 2018. The primary sources of cash and cash equivalents were the growth of deposits, net cash received from the acquisition of AJSB, ~~growth~~sale of ~~deposits,~~loans originated for sale, and proceeds from sales of securities. The primary uses of cash and cash equivalents were the purchase of securities, loan originations, and the repayment of FHLB advances. Cash provided by operating activities totaled ~~$5.6~~$11.4 million for the ~~six~~nine months ended ~~June~~September 30, 2019, compared to cash provided of ~~$5.7~~$2.3 million for the ~~six~~nine month period ended ~~June~~September 30, 2018. Cash provided from operating activities was primarily a result of net income, and sale of loans originated for sale, offset by the origination of loans for sale. Cash ~~provided~~outflows from investing activities totaled ~~$3.2~~$8.3 million for the current period, compared to cash outflows of ~~$26.0~~$10.4 million for the ~~six~~nine months ended ~~June~~September 30, 2018. Cash ~~provided~~outflows from investing activities for the current ~~six~~nine months were primarily related to ~~the cash and cash equivalents from acquisition activity, offset against~~ purchases of securities available-for-sale and origination of loans, ~~and~~offset against the net cash ~~paid for acquisition.~~received from the acquisition of AJSB. Net cash provided from financing activities totaled ~~$35.2~~$51.7 million during the current period compared to net cash provided of ~~$29.0~~$11.0 million for the ~~six~~nine months ended ~~June~~September 30, 2018. The net cash inflows from financing activities were primarily a result of net change in deposits offset against repayment of FHLB advances. On a cash basis, the Bancorp paid dividends on common stock of ~~$1.9~~$3.0 million for the ~~six~~nine months ended ~~June~~September 30, 2019 and ~~$1.7~~$2.5 million for the ~~six~~nine months ended ~~June~~September 30, 2018.

At ~~June~~September 30, 2019, outstanding commitments to fund loans totaled ~~$199.0~~$205.1 million. Approximately ~~54.5%~~55.5% 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 ~~$10.9~~$10.4 million at ~~June~~September 30, 2019. 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 ~~six~~nine months ended ~~June~~September 30, 2019, stockholders' equity increased by ~~$27.3~~$31.5 million ~~(27.0%~~(31.1%). During the ~~six~~nine months ended ~~June~~September 30, 2019, stockholders’ equity was primarily increased by net income of ~~$6.2~~$9.8 million, increased unrealized gains on available securities of ~~$5.6~~$7.2 million, and the issuance of 416,478 shares for $17.5 million as part of the acquisition of AJSB. Decreasing stockholders’ equity was the declaration of ~~$2.1~~$3.2 million in cash dividends. 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 ~~six~~nine months of 2019 or 2018. During 2019, ~~4,310~~4,625 restricted stock shares vested under the Incentive Plan outlined in Note 10 of the financial statements, of which ~~1,058~~1,245 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 stock repurchase program.

The Bancorp is subject to risk-based capital guidelines adopted by the Board of Governors of the Federal Reserve System (the “FRB”), and the Bank is subject to risk-based capital guidelines adopted by the FDIC. As applied to the Bancorp and the Bank, the FRB and FDIC capital requirements are substantially the same. These regulations divide capital into multiple tiers. The first tier (Common Equity Tier 1 Capital) includes common shareholders’ equity, after deductions for various items including goodwill and certain other intangible assets, and after certain other adjustments. Common Equity Tier 1 Capital also includes accumulated other comprehensive income (for organizations that do not make opt-out elections). The next tier (Tier 1 Capital) is comprised of Common Equity Tier 1 Capital plus other qualifying capital instruments such as perpetual noncumulative preferred stock and junior subordinated debt issued to trusts, and other adjustments. The third tier (Tier 2 Capital) includes instruments such as subordinated debt that have a minimum original maturity of at least five years and are subordinated to the claims of depositors and general creditors, total capital minority interest not included in Tier 1 Capital, and limited amounts of the allowance for loan losses, less applicable regulatory adjustments and deductions. The Bancorp and the Bank are 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%.

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 ~~six~~nine months ended ~~June~~September 30, 2019, the Bancorp’s and Bank’s regulatory capital ratios 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 trust preferred securities with a cost basis of ~~$3.5~~$3.4 million. These investments currently have ratings that are below investment grade. As a result, approximately ~~$16.5~~$15.8 million of risk-based assets are generated by the trust preferred securities in the Bancorp’s and Bank’s total risk based capital calculation.

The following table shows that, at ~~June~~September 30, 2019, and December 31, 2018, the Bancorp’s capital exceeded all applicable regulatory capital requirements. The dollar amounts are in millions.

(Dollars in millions)											Minimum Required To Be														Minimum Required To Be
						Minimum Required For					Well Capitalized Under Prompt									Minimum Required For					Well Capitalized Under Prompt
	Actual					Capital Adequacy Purposes					Corrective Action Regulations				Actual					Capital Adequacy Purposes					Corrective Action Regulations
At June 30, 2019	Amount		Ratio			Amount		Ratio			Amount		Ratio
At September 30, 2019															Amount		Ratio			Amount		Ratio			Amount		Ratio
Common equity tier 1 capital to risk-weighted assets	$	106.2		11.5	%	$	41.4		4.5	%		N/A		N/A	$	109.2		11.7	%	$	41.8		4.5	%		N/A		N/A
Tier 1 capital to risk-weighted assets	$	106.2		11.5	%	$	55.2		6.0	%		N/A		N/A	$	109.2		11.7	%	$	55.8		6.0	%		N/A		N/A
Total capital to risk-weighted assets	$	115.0		12.5	%	$	73.7		8.0	%		N/A		N/A	$	118.4		12.7	%	$	74.4		8.0	%		N/A		N/A
Tier 1 capital to adjusted average assets	$	106.2		8.5	%	$	50.0		4.0	%		N/A		N/A	$	109.2		8.4	%	$	52.0		4.0	%		N/A		N/A

(Dollars in millions)											Minimum Required To Be
						Minimum Required For					Well Capitalized Under Prompt
	Actual					Capital Adequacy Purposes					Corrective Action Regulations
At December 31, 2018	Amount		Ratio			Amount		Ratio			Amount		Ratio
Common equity tier 1 capital to risk-weighted assets	$	92.8		11.6	%	$	26.1		4.5	%		N/A		N/A
Tier 1 capital to risk-weighted assets	$	92.8		11.6	%	$	42.2		6.0	%		N/A		N/A
Total capital to risk-weighted assets	$	100.8		12.6	%	$	64.2		8.0	%		N/A		N/A
Tier 1 capital to adjusted average assets	$	92.8		8.6	%	$	43.2		4.0	%		N/A		N/A

In addition, the following table shows that, at ~~June~~September 30, 2019, and December 31, 2018, the Bank’s capital exceeded all applicable regulatory capital requirements. The dollar amounts are in millions.

(Dollars in millions) Minimum Required To Be
Minimum Required For Well Capitalized Under Prompt
Actual Capital Adequacy Purposes Corrective Action Regulations
At June 30, 2019 Amount Ratio Amount Ratio Amount Ratio
Common equity tier 1 capital to risk-weighted assets $ 103.2 11.2 % $ 41.5 4.5 % $ 59.9 6.5 %
Tier 1 capital to risk-weighted assets $ 103.2 11.2 % $ 55.3 6.0 % $ 73.7 8.0 %
Total capital to risk-weighted assets $ 111.9 12.2 % $ 73.7 8.0 % $ 92.1 10.0 %
Tier 1 capital to adjusted average assets $ 103.2 8.3 % $ 49.7 4.0 % $ 62.1 5.0 %

(Dollars in millions)											Minimum Required To Be
						Minimum Required For					Well Capitalized Under Prompt
	Actual					Capital Adequacy Purposes					Corrective Action Regulations
At September 30, 2019	Amount		Ratio			Amount		Ratio			Amount		Ratio
Common equity tier 1 capital to risk-weighted assets	$	105.9		11.4	%	$	41.9		4.5	%	$	60.5		6.5	%
Tier 1 capital to risk-weighted assets	$	105.9		11.4	%	$	55.8		6.0	%	$	74.4		8.0	%
Total capital to risk-weighted assets	$	115.1		12.4	%	$	74.4		8.0	%	$	93.1		10.0	%
Tier 1 capital to adjusted average assets	$	105.9		8.2	%	$	51.9		4.0	%	$	64.9		5.0	%

(Dollars in millions)											Minimum Required To Be
						Minimum Required For					Well Capitalized Under Prompt
	Actual					Capital Adequacy Purposes					Corrective Action Regulations
At December 31, 2018	Amount		Ratio			Amount		Ratio			Amount		Ratio
Common equity tier 1 capital to risk-weighted assets	$	89.9		11.2	%	$	36.2		4.5	%	$	52.2		6.5	%
Tier 1 capital to risk-weighted assets	$	89.9		11.2	%	$	48.2		6.0	%	$	64.3		8.0	%
Total capital to risk-weighted assets	$	97.9		12.2	%	$	64.3		8.0	%	$	80.3		10.0	%
Tier 1 capital to adjusted average assets	$	89.9		8.4	%	$	42.9		4.0	%	$	53.6		5.0	%

The Bancorp’s ability to pay dividends to its shareholders is primarily dependent upon the Bank’s ability to pay dividends to the Bancorp. Under Indiana law, the Bank may pay dividends from its undivided profits (generally, earnings less losses, bad debts, taxes and other operating expenses) as is considered expedient by the Bank’s Board of Directors. However, the Bank must obtain the approval of the Indiana Department of Financial Institutions (DFI) if the total of all dividends declared by the Bank during the current year, including the proposed dividend, would exceed the sum of retained net income for the year to date plus its retained net income for the previous two years. For this purpose, “retained net income,” means net income as calculated for call report purposes, less all dividends declared for the applicable period. An exemption from DFI approval would require that the Bank have been assigned a composite uniform financial institutions rating of 1 or 2 as a result of the most recent federal or state examination; the proposed dividend would not result in a Tier 1 leverage ratio below 7.5%; and that the Bank not be subject to any corrective action, supervisory order, supervisory agreement, or board approved operating agreement. The aggregate amount of dividends that may be declared by the Bank in 2019, without the need for qualifying for an exemption or prior DFI approval, is $1.5 million plus 2019 net profits. Moreover, the FDIC and the FRB may prohibit the payment of dividends if it determines that the payment of dividends would constitute an unsafe or unsound practice in light of the financial condition of the Bank. On ~~May 31,~~August 23rd, 2019, the Board of Directors of the Bancorp declared a ~~second~~third quarter dividend of $0.31 per share. The Bancorp’s ~~second~~third quarter dividend was paid to shareholders on ~~July 5,~~October 3, 2019.

Results of Operations - Comparison of the Quarter Ended ~~June~~September 30, 2019 to the Quarter Ended ~~June~~September 30, 2018

For the quarter ended ~~June~~September 30, 2019, the Bancorp reported net income of ~~$4.0~~$3.6 million, compared to net income of ~~$2.5~~$1.6 million for the quarter ended ~~June~~September 30, 2018, an increase of ~~$1.5~~$2.0 million ~~(60.2%~~(120.2%). For the quarter, the ROA was ~~1.27%~~1.08%, compared to ~~1.07%~~0.62% for the quarter ended ~~June~~September 30, 2018. The ROE was ~~12.77%~~11.05% for the quarter ended ~~June~~September 30, 2019, compared to ~~11.04%~~6.70% for the quarter ended ~~June~~September 30, 2018. The primary increase in income is driven by the timing of the First Personal acquisition, see discussion of the First Personal acquisition in footnote 3 and related income and expense timing in the discussion below.

Net interest income for the quarter ended ~~June~~September 30, 2019 was ~~$11.2~~$10.8 million, an increase of ~~$3.3~~$1.8 million ~~(42.2%~~(19.7%), compared to ~~$7.9~~$9.0 million for the quarter ended ~~June~~September 30, 2018. The weighted-average yield on interest-earning assets was ~~4.65%~~4.40% for the quarter ended ~~June~~September 30, 2019, compared to ~~4.05%~~4.26% for the quarter ended ~~June~~September 30, 2018. The weighted-average cost of funds for the quarter ended ~~June~~September 30, 2019 was ~~0.78%~~0.86% compared to ~~0.53%~~0.56% for the quarter ended ~~June~~September 30, 2018. The impact of the ~~4.65%~~4.40% return on interest earning assets and the ~~0.78%~~0.86% cost of funds resulted in an interest rate spread of ~~3.87%~~3.54% for the current quarter, ~~an increase~~a decrease from the ~~3.52%~~3.69% spread for the quarter ended ~~June~~September 30, 2018. The net interest margin on earning assets was ~~3.89% for the quarter ended June 30, 2019 and~~ 3.56% for the quarter ended ~~June~~September 30, 2019 and 3.72% for the quarter ended September 30, 2018. The net interest margin decrease is the result of continued compression of the yield curve. On a tax equivalent basis, the Bancorp’s net interest margin was ~~3.96%~~3.63% for the quarter ended ~~June~~September 30, 2019, compared to ~~3.78%~~3.91% for the quarter ended ~~June~~September 30, 2018. Comparing the net interest margin on a tax equivalent basis more accurately compares the returns on tax-exempt loans and securities to those on taxable interest-earning assets.

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

Quarter-to-Date
(Dollars in thousands) Average Balances, Interest, and Rates
(unaudited) June 30, 2019 June 30, 2018
Average
Balance Interest Rate (%) Average
Balance Interest Rate (%)
ASSETS
Interest bearing deposits in other financial institutions $ 13,985 $ 92 2.63 $ 6,865 $ 32 1.86
Federal funds sold 3,818 36 3.77 1,585 4 1.01
Certificates of deposit in other financial institutions 2,118 15 2.83 1,526 7 1.83
Securities available-for-sale 253,421 1,732 2.73 238,669 1,665 2.79
Loans receivable 874,652 11,485 5.25 636,333 7,257 4.56
Federal Home Loan Bank stock 3,931 45 4.58 3,010 31 4.12
Total interest earning assets 1,151,925 $ 13,405 4.65 887,988 $ 8,996 4.05
Cash and non-interest bearing deposits in other financial institutions 29,756 9,839
Allowance for loan losses (8,357 ) (7,234 )
Other noninterest bearing assets 91,808 53,755
Total assets $ 1,265,132 $ 944,348

LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits $ 1,097,283 $ 2,011 0.73 $ 786,207 $ 838 0.43
Repurchase agreements 13,638 66 1.94 13,330 45 1.35
Borrowed funds 15,341 128 3.34 44,510 237 2.13
Total interest bearing liabilities 1,126,262 $ 2,205 0.78 844,047 $ 1,120 0.53
Other noninterest bearing liabilities 12,864 9,335
Total liabilities 1,139,126 853,382
Total stockholders' equity 126,006 90,966
Total liabilities and stockholders' equity $ 1,265,132 $ 944,348

Quarter-to-Date
(Dollars in thousands)	Average Balances, Interest, and Rates
(unaudited)	September 30, 2019							September 30, 2018
	Average Balance			Interest		Rate (%)		Average Balance			Interest		Rate (%)
ASSETS
Interest bearing deposits in other financial institution.	$	45,686		$	262		2.29	$	6,502		$	38		2.34
Federal funds sold		5,141			46		3.58		1,104			11		3.99
Certificates of deposit in other financial institutions.		2,076			18		3.47		3,570			25		2.80
Securities available-for-sale		258,851			1,612		2.49		236,629			1,674		2.83
Loans receivable.		896,096			11,335		5.06		719,654			8,552		4.75
Federal Home Loan Bank stock		3,912			47		4.81		3,177			35		4.41
Total interest earning assets		1,211,762		$	13,320		4.40		970,636		$	10,335		4.26
Cash and non-interest bearing deposits in other financial institutions		23,183							10,348
Allowance for loan losses		(8,887	)						(7,542	)
Other noninterest bearing assets		93,937							68,849
Total assets	$	1,319,995						$	1,042,291

LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits	$	1,146,053		$	2,353		0.82	$	883,405		$	1,018		0.46
Repurchase agreements		13,696			64		1.87		12,615			47		1.49
Borrowed funds		17,000			108		2.54		38,624			254		2.63
Total iinterest bearing liabilities		1,176,749		$	2,525		0.86		934,644		$	1,319		0.56
Other noninterest bearing liabilities		13,781							10,626
Total liabilities		1,190,530							945,270
Total stockholders' equity		129,465							97,021
Total liabilities and stockholders' equity	$	1,319,995						$	1,042,291

The increase in interest income for interest bearing deposits in other financial institutions was the result of higher average balances for the quarter ended ~~June~~September 30, 2019, compared to the quarter ended ~~June~~September 30, 2018. The increase in interest income for federal funds sold was primarily the result of higher average balances ~~and rates received~~ for the quarter ended ~~June~~September 30, 2019, compared to the quarter ended ~~June~~September 30, 2018. The ~~increase~~decrease in interest income for certificates of deposit in other financial institutions was the result of ~~higher~~lower average balances ~~and higher average rates received in short term rates~~ for the quarter ended ~~June~~September 30, 2019, compared to the quarter ended ~~June~~September 30, 2018. The ~~increase~~decrease in interest income for securities available-for-sale was primarily the result of ~~higher~~lower average ~~balances~~rates for the quarter ended ~~June~~September 30, 2019, compared to the quarter ended ~~June~~September 30 2018. The increase in interest income for loans receivable was the result of higher average balances and higher weighted average rates ~~and the recognition of one-time gains from excess reserves associated with purchase credit impaired loans from the former acquisitions of First Federal Savings & Loan and Liberty Savings Bank~~ during the quarter ended ~~June~~September 30, 2019, compared to the quarter ended ~~June~~September 30, 2018. The increase in the interest expense of total deposits was the result of higher average balances and higher weighted average rates for the quarter ended ~~June~~September 30, 2019, compared to the quarter ended ~~June~~September 30, 2018. The increase in the interest expense for repurchase agreements was the result of higher average balances and weighted average rates for the quarter ended ~~June~~September 30, 2019, compared to the quarter ended ~~June~~September 30, 2018. The decrease in the interest expense for borrowed funds was the result of lower average balances and lower average rates for the quarter ended ~~June~~September 30, 2019, compared to the quarter ended ~~June~~September 30, 2018.

The following table shows the change in noninterest income for the quarter ending ~~June~~September 30, 2019, and ~~June~~September 30, 2018.

	Three Months Ended
(unaudited)											Three Months Ended
(Dollars in thousands)	June 30,				Three Months Ended						September 30,				Three Months Ended
	2019		2018		$ Change			% Change			2019		2018		$ Change			% Change
Noninterest income:
Fees and service charges	$	1,243	$	947	$	296			31.3	%	$	1,203	$	991	$	212			21.4	%
Wealth management operations		479		424		55			13.0	%		447		414		33			8.0	%
Gain on sale of loans held-for-sale, net												681		451		230			51.0	%
Gain on sale of securities, net		301		246		55			22.4	%		102		151		(49	)		-32.5	%
Gain on sale of loans held-for-sale, net		400		359		41			11.4	%
Increase in cash value of bank owned life insurance		179		120		59			49.2	%		177		130		47			36.2	%
Benefit from bank owned life insurance												205		-		205			0.0	%
Gain on sale of foreclosed real estate, net		13		68		(55	)		-80.9	%		43		54		(11	)		-20.4	%
Other		54		39		15			38.5	%		39		32		7			21.9	%
Total noninterest income	$	2,669	$	2,203	$	466			21.2	%	$	2,897	$	2,223	$	674			30.3	%

The increase in fees and service charges is the result of the Bancorp’s continued focus on maintaining competitive fees within its market place, as well the acquisition of First Personal and AJSB. The increase in ~~wealth management income is related to book value changes in assets under management and the timing of one time fees. The increase in~~ gains on sale of loans is a result of overall increase in loan origination volume. ~~Current~~Due to a death benefit recorded during the quarter, the Bancorp will receive a benefit from bank owned life insurance. The increase in cash value of bank owned life insurance is related to the increased bank owned life insurance balances from the AJSB and First Personal acquisitions. The decrease in gains on sale of securities is a result of current market conditions ~~provided opportunities to maintain~~and maintaining current securities cash ~~flows, while recognizing gains from the sales of securities.~~flows.

The following table shows the change in noninterest expense for the quarter ending ~~June~~September 30, 2019, and ~~June~~September 30, 2018.

	Three Months Ended
(unaudited)											Three Months Ended
(Dollars in thousands)	June 30,				Three Months Ended						September 30,				Three Months Ended
	2019		2018		$ Change			% Change			2019		2018		$ Change			% Change
Noninterest expense:
Compensation and benefits	$	4,600	$	3,516	$	1,084			30.8	%	$	4,932	$	4,669	$	263			5.6	%
Occupancy and equipment		1,169		842		327			38.8	%		1,231		829		402			48.5	%
Data processing		351		703		(352	)		-50.1	%		806		1,012		(206	)		-20.4	%
Marketing		176		166		10			6.0	%		170		223		(53	)		-23.8	%
Federal deposit insurance premiums		177		75		102			136.0	%		18		91		(73	)		-80.2	%
Other		1,951		1,604		347			21.6	%		2,112		2,233		(121	)		-5.4	%
Total noninterest expense	$	8,424	$	6,906	$	1,518			22.0	%	$	9,269	$	9,057	$	212			2.3	%

The increase in compensation and benefits is primarily the result of increased compensation due to the acquisition of AJSB and First Personal. Additionally, increases to compensation and benefits can be attributed to management’s continued focus on talent management and retention. The increase in occupancy and equipment is primarily related to the First Personal and AJSB acquisitions and related assets brought over. The decrease in data processing expense is primarily related to timing of the First Personal ~~and AJSB acquisitions.~~acquisition. The ~~increase~~decrease in other operating expenses expense is primarily related to ~~generally higher~~timing of the First Personal acquisition. The decrease in federal deposit insurance premiums is the result of application of the Small Bank Assessment Credit that was applied to the second quarter assessment period and credited in the third ~~party costs.~~quarter of 2019. The decrease in marketing expense is primarily related to timing of the First Personal acquisition. The decrease in other noninterest expense is primarily related to timing of the First Personal acquisition. The Bancorp’s efficiency ratio was ~~60.7%~~67.7% for the quarter ended ~~June~~September 30, 2019, compared to ~~68.5%~~80.59% for the quarter ended ~~June~~September 30, 2018. The decreased ratio is related primarily to the increase in interest ~~income.~~income and timing of the First Personal acquisition. The efficiency ratio is determined by dividing total noninterest expense by the sum of net interest income and total noninterest income for the period. The acquisition of AJSB and First Personal acquisitions are discussed in Note 3 of the financial statements.

Income tax expenses for the quarter ended ~~June~~September 30, 2019, totaled ~~$911~~$351 thousand, compared to income tax expense of ~~$365~~$245 thousand for the quarter ended ~~June~~September 30, 2018, an increase of ~~$546~~$106 thousand ~~(149.6%~~(43.3%). The combined effective federal and state tax rates for the Bancorp was ~~18.5%~~8.9% for the quarter ended ~~June~~September 30, 2019, compared to ~~12.7%~~13.1% for the quarter ended ~~June~~September 30, 2018. The ~~Bancorp’s higher current period~~decrease in the effective tax rate is athe result of a larger increase to ~~earnings~~tax preferred income relative to ~~increased~~the increase to earnings and the tax ~~preferred income.~~benefits resulting from a new market tax credit.

Results of Operations - Comparison of the ~~Six~~Nine Months Ended ~~June~~September 30, 2019 to the ~~Six~~Nine Months Ended ~~June~~September 30, 2018

For the ~~six~~nine months ended ~~June~~September 30, 2019, the Bancorp reported net income of ~~$6.2~~$9.8 million, compared to net income of ~~$5.1~~$6.7 million for the ~~six~~nine months ended ~~June~~September 30, 2018, an increase of ~~$1.2~~$3.1 million ~~(23.1%~~(46.7%). For the ~~six~~nine months ended, the ROA was ~~1.00%~~1.03%, compared to ~~1.08%~~0.92% for the ~~six~~nine months ended ~~June~~September 30, 2018. The ROE was ~~10.25%~~10.54% for the ~~six~~nine months ended ~~June~~September 30, 2019, compared to ~~11.12%~~9.56% for the ~~six~~nine months ended ~~June~~September 30, 2018.

Net interest income for the ~~six~~nine months ended ~~June~~September 30, 2019, was ~~$21.8~~$32.6 million, an increase of ~~$6.1~~$7.9 million ~~(38.7%~~(31.8%), compared to ~~$15.7~~$24.7 million for the ~~six~~nine months ended ~~June~~September 30, 2018. The weighted-average yield on interest-earning assets was ~~4.53%~~4.49% for the ~~six~~nine months ended ~~June~~September 30, 2019, compared to ~~4.02%~~4.11% for the ~~six~~nine months ended ~~June~~September 30, 2018. The weighted-average cost of funds for the ~~six~~nine months ended ~~June~~September 30, 2019, was ~~0.74%~~0.78% compared to ~~0.48%~~0.51% for the ~~six~~nine months ended ~~June~~September 30, 2018. The impact of the ~~4.53%~~4.49% return on interest earning assets and the ~~0.74%~~0.78% cost of funds resulted in an interest rate spread of ~~3.79%~~3.71% for the current ~~six~~nine months, which is an increase from the spread of ~~3.54%~~3.60% as of ~~June~~September 30, 2018. The net interest margin on earning assets was ~~3.81%~~3.73% for the ~~six~~nine months ended ~~June~~September 30, 2019, and ~~3.56%~~3.62% for the ~~six~~nine months ended ~~June~~September 30, 2018. On a tax equivalent basis, the Bancorp’s net interest margin was ~~3.88%~~3.80% for the ~~six~~nine months ended ~~June~~September 30, 2019, compared to ~~3.75%~~3.81% for the ~~six~~nine months ended ~~June~~September 30, 2018. Comparing the net interest margin on a tax equivalent basis more accurately compares the returns on tax-exempt loans and securities to those on taxable interest-earning assets.

Year-to-Date
(Dollars in thousands) Average Balances, Interest, and Rates
June 30, 2019 June 30, 2018
Average
Balance Interest Rate (%) Average
Balance Interest Rate (%)
ASSETS
Interest bearing deposits in other financial institutions $ 26,840 $ 176 1.31 $ 4,915 $ 42 1.71
Federal funds sold 4,644 77 3.32 1,029 5 0.97
Certificates of deposit in other financial institutions 2,194 32 2.92 1,581 13 1.64
Securities available-for-sale 250,016 3,489 2.79 239,868 3,336 2.78
Loans receivable 855,908 22,028 5.15 631,640 14,251 4.51
Federal Home Loan Bank stock 3,886 89 4.58 3,005 82 5.46
Total interest earning assets 1,143,488 $ 25,891 4.53 882,038 $ 17,729 4.02
Cash and non-interest bearing deposits in other financial institutions 23,628 10,351
Allowance for loan losses (8,213 ) (7,350 )
Other noninterest bearing assets 88,967 53,699
Total assets $ 1,247,870 $ 938,738

LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposits $ 1,067,976 $ 3,683 0.69 $ 783,066 $ 1,513 0.39
Repurchase agreements 12,098 115 1.90 12,252 77 1.26
Borrowed funds 21,426 294 2.74 42,919 428 1.99
Total interest bearing liabilities 1,101,500 $ 4,092 0.74 838,237 $ 2,018 0.48
Other noninterest bearing liabilities 24,528 9,267
Total liabilities 1,126,028 847,504
Total stockholders' equity 121,842 91,234
Total liabilities and stockholders' equity $ 1,247,870 $ 938,738

Year-to-Date
(Dollars in thousands)	Average Balances, Interest, and Rates
	September 30, 2019							September 30, 2018
	Average Balance			Interest		Rate (%)		Average Balance			Interest		Rate (%)
ASSETS
Interest bearing deposits in other financial institutions	$	33,191		$	438		1.76	$	4,203		$	66		2.09
Federal funds sold		4,811			123		3.41		1,055			30		3.79
Certificates of deposit in other financial institutions		2,149			50		3.10		2,251			38		2.25
Securities available-for-sale		253,004			5,101		2.69		239,020			5,010		2.79
Loans receivable		867,941			33,363		5.13		661,300			22,803		4.60
Federal Home Loan Bank stock		3,894			136		4.66		3,063			117		5.09
Total interest earning assets		1,164,990		$	39,211		4.49		910,892		$	28,064		4.11
Cash and non-interest bearing deposits in other financial institutions		23,496							10,351
Allowance for loan losses		(8,449	)						(7,415	)
Other noninterest bearing assets		92,595							58,729
Total asset	$	1,272,632						$	972,563

LIABILITIES AND STOCKHOLDERS' EQUITY
Total deposit	$	1,094,631		$	6,036		0.74	$	816,880		$	2,531		0.41
Repurchase agreements		12,636			179		1.89		12,374			124		1.34
Borrowed		19,935			402		2.69		40,225			682		2.26
Total interest bearing liabilities		1,127,202		$	6,617		0.78		869,479		$	3,337		0.51
Other noninterest bearing liabilities		21,179							9,676
Total liabilities		1,148,381							879,155
Total stockholders' equity		124,251							93,408
Total liabilities and stockholders' equity	$	1,272,632						$	972,563

The increase in ~~yields~~interest income for interest bearing deposits in other financial institutions was the result of higher average balance for the ~~six~~nine months ended ~~June~~September 30, 2019, compared to the ~~six~~nine months ended ~~June~~September 30, 2018. The increase in ~~yields~~federal funds sold was result of higher average balances for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018. The increase in certificates of deposits in other financial institutions was ~~primarily~~ the result of higher average ~~balance and higher~~ rates for the ~~six~~nine months ended ~~June~~September 30, 2019, compared to the ~~six~~nine months ended ~~June~~September 30, ~~2018. The~~2018.The increase in ~~yields~~interest income for securities available-for-sale was the result of higher average balances ~~and higher weighted average rates~~ for the ~~six~~nine months ended ~~June~~September 30, 2019, compared to the ~~six~~nine months ended ~~June~~September 30, 2018. The increase ~~in yields~~ for loans receivable was the result of higher average balances, higher weighted average rates, and the recognition of one-time gains from excess reserves associated with purchase credit impaired loans from the former acquisitions of First Federal Savings & Loan and Liberty Savings Bank during the ~~six~~nine months ended ~~June~~September 30, 2019, compared to the ~~six~~nine months ended ~~June~~September 30, 2018. The increase in Federal Home Loan Bank stock is the result of higher average balances for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018. The increase in the cost of total deposits was the result of higher average balances and higher weighted average rates for the ~~six~~nine months ended ~~June~~September 30, 2019, compared to the ~~six~~nine months ended ~~June~~September 30, 2018. The increase in the cost of repurchase agreements was the result of higher weighted average rates and balances for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018. The decrease in the cost of borrowed was the result of lower average balances for the ~~six~~nine months ended ~~June~~September 30, 2019, compared to the ~~six~~nine months ended ~~June 30, 2018. The increase in the cost of repurchase agreements was the result of higher weighted average rates for the six months ended June 30, 2019, compared to the six months ended June~~September 30, 2018.

The following table shows the change in noninterest income for the ~~six~~nine months ending ~~June~~September 30, 2019, and ~~June~~September 30, 2018.

	Six Months Ended
(unaudited)											Nine Months Ended
(Dollars in thousands)	June 30,				Six Months Ended						September 30,				Nine Months Ended
	2019		2018		$ Change			% Change			2019		2018		$ Change			% Change
Noninterest income:

Fees and service charges	$	2,405	$	1,839	$	566			30.8	%	$	3,608	$	2,830	$	778			27.5	%
Wealth management operations		979		839		140			16.7	%		1,426		1,253		173			13.8	%
Gain on sale of loans held-for-sale, net												1,323		1,021		302			29.6	%
Gain on sale of securities, net		652		1,004		(352	)		-35.1	%		754		1,155		(401	)		-34.7	%
Gain on sale of loans held-for-sale, net		642		570		72			12.6	%
Increase in cash value of bank owned life insurance		342		228		114			50.0	%		519		358		161			45.0	%
Benefit from bank owned life insurance												205		-		205			0.0	%
Gain on sale of foreclosed real estate, net		40		100		(60	)		-60.0	%		83		154		(71	)		-46.1	%
Other		178		72		106			147.2	%		217		104		113			108.7	%
Total noninterest income	$	5,238	$	4,652	$	586			12.6	%	$	8,135	$	6,875	$	1,260			18.3	%

The increase in fees and service charges is the result of the Bancorp’s continued focus on maintaining competitive fees within its market place, as well the acquisition of First Personal and AJSB. The increase in wealth management income is related to book value changes in assets under management and the timing of one time fees. The ~~decrease in gains on sale of securities is a result of current market conditions and maintaining current securities cash flows. The~~ increase in gain on sale of loans held for sale is the result of continued efforts on loan growth and normal course of business sales. The decrease in gains on sale of securities is a result of current market conditions and maintaining current securities cash flows. The increase in cash value of bank owned life insurance is related to the increased bank owned life insurance balances from the AJSB and First Personal acquisitions. Due to a death benefit recorded during the year, the Bancorp will receive a benefit from bank owned life insurance. The increase in other noninterest income is primarily driven by gains made on the sale of fixed assets.

The following table shows the change in noninterest expense for the ~~six~~nine ending ~~June~~September 30, 2019, and ~~June~~September 30, 2018.

	Six Months Ended
(unaudited)										Nine Months Ended
(Dollars in thousands)	June 30,				Six Months Ended					September 30,				Nine Months Ended
	2019		2018		$ Change		% Change			2019		2018		$ Change		% Change
Noninterest expense:
Compensation and benefits	$	9,401	$	7,376	$	2,025		27.5	%	$	14,333	$	12,045	$	2,288		19.0	%
Occupancy and equipment		2,291		1,695		596		35.2	%		3,522		2,524		998		39.5	%
Data processing		1,947		1,064		883		83.0	%		2,753		2,076		677		32.6	%
Marketing		613		300		313		104.3	%		783		523		260		49.7	%
Federal deposit insurance premiums		268		159		109		68.6	%		286		250		36		14.4	%
Other		4,193		3,279		914		27.9	%		6,305		5,512		793		14.4	%
Total noninterest expense	$	18,713	$	13,873	$	4,840		34.9	%	$	27,982	$	22,930	$	5,052		22.0	%

The increase in compensation and benefits is primarily the result of increased compensation due to the ~~acquisition~~acquisitions of AJSB and First Personal. Additionally, increases to compensation and benefits can be attributed to management’s continued focus on talent management and retention. The increase in occupancy and equipment is primarily related to the First Personal and AJSB acquisitions and related assets brought over. The increase in data processing expense is primarily the result of ~~data conversion expenses related to the acquisition of AJSB as well as~~ increased utilization of systems. The increase in marketing expenses is primarily related to the acquisition of AJSB as well as regular advertising initiatives. The increase in other operating expenses is related to timing of acquisition costs for ~~First Personal~~AJSB and ~~AJ Smith.~~higher third party costs. The Bancorp’s efficiency ratio was ~~69.2%~~68.7% for the ~~six-months~~nine-months ended ~~June~~September 30, 2019, compared to ~~68.1%~~72.6% for the ~~six-months~~nine-months ended ~~June~~September 30, 2018. The ~~increased~~decreased ratio is related primarily to the increase in ~~noninterest expense. The efficiency ratio is determined by dividing total noninterest expense by the sum of net~~ interest ~~income and total noninterest income for the period.~~income. The acquisition of AJSB and First Personal acquisitions are discussed in Note 3 of the financial statements.

Income tax expenses for the ~~six~~nine months ended ~~June~~September 30, 2019 totaled ~~$1.3~~$1.6 million, compared to income tax expense of ~~$780 thousand~~$1.0 for the ~~six~~nine months ended ~~June~~September 30, 2018, an increase of ~~$471~~$577 thousand ~~(60.4%~~(56.3%). The combined effective federal and state tax rates for the Bancorp was ~~16.7%~~14.0% for the ~~six~~nine months ended ~~June~~September 30, 2019, compared to 13.3% for the quarter ended ~~June~~September 30, 2018. The Bancorp’s higher current period effective tax rate is a result of a larger increase to earnings relative to increased tax preferred income.

Critical Accounting Policies

Critical accounting policies are those accounting policies that management believes are most important to the portrayal of the Bancorp’s financial condition and that require management’s most difficult, subjective or complex judgments. The Bancorp’s critical accounting policies from December 31, 2018, remain unchanged.

Forward-Looking Statements

Statements contained in this report that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions are also intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act. The Bancorp cautions readers that forward-looking statements, including without limitation those relating to the Bancorp’s future business prospects, merger and acquisition activities, interest income and expense, net income, liquidity, and capital needs are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements, due to, among other things, factors identified in this report, including those identified in the Bancorp’s 2018 Form 10-K.

~~Item 3. Quantitative and Qualitative Disclosures about Market Risk~~

Item	3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

~~Item 4. Controls and Procedures~~

Item

~~(a)~~

4.Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

The Bancorp maintains disclosure controls and procedures (as defined in Sections 13a – 15(e) and 15d – 15(e)) of regulations promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”) that are designed to ensure that information required to be disclosed by the Bancorp in the reports that it files or submits under the "Exchange Act" is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Bancorp in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Bancorp's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. The Bancorp's Chief Executive Officer and Chief Financial Officer evaluate the effectiveness of the Bancorp's disclosure controls and procedures as of the end of each quarter. Based on that evaluation as of ~~June~~September 30, 2019, the Bancorp’s Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures were effective as of that datein 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)~~

(b) Changes in Internal Control Over Financial Reporting.

There was no change in the Bancorp's internal control over financial reportingidentified in connection with the Bancorp’s evaluation of controls that occurred during the ~~six~~nine months ended ~~June~~September 30, 2019, that has materially affected, or is reasonably likely to materially affect, the Bancorp's internal control over financial reporting.

PART II - Other Information

Item 1.

Legal Proceedings

The Bancorp and its subsidiaries, from time to time, are involved in legal proceedings in the ordinary course of business against its debtors and are defendants in legal actions arising from normal business activities. Management, after consultation with legal counsel believes that the ultimate liabilities, if any, resulting from these actions will not have a material adverse effect on the financial position of the Bank or on the consolidated financial position of the Bancorp.

Item 1A.

Risk Factors

Not Applicable.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

On April 24, 2014 the Bancorp’s Board of Directors authorized a stock repurchase program to repurchase up to 50,000 shares of the Bancorp’s outstanding common stock, from time to time and subject to market conditions, on the open market or in privately negotiated transactions. The stock repurchase program does not expire and is only limited by the number of shares that can be purchased. The stock repurchase program will be reviewed annually by the Board of Directors. No shares were repurchased during the ~~six~~nine months ended ~~June~~September 30, 2019 under the stock repurchase program.

Period		Total Number of Shares Purchased				Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs			Maximum Number of Shares That May Yet Be Purchased Under the Program(1)
January 1, 2019 – January 31, 2019	-			- N/A			~~N/A~~ -			-		48,828
February 1, 2019 – February 28, 2019	-			- N/A			~~N/A~~ -			-		48,828
March 1, 2019 – March 31, 2019	-			- N/A			~~N/A~~ -			-		48,828
April 1, 2019 – April 30, 2019	-			- N/A			~~N/A~~ -			-		48,828
May 1, 2019 – May 31, 2019	-			- N/A			~~N/A~~ -			-		48,828
June 1, 2019 – June 30, 2019	-			- N/A			~~N/A~~ -		48,828
July 1, 2019 – July 31, 2019	-		N/A		~~48,828~~ -		48,828
August 1, 2019 – August 31, 2019	-		N/A		-		48,828
September 1, 2019 – September 30, 2019	-		N/A		-		48,828

(1)

~~(1)~~

The stock repurchase program was announced on April 24, 2014, whereby the Bancorp is authorized to repurchase up to 50,000 shares of the Bancorp’s common stock outstanding. There is no express expiration date for this program.

Item 3.

Defaults Upon Senior Securities

There

are no matters reportable under this item.

~~There are no matters reportable under this item.~~

Item 4.

Mine Safety Disclosures

Not	Applicable

~~Not Applicable~~

Item 5.

Other Information

~~None~~On October 28, 2019, the Board of Directors of the Bancorp adopted the NorthWest Indiana Bancorp Executive Change in Control Severance Plan (the “Severance Plan”). The purpose of the Severance Plan is to attract and retain talent and to assure the present and future continuity, objectivity, and dedication of management in the event of any change in control of the Bancorp or the Bank. The participants under the Severance Plan (each, a “Participant”) include any full-time employee of the Bancorp who is a President, Chief Financial Officer, Chief Operating Officer, or Executive Vice President, and any other full-time employee of the Bancorp or the Bank who is recommended by the Chief Executive Officer of the Bancorp to the Compensation and Benefits Committee of the Bancorp’s Board of Directors to be a key employee who should be eligible to participate in the Severance Plan, and who, in each case, has at least three years of continuous employment and as of the date of the occurrence of a change in control does not have a separate written agreement with the Bancorp or the Bank providing for the payment of severance or other compensation following a change in control.

The Bancorp will provide a Participant with the payments and benefits set forth in the Severance Plan if (i) his or her employment is terminated by the Bancorp or the Bank (or any successor) without Cause (as such term is defined in the Severance Plan) during the period beginning on the first occurrence of a Change in Control (as such term is defined in the Severance Plan) and lasting through the earlier of the Participant’s death, or the 18-month anniversary of the occurrence of the Change in Control (such period, the “Covered Period”); or (ii) both (A) an event of Good Reason (as such term is defined in the Severance Plan) occurs during the Covered Period, and (B) the Participant terminates his or her employment with the Bancorp or the Bank (or any successor) for such event of Good Reason within 60 calendar days following the date the Participant provides notice of Good Reason to the Bancorp (or successor) and after the Bancorp (or successor) has had an opportunity to cure such Good Reason.

The payments and benefits under the Severance Plan will include: (i) a cash severance payment equal to one times the sum of (A) the Participant’s base salary in effect on the date of termination, or, if greater, in effect on the date of the change in control, plus (B) the greater of the actual annual cash bonus received by the Participant for the calendar year immediately preceding the calendar year in which termination occurs or the annual cash bonus that the Participant would have earned for the entire calendar year in which the termination occurs, at target level; (ii) a lump sum amount equal to 100% of the aggregate annual COBRA premium amounts (based on COBRA rates then in effect) for the medical and dental coverage that was being provided to the Participant and his or her spouse and eligible dependents as of the date of termination; and (iii) a lump sum amount equal to 100% of the annual premiums paid by the Bancorp in respect of the life insurance coverage provided for an active employee similarly situated to the Participant (based upon coverage and rates in effect on the date of the Participant’s termination). The benefits are generally to be paid in a single lump sum, in cash, on the later of the 25^th business day following the date of termination, or the fifth business day following the date the release required under the Severance Plan to be executed by the Participant in favor of the Bancorp and the Bank (or successor) becomes effective and irrevocable.

The foregoing description of the Severance Plan does not purport to be complete and is qualified in its entirety by reference to the complete copy of the Severance Plan attached hereto as Exhibit 10.1.

Item 6.

Exhibits

~~Exhibit~~
Exhibit Number		Description
	10.1		NorthWest Indiana Bancorp Executive Change in Control Severance Plan.
	31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
	31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
	32.1		Section 1350 Certifications.
	101		The following materials from the Bancorp’s Form 10-Q for the quarterly period ended ~~June~~September 30, 2019, formatted in an XBRL Interactive Data File: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Changes in Stockholders’ Equity; (iv) Consolidated Statement of Comprehensive Income; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements, with detailed tagging of notes and financial statement schedules.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	~~NORTHWEST INDIANA BANCORP~~
		NORTHWEST INDIANA BANCORP

Date: ~~August 8,~~October 29, 2019		/s/ Benjamin J. Bochnowski
		Benjamin J. Bochnowski
		President and Chief Executive Officer

Date: ~~August 8,~~October 29, 2019		/s/ Robert T. Lowry
		Robert T. Lowry
		Executive Vice President, Chief Financial
		Officer and Treasurer

							Accumulated
				Additional			Other
		Common		Paid-in			Comprehensive			Retained			Total
(Dollars in thousands, except per share data)		Stock		Capital			(Loss)/Income			Earnings			Equity

Balance at January 1, 2018		$	-	$	4,867		$	684		$	86,509		$	92,060

Comprehensive income:
Net income			-		-			-			2,561			2,561
Net unrealized loss on securities available-for-sale, net of reclassification and tax effects			-		-			(4,032	)		-			(4,032	)
Comprehensive income														(1,471	)
Stock-based compensation expense			-		52			-			-			52
Cash dividends, $0.29 per share			-		-			-			(833	)		(833	)

Balance at March 31, 2018	��	$	-	$	4,919		$	(3,348	)	$	88,237		$	89,808

Comprehensive income:
Net income			-		-			-			2,511			2,511
Net unrealized loss on securities available-for-sale, net of reclassification and tax effects			-		-			(889	)		-			(889	)
Comprehensive income														1,622
Net surrender value of 1,029 restricted stock awards					(45	)								(45	)
Stock-based compensation expense			-		51			-			-			51
Cash dividends, $0.30 per share			-		-			-			(859	)		(859	)

Balance at June 30, 2018		$	-	$	4,925		$	(4,237	)	$	89,889		$	90,577

Balance at January 1, 2019		$	-	$	11,927		$	(2,796	)	$	92,333		$	101,464

Comprehensive income:
Net income			-		-			-			2,222			2,222
Net unrealized gain on securities available-for-sale, net of reclassification and tax effects			-		-			3,033			-			3,033
Comprehensive income														5,255
Stock-based compensation expense			-		71			-			-			71
Issuance of 416,478 shares at $42.00 per share, for acquisition of AJS Bancorp, Inc.					17,492									17,492
Cash dividends, $0.30 per share			-		-			-			(1,035	)		(1,035	)

Balance at March 31, 2019		$	-	$	29,490		$	237		$	93,520		$	123,247

Comprehensive income:
Net income			-		-			-			4,023			4,023
Net unrealized gain on securities available-for-sale, net of reclassification and tax effects			-		-			2,593			-			2,593
Comprehensive income														6,616
Net surrender value of 1,245 restricted stock awards					(63	)								(63	)
Stock-based compensation expense			-		83			-			-			83
Cash dividends, $0.31 per share			-		-			-			(1,071	)		(1,071	)

Balance at June 30, 2019		$	-	$	29,510		$	2,830		$	96,472		$	128,812

(Dollars in thousands)	Beginning Balance		Charge-offs			Recoveries		Provisions			Ending Balance

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended June 30, 2019:

Allowance for loan losses:
Residential real estate	$	1,680	$	(18	)	$	4	$	(6	)	$	1,660
Home equity		194		-			2		6			202
Commercial real estate		3,485		-			-		44			3,529
Construction and land development		777		-			-		29			806
Multifamily		434		-			-		19			453
Farmland		-		-			-		-			-
Commercial business		1,391		-			10		116			1,517
Consumer		254		(7	)		6		303			556
Government		21		-			-		-			21
Total	$	8,236	$	(25	)	$	22	$	511		$	8,744

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the three months ended June 30, 2018:

Allowance for loan losses:
Residential real estate	$	1,493	$	(38	)	$	-	$	68		$	1,523
Home equity		159		(5	)		-		29			183
Commercial real estate		2,996		-			2		172			3,170
Construction and land development		661		-			-		(50	)		611
Multifamily		615		-			-		(8	)		607
Farmland		4		-			-		-			4
Commercial business		1,077		(3	)		107		83			1,264
Consumer		35		(14	)		5		10			36
Government		57		-			-		(7	)		50
Total	$	7,097	$	(60	)	$	114	$	297		$	7,448

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the six months ended June 30, 2019:

Allowance for loan losses:
Residential real estate	$	1,715	$	(66	)	$	18	$	(7	)	$	1,660
Home equity		202		-			2		(2	)		202
Commercial real estate		3,335		-			-		194			3,529
Construction and land development		756		-			-		50			806
Multifamily		472		-			-		(19	)		453
Farmland		-		-			-		-			-
Commercial business		1,362		-			16		139			1,517
Consumer		82		(25	)		9		490			556
Government		38		-			-		(17	)		21
Total	$	7,962	$	(91	)	$	45	$	828		$	8,744

The Bancorp's activity in the allowance for loan losses, by loan segment, is summarized below for the six months ended June 30, 2018:

Allowance for loan losses:
Residential real estate	$	1,568	$	(106	)	$	-	$	61		$	1,523
Home equity		166		(24	)		-		41			183
Commercial real estate		3,125		(119	)		2		162			3,170
Construction and land development		618		-			-		(7	)		611
Multifamily		622		-			-		(15	)		607
Farmland		-		-			-		4			4
Commercial business		1,298		(529	)		117		378			1,264
Consumer		31		(22	)		9		18			36
Government		54		-			-		(4	)		50
Total	$	7,482	$	(800	)	$	128	$	638		$	7,448

							For the six months ended
	As of December 31, 2018						June 30, 2018
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	1,389	$	3,628	$	-	$	1,108	$	16
Home equity		207		214		-		45		-
Commercial real estate		1,624		2,222		-		561		-
Construction & land development		-		-		-		89		-
Multifamily		-		-		-		-		-
Farmland		-		-		-		-		-
Commercial business		1,799		2,038		-		257		-
Consumer		-		-		-		-		-
Government		-		-		-		-		-

With an allowance recorded:
Residential real estate		161		161		22		114		10
Home equity		57		57		9		20		-
Commercial real estate		481		481		210		160		16
Construction & land development		-		-		-		-		-
Multifamily		-		-		-		-		-
Farmland		-		-		-		-		-
Commercial business		64		64		5		186		8
Consumer		-		-		-		-		-
Government		-		-		-		-		-

Total:
Residential real estate	$	1,550	$	3,789	$	22	$	1,222	$	26
Home equity	$	264	$	271	$	9	$	65	$	-
Commercial real estate	$	2,105	$	2,703	$	210	$	721	$	16
Construction & land development	$	-	$	-	$	-	$	89	$	-
Multifamily	$	-	$	-	$	-	$	-	$	-
Farmland	$	-	$	-	$	-	$	-	$	-
Commercial business	$	1,863	$	2,102	$	5	$	443	$	8
Consumer	$	-	$	-	$	-	$	-	$	-
Government	$	-	$	-	$	-	$	-	$	-