Finward Bancorp : CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Form 8-K/A

Finward Bancorp : CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Form 8-K/A

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2021 (unaudited) and June 30, 2021

and for the three-month period ended September 30, 2021 (unaudited)

Royal Financial, Inc.

Chicago, Illinois

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021 and June 30, 2021

CONTENTS

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 2
CONSOLIDATED STATEMENT OF INCOME 3
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 4
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY 5
CONSOLIDATED STATEMENT OF CASH FLOWS 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7

1

Royal Financial, Inc.

Condensed Consolidated Statements of Financial Condition

September 30, 2021 (Unaudited) and June 30, 2021

September 30,

June 30,

2021

2021

Assets

Cash and non-interest bearing balances in financial institutions

$ 3,546,340 $ 3,470,428

Interest-earning balances in financial institutions

25,808,869 9,259,546

Federal funds sold

75,613 102,418

Cash and cash equivalents

29,430,822 12,832,392

Investment certificates of deposit

492,000 492,000

Securities available for sale

31,834,378 31,888,847

Loans receivable, net of allowance for loan losses of $3,799,592 at September 30, 2021, $3,858,124 at June 30, 2021

466,428,455 460,366,062

Federal Home Loan Bank stock

1,302,900 1,302,900

Premises and equipment, net

15,256,448 15,411,588

Accrued interest receivable

2,288,221 2,219,654

Other real estate owned

156,580 156,580

Deferred tax asset

4,685,426 5,279,265

Core deposit intangibles

502,973 538,179

Goodwill

1,755,189 1,755,189

Other assets

1,390,439 1,480,314

Total assets

$ 555,523,831 $ 533,722,970

Liabilities and Stockholders’ Equity

Liabilities

Deposits

$ 488,378,241 $ 466,312,856

Advances from borrowers for taxes and insurance

4,472,612 6,060,645

Federal Home Loan Bank advances

5,000,000 5,000,000

Notes payable

6,750,000 7,000,000

Accrued interest payable and other liabilities

1,261,209 1,235,469

Total liabilities

505,862,062 485,608,970

Commitments and Contingencies

Stockholders’ Equity

Preferred stock, $0.01 par value per share, authorized 1,000,000 shares, no issues are outstanding

Common stock, $0.01 par value per share, authorized 5,000,000 shares, 2,645,000 shares issued

26,450 26,450

Additional paid-in capital

24,498,325 24,434,505

Retained earnings

25,018,943 23,519,345

Treasury stock, 77,427 shares, at cost

(665,954 ) (665,954 )

Accumulated other comprehensive income

784,005 799,654

Total stockholders’ equity

49,661,769 48,114,000

Total liabilities and stockholders’ equity

$ 555,523,831 $ 533,722,970

See notes to condensed consolidated financial statements

2

Royal Financial, Inc.

Condensed Consolidated Statement of Income

For the Three Months Ended September 30, 2021 (Unaudited)

Three Months Ended September 30,

2021

Interest Income

Loans, including fees

$ 5,091,855

Securities

169,968

Federal funds sold and other

11,368

Total interest income

5,273,191

Interest Expense

Deposits

320,963

Borrowings

51,699

Total interest expense

372,662

Net Interest Income

4,900,529

Provision (benefit) for loan losses

(125,000 )

Net Interest Income After Provision (benefit) for Loan Losses

5,025,529

Non-interest Income

Service charges on deposit accounts

171,666

Secondary mortgage market fees

10,143

Rental income

48,198

Other

324

Total non-interest income

230,331

Non-interest Expense

Salaries and employee benefits

1,356,932

Occupancy and equipment

599,356

Data processing

266,975

Professional services

196,199

Directors fees

47,250

Marketing

54,284

FDIC insurance expense

97,143

Insurance premiums

21,258

Other real estate owned expense (income)

4,895

Merger expense

228,485

Core deposit intangibles amortization

35,207

Other

250,278

Total non-interest expense

3,158,262

Income before income taxes

2,097,598

Provision for income taxes

598,000

Net income

$ 1,499,598

Basic earnings per share

$ 0.58

Diluted earnings per share

$ 0.57

Weighted-average shares basic

2,567,573

Weighted-average shares diluted

2,611,052

See notes to condensed consolidated financial statements

3

Royal Financial, Inc.

Condensed Consolidated Statement of Comprehensive Income

For the Three Months Ended September 30, 2021 (Unaudited)

Three Months Ended September 30,

2021

Net income

$ 1,499,598

Other comprehensive income:

Unrealized holding gains on securities during the period:

Unrealized holding losses arising during the period

(19,810 )

Tax effect

4,161

Other comprehensive loss after tax

(15,649 )

Comprehensive income

$ 1,483,949

See notes to condensed consolidated financial statements

4

Royal Financial, Inc.

Condensed Consolidated Statement of Changes in StockholdersEquity

For the Three Months Ended September 30, 2021 (Unaudited)

Accumulated

Additional

Other

Preferred

Common

Paid-in

Retained

Treasury

Comprehensive

Stock

Stock

Capital

Earnings

Stock

Income

Total

Balance at July 1, 2021

$ $ 26,450 $ 24,434,505 $ 23,519,345 $ (665,954 ) $ 799,654 $ 48,114,000

Net income

1,499,598 1,499,598

Other comprehensive loss, net of tax

(15,649 ) (15,649 )

Stock-based compensation

63,820 63,820

Balance at September 30, 2021

$ $ 26,450 $ 24,498,325 $ 25,018,943 $ (665,954 ) $ 784,005 $ 49,661,769

See notes to condensed consolidated financial statements

5

Royal Financial, Inc.

Condensed Consolidated Statement of Cash Flows

For the Three Months Ended September 30, 2021 (Unaudited)

Three Months Ended September 30,

2021

Operating Activities

Net income

$ 1,499,598

Adjustments to reconcile net income to net cash from by operating activities

Depreciation

188,463

Deferred loan origination fees and costs

(177,741 )

Benefit for loan losses

(125,000 )

Premium amortization on securities available for sale, net

34,659

Accretion of discount on acquired loans

11,935

Amortization of core deposit intangible

35,206

Stock-based compensation expense

63,820

Deferred income tax expense

598,000

Net change in:

Accrued interest receivable and other assets

21,308

Accrued interest payable and other liabilities

25,740

Net cash provided by operating activities

2,175,988

Investing Activities

Net change in loans

(5,771,587 )

Purchase of loans

Purchase of premises and equipment

(33,323 )

Net cash used in investing activities

(5,804,910 )

Financing Activities

Net increase in deposits

22,065,385

Proceeds from notes payable

Repayment of notes payable

(250,000 )

Proceeds from stock option exercises

Change in advances from borrowers for taxes and insurance

(1,588,033 )

Net cash provided by financing activities

20,227,352

Increase in Cash and Cash Equivalents

16,598,430

Cash and Cash Equivalents, Beginning of Period

12,832,392

Cash and Cash Equivalents, End of Period

$ 29,430,822

Supplemental Disclosure of Cash Flow Information

Cash paid during the period for:

Interest on deposits and borrowings

$ 407,859

Income taxes

610,000

See notes to condensed consolidated financial statements

6

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

NOTE 1 – BASIS OF PRESENTATION

The consolidated financial statements as of September 30, 2021 and June 30, 2021, and for the period ended September 30, 2021, include Royal Financial, Inc. (“the Company”) and its wholly-owned subsidiary Royal Savings Bank (“the Bank”). The Bank has one wholly-owned subsidiary that holds other real estate owned. All significant intercompany transactions and balances are eliminated in consolidation.

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”) and prevailing practices within the banking industry. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the financial position, results of operations, and cash flows of the Company on a consolidated basis. Transactions with subsidiaries have been eliminated. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto for the year ended June 30, 2021. Operating results for the three months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending June 30, 2022.

Use of Estimates

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

7

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

NOTE 2SECURITIES

The fair value of debt securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows at September 30, 2021 and June 30, 2021:

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Approximate

Fair Value

September 30, 2021 (unaudited)

Available-for-sale Securities:

Corporate bonds

$ 3,336,197 $ 48,482 $ $ 3,384,679

Federal National Mortgage Association

9,850,060 148,590 9,998,650

Municipal taxable bonds

17,655,710 812,696 (17,357 ) 18,451,049
$ 30,841,967 $ 1,009,768 $ (17,357 ) $ 31,834,378

Amortized

Cost

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Approximate

Fair Value

June 30, 2021

Available-for-sale Securities:

Corporate bonds

$ 3,347,209 $ 51,407 $ $ 3,398,616

Federal National Mortgage Association

9,844,033 156,267 10,000,300

Municipal taxable bonds

17,685,384 826,743 (22,196 ) 18,489,931
$ 30,876,626 $ 1,034,417 $ (22,196 ) $ 31,888,847

The fair value of debt securities available for sale at September 30, 2021, by contractual maturity, was as follows.

Available-for-sale

Amortized

Fair

Cost

Value

(Unaudited)

Due in one year or less

$ 1,012,444 $ 1,033,700

Due from one to five years

17,084,450 17,568,810

Due from five to ten years

6,955,936 7,345,004

Over ten years

5,789,137 5,886,864

Totals

$ 30,841,967 $ 31,834,378

8

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

Securities pledged at September 30, 2021 had a fair value of $1,682,000 and were pledged to secure public deposits. Securities pledged at June 30, 2021 had a fair value of $1,650,000 and were pledged to secure public deposits.

Securities with unrealized losses at June 30, 2021 and September 30, 2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

September 30, 2021

Less than 12 Months

12 Months or More

Total

Description of Securities

Fair
Value

Unrealized Losses

Fair
Value

Unrealized Losses

Fair
Value

Unrealized Losses

(Unaudited)

Municipal taxable bonds

$ $ $ 1,863,585 $ (17,357 ) $ 1,863,585 $ (17,357 )

June 30, 2021

Less than 12 Months

12 Months or More

Total

Description of Securities

Fair
Value

Unrealized Losses

Fair
Value

Unrealized Losses

Fair
Value

Unrealized Losses

Municipal taxable bonds

$ 1,868,122 $ (22,196 ) $ $ $ 1,868,122 $ (22,196 )

Unrealized losses on securities have not been recognized into income because the securities are of high credit quality, the Bank does not intend to sell the securities, it is more likely than not that the Bank will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in market interest rates and fixed income market conditions since the purchase date. Credit quality of the securities is considered to be high, and the fair value is expected to recover as the securities approach their maturity date.

9

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

NOTE 3LOANS AND ALLOWANCE FOR LOAN LOSSES

At September 30, 2021 and June 30, 2021, loans receivable consisted of the following:

September 30,

June 30,

2021

2021

(Unaudited)

Real estate loans

One-to-four-family

$ 192,930,979 $ 195,643,418

Commercial

113,628,019 122,211,489

Multi-family

156,860,720 136,576,358

Total real estate loans

463,419,718 454,431,265

Commercial loans

Business loans

6,038,191 8,939,137

Total commercial loans

6,038,191 8,939,137

Consumer loans

Home equity loans

29,711 31,636

Other

740,427 822,148

Total consumer loans

770,138 853,784

Gross loans

470,228,047 464,224,186

Allowance for loan losses

(3,799,592 ) (3,858,124 )

Loans , net

$ 466,428,455 $ 460,366,062

10

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

The following table presents the activity in the allowance for loan losses by class for the three months ended September 30, 2021:

For the Three Months Ended September 30, 2021 (Unaudited)

Real Estate

One-to-Four

Multi-

Business

Home Equity

Family

Commercial

Family

Loans

Loans

Other

Total

Allowance for loan losses:

Balance, July 1, 2021

$ 1,109,312 $ 1,819,408 $ 827,113 $ 83,464 $ 2,028 $ 16,799 $ 3,858,124

Provision (benefit) for loan losses

75,865 (307,109 ) 145,244 (21,179 ) (1,988 ) (16,241 ) (125,408 )

Loans charged-off

(23,718 ) (14,779 ) (38,497 )

Recoveries

22,998 81,429 946 105,373

Balance, September 30, 2021

$ 1,184,457 $ 1,578,949 $ 972,357 $ 62,285 $ 40 $ 1,504 $ 3,799,592

11

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by class and based on impairment method as of September 30, 2021 and June 30, 2021:

At September 30, 2021 (Unaudited)

Real Estate

One-to-Four

Multi-

Business

Home Equity

Family

Commercial

Family

Loans

Loans

Other

Total

Allowance for loan losses:

Ending balance, individually evaluated for impairment

$ $ $ $ $ $ $

Ending balance, collectively evaluated for impairment

$ 1,184,457 $ 1,578,949 $ 972,357 $ 62,285 $ 40 $ 1,504 $ 3,799,592

Loans:

Ending balance

$ 192,930,979 $ 113,628,019 $ 156,860,720 $ 6,038,191 $ 29,711 $ 740,427 $ 470,228,047

Ending balance; individually evaluated for impairment

$ 1,529,028 $ 237,503 $ $ $ 2,535 $ $ 1,769,066

Ending balance; collectively evaluated for impairment

$ 191,401,951 $ 113,390,516 $ 156,860,720 $ 6,038,191 $ 27,176 $ 740,427 $ 468,458,981

At June 30, 2021

Real Estate

One-to-Four

Multi-

Business

Home Equity

Family

Commercial

Family

Loans

Loans

Other

Total

Allowance for loan losses:

Ending balance, individually evaluated for impairment

$ $ $ $ $ $ $

Ending balance, collectively evaluated for impairment

$ 1,109,312 $ 1,819,408 $ 827,113 $ 83,464 $ 2,028 $ 16,799 $ 3,858,124

Loans:

Ending balance

$ 195,643,418 $ 122,211,489 $ 136,576,358 $ 8,939,137 $ 31,636 $ 822,148 $ 464,224,186

Ending balance; individually evaluated for impairment

$ 1,879,398 $ 321,748 $ $ $ 2,535 $ $ 2,203,681

Ending balance; collectively evaluated for impairment

$ 193,764,020 $ 121,889,741 $ 136,576,358 $ 8,939,137 $ 29,101 $ 822,148 $ 462,020,505

12

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

The following tables presents information related to impaired loans by class of loans as of September 30, 2021 and June 30, 2021, and for the three-month period ended September 30, 2021 and the year ended June 30, 2021:

As of

For the Three Months Ended

September 30, 2021

September 30, 2021

Unpaid

Average Balance of

Interest

Principal

Balance

Recorded

Balance

Specific

Allowance

Impaired
Loans

Income Recognized

(Unaudited)

With no allowance recorded:

Real estate

One-to-four-family

$ 2,041,268 $ 1,529,028 $ $ 1,596,480 $ 4,064

Commercial

410,656 237,503 238,752 1,214

Multi-family

Business loans

1,405,005

Home equity loans

15,735 2,535 2,535

Other

4,842

With an allowance recorded:

Real estate

One-to-four-family

Commercial

Multi-family

Business loans

Home equity loans

Other

Totals

$ 3,877,506 $ 1,769,066 $ $ 1,837,767 $ 5,278

13

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

As of and for the year ended June 30, 2021

Unpaid

Allowance for Loan

Average

Interest

Principal

Balance

Recorded

Balance

Losses

Allocated

Recorded Investment

Income Recognized

With no allowance recorded:

Real estate

One-to-four-family

$ 2,384,978 $ 1,879,398 $ $ 1,888,649 $ 8,197

Commercial

559,678 321,748 317,957 2,504

Multi-family

Business loans

1,405,005 620,284

Home equity loans

15,735 2,535 10,235

Other

6,821
4,372,217 2,203,681 2,837,125 10,701

With an allowance recorded:

Real estate

One-to-four-family

Commercial

Multi-family

Business loans

Home equity loans

Other

Totals

$ 4,372,217 $ 2,203,681 $ $ 2,837,125 $ 10,701

For the three months ended September 30, 2021, cash basis interest income recognized approximated the accrual basis interest income recognized. The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.

14

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

The following table presents the aging of the recorded investment in past due loans as of September 30, 2021 and June 30, 2021 by class of loans:

September 30, 2021 (Unaudited)

Greater Than 89 Days Past

TotalPast Due

30-59 Days

60-89 Days

Due Still

and

Loans Not

Past Due

Past Due

On Accrual

Nonaccrual

Nonaccrual

Past due

Total

Real estate

One-to-four-family

$ 3,662 $ 624,367 $ 287,733 $ 1,036,547 $ 1,952,309 $ 190,978,670 $ 192,930,979

Commercial

220,108 220,108 113,407,911 113,628,019

Multi-family

156,860,720 156,860,720

Comercial loans

Business loans

6,038,191 6,038,191

Consumer loans

Home equity loans

2,535 2,535 27,176 29,711

Other

740,427 740,427

Total

$ 3,662 $ 624,367 $ 287,733 $ 1,259,190 $ 2,174,952 $ 468,053,095 $ 470,228,047

June 30, 2021

Greater Than 89 Days Past

Total Past Due

30-59 Days

60-89 Days

Due Still

and

Loans Not

Past Due

Past Due

On Accrual

Nonaccrual

Nonaccrual

Past due

Total

Real estate

One-to-four-family

$ 4,638 $ 284,117 $ $ 1,473,280 $ 1,762,035 $ 193,881,383 $ 195,643,418

Commercial

301,637 301,637 121,909,852 122,211,489

Multi-family

101,121 101,121 136,475,237 136,576,358

Comercial loans

Business loans

8,939,137 8,939,137

Consumer loans

Home equity loans

2,535 2,535 29,101 31,636

Other

822,148 822,148

Total

$ 4,638 $ 385,238 $ $ 1,777,452 $ 2,167,328 $ 462,056,858 $ 464,224,186

Troubled Debt Restructurings:

Restructured loans totaled $509,000 and $464,000 at September 30, 2021 and June 30, 2021, respectively. These loans are considered troubled debt restructurings and are classified as impaired at September 30, 2021 and June 30, 2021. There were no specific loan loss allowance allocations for the loans at September 30, 2021 and June 30, 2021. No additional loan commitments are outstanding to these borrowers.

15

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

During the three months ended September 30, 2021, one loan totaling $94,000 was modified in a troubled debt restructuring.

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. There were no defaults on troubled debt restructurings within twelve months following the modification during the three months ended September 30, 2021.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes real estate commercial and home equity loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Certain loans in the substandard category are classified as impaired.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans. Loans listed as not rated are included in groups of homogeneous loans and are evaluated based on past due status, which was previously presented.

16

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

Based on the most recent analysis performed, the risk category of loans by class of loans as of September 30, 2021 and June 30, 2021, is as follows:

Special

September 30, 2021 (Unaudited)

Pass

Mention

Substandard

Total

Real estate

One-to-four-family

$ 190,199,067 $ 248,568 $ 2,483,344 $ 192,930,979

Commercial

99,259,572 11,323,914 3,044,533 113,628,019

Multi-family

155,887,068 973,652 156,860,720

Comercial loans

Business loans

6,011,470 26,721 6,038,191

Consumer loans

Home equity loans

27,176 2,535 29,711

Other

740,427 740,427

Total

$ 452,124,780 $ 12,546,134 $ 5,557,133 $ 470,228,047

Special

June 30, 2021

Pass

Mention

Substandard

Total

Real estate

One-to-four-family

$ 192,263,370 $ 346,001 $ 3,034,047 $ 195,643,418

Commercial

106,444,923 12,627,395 3,139,171 122,211,489

Multi-family

135,542,148 1,034,210 136,576,358

Comercial loans

Business loans

8,842,766 56,380 39,991 8,939,137

Consumer loans

Home equity loans

29,101 2,535 31,636

Other

822,148 822,148

Total

$ 443,944,456 $ 14,063,986 $ 6,215,744 $ 464,224,186

17

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

NOTE 4 – NOTE PAYABLE

Notes payable were as follows, as of September 30, 2021 and June 30, 2021:

September 30,

June 30,

2021

2021

(Unaudited)

3.25% amortizing note, interest rate equal to the Prime Rate less 25 basis points, floating, maturing October 19, 2023

$ 6,750,000 $ 7,000,000

The amortizing note requires quarterly principal payments of $250,000 in addition to interest on the unpaid principal amount. The notes are secured by all of the stock of the Bank and contain certain financial covenants, including ratios related to the Company’s capital position and non-performing loans. At September 30, 2021 and June 30, 2021, the Company was in compliance with its financial covenants.

NOTE 5 – EMPLOYEE BENEFITS

The Company established a 401(k) Plan to provide eligible employees with retirement savings benefit. Generally, all employees of the Company and the Bank (including officers) are eligible to participate in the Plan, if over the age of 18 and have completed one year of service. Employees may elect to make contributions, or deferrals, on a pre-tax basis or after-tax basis (Roth Contributions), to the Plan and the Company will contribute a safe harbor matching contribution in an amount equal to: (i) 100% of the employee contribution, not in excess of 3% of compensation, plus (ii) 50% of the employee contribution that exceeds 3% of compensation but does not exceed 5% of compensation. The Plan is subject to certain requirements of the Internal Revenue Code and ERISA. Total 401(k) match benefit that has been charged against income for the plan was $27,000 for the three months ended September 30, 2021.

18

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

NOTE 6 – STOCK-BASED COMPENSATION

The Company has two share-based compensation plans as described below. Total compensation cost that has been charged against income for those plans was $88,000 for the three months ended September 30, 2021.

Stock Option Plan

The Company’s 2005 stock option plan (the Plan), which is stockholder approved, permits the grant of options to purchase shares of the Company’s common stock to its employees and directors of up to 264,500 shares of common stock. At September 30, 2021 and June 30, 2021, there were no shares available for future grants under this plan. The Company believes that such awards better align the interests of its employees with those of its stockholders. Option awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; those option awards generally have vesting periods of 5 years and have 10-year contractual terms. The Company has a policy of using shares held as treasury stock to satisfy option exercises. Currently, the Company has a sufficient number of treasury shares to satisfy expected option exercises.

A summary of the activity in the 2005 stock option plan for the three months ended September 30, 2021 follows:

Weighted-average

Remaining Years

Aggregate

Average

of Contractual

Intrinsic

Shares

Exercise Price

Term

Value

(Unaudited)

Options outstanding at July 1, 2021

53,900 $ 8.82 4.05

Granted

Exercised

Forfeited or expired

Options outstanding at September 30, 2021

53,900 $ 8.82 3.80 $ 548,702

Exercisable at end of period

53,900 $ 8.82 3.80 $ 548,702

Vested or expected to vest

53,900 $ 8.82 3.80 $ 548,702

As of both September 30, 2021 and June 30, 2021, all options have vested and all compensation cost related to stock options granted under the 2005 stock option plan had been recognized.

19

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

Equity Incentive Plan

On November 22, 2018, the Board approved the 2018 Equity Incentive Plan omnibus equity compensation program and allocated 350,000 unissued shares of common stock which permits the grant of options to purchase shares of the Company’s common stock, the grant of restricted stock awards, stock appreciation rights, and/or cash inventive awards to its employees and directors. At both September 30, 2021 and June 30, 2021, there were 229,200 shares available for future grants under this plan. The Company believes that such awards better align the interests of its employees with those of its stockholders. Options and awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; the options and awards granted have vesting periods of 4 years and have 10-year contractual terms.

The Company has a policy of using shares held as treasury stock to satisfy option exercises. Currently, the Company has a sufficient number of treasury shares to satisfy expected option exercises.

Restricted Stock Awards

The following is a summary of the activity related to restricted stock awards under the Equity Incentive Plan for the three months ended September 30, 2021:

Weighted-average

Grant Date

Shares

Fair Value

(Unaudited)

Non-vested at July 1, 2021

24,600 $ 13.81

Granted

Vested

(7,900 )

Forfeited

Non-vested at September 30, 2021

16,700 $ 13.74

As of September 30, 2021 and June 30, 2021, there was approximately $159,000 and $193,000, respectively, of total unrecognized compensation cost related to outstanding non-vested shares granted under the Plan. The cost is expected to be recognized over a period of 1.25 years.

20

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

On December 31, 2018, the Board granted 78,600 stock options under the Equity Incentive Plan. The following is the summary of the activity:

Weighted-average

Remaining Years

Aggregate

Average

of Contractual

Intrinsic

Shares

Exercise Price

Term

Value

(Unaudited)

Options outstanding at July 1, 2021

59,300 $ 14.30

Granted

Exercised

Forfeited or expired

Options outstanding at September 30, 2021

59,300 $ 14.30 7.25 $ 295,160

Exercisable at end of period

20,000 $ 14.30 7.25 $ 94,000

Vested or expected to vest

59,300 $ 14.30 7.25 $ 295,160

As of September 30, 2021 and June 30, 2021, $112,000 and $135,000, respectively, of unrecognized compensation cost related to non-vested stock options granted under the plan remains.

NOTE 7 – EARNINGS PER SHARE

The following table presents a reconciliation of the components used to compute basic and diluted earnings per share for the three months ended September 30, 2021:

Three Months Ended September 30,

2021

(Unaudited)

Basic EPS

Net income

$ 1,499,598

Weighted-average common shares outstanding

2,567,573

Basic earnings per share

$ 0.58

Diluted EPS

Net income

$ 1,499,598

Weighted-average common shares outstanding

2,567,573

Add effect of assumed exercise of dilutive stock options

43,479

Total shares – diluted EPS

2,611,052

Diluted earnings per share

$ 0.57

During the three months ended September 30, 2021, no shares were considered antidilutive.

21

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

NOTE 8 – REGULATORY MATTERS

Banks are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of September 30, 2021 and June 30, 2021, the Bank met all capital adequacy requirements to which it was subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At September 30, 2021 and June 30, 2021, the most recent notification from regulatory authorities categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

The following table provides the capital ratios of the Bank, along with the applicable regulatory capital requirements as of September 30, 2021 and June 30, 2021, which were calculated in accordance with the requirements of Basel III, which became effective January 1, 2015. The final rules of Basel III also established a “capital conservation buffer” of 2.5% above new regulatory minimum capital ratios. As of January 1, 2020, the capital conservation buffer was fully phased in at 2.50% and resulted in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 risk-based capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. An institution is subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such activities. At September 30, 2021 and June 30, 2021, actual capital levels and minimum required levels for the Bank (in thousands) were (the capital conversation buffer is not presented in the amounts or ratios).

Actual

Minimum Required For Capital Adequacy Purposes

Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)

As of September 30, 2021 (Unaudited)

Common Equity Tier I Capital (to Risk-Weighted Assets)

$ 49,060 12.94 % $ 17,056 4.5 % $ 24,636 6.5 %

Total Capital (to Risk-Weighted Assets)

$ 52,860 13.94 % $ 30,321 8.0 % $ 37,901 10.0 %

Tier 1 Capital (to Risk-Weighted Assets)

$ 49,060 12.94 % $ 22,741 6.0 % $ 30,321 8.0 %

Tier I Capital (to Average Assets)

$ 49,060 9.14 % $ 21,473 4.0 % $ 26,842 5.0 %

22

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

Actual

Minimum Required For Capital Adequacy Purposes

Minimum Required To Be Well Capitalized Under Prompt Corrective Action Regulations

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)

As of June 30, 2021

Common Equity Tier I Capital (to Risk-Weighted Assets)

$ 48,561 13.00 % $ 16,695 4.50 % $ 24,114 6.50 %

Total Capital (to Risk-Weighted Assets)

$ 52,419 14.03 % $ 29,679 8.00 % $ 37,099 10.00 %

Tier I Capital (to Risk-Weighted Assets)

$ 48,561 13.00 % $ 22,259 6.00 % $ 29,679 8.00 %

Tier I Capital (to Average Assets)

$ 48,561 9.27 % $ 20,953 4.00 % $ 26,192 5.00 %

NOTE 9 – FAIR VALUES

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are 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.

Securities: The fair values of securities available for sale are determined by 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 (Level 2 inputs).

Other Real Estate Owned: The fair value of other real estate owned with a direct write-down during the year are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

23

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

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

Total

Fair Value Measurement Using Significant Other Observable Inputs
(Level 2)

September 30, 2021 (Unaudited)

Available for sale debt securities

Corporate bonds

$ 3,384,679 $ 3,384,679

Federal National Mortgage Association

9,998,650 9,998,650

Municipal taxable bonds

18,451,049 18,451,049

Total

$ 31,834,378 $ 31,834,378

June 30, 2021

Available for sale debt securities

Corporate bonds

$ 3,398,616 $ 3,398,616

Federal National Mortgage Association

10,000,300 10,000,300

Municipal taxable bonds

18,489,931 18,489,931

Total

$ 31,888,847 $ 31,888,847

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

Total

Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)

September 30, 2021 (Unaudited)

Other real estate owned

$ 156,580 $ 156,580

June 30, 2021

Other real estate owned

$ 156,580 $ 156,580

24

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

The carrying amounts and estimated fair values of financial instruments at September 30, 2021 and June 30, 2021, are as follows:

Carrying Value

Fair
Value

September 30, 2021 (Unaudited)

Financial assets

Cash and cash equivalents

$ 29,430,822 $ 29,430,822

Loans, net (excluding impaired at fair value)

466,428,455 466,123,097

Accrued interest receivable

2,288,221 2,288,221

Financial liabilities

Deposits

488,378,241 489,399,091

FHLB advances

5,000,000 5,000,000

Notes payable

6,750,000 6,750,000

Accrued interest payable

7,912 7,912

June 30, 2021

Financial assets

Cash and cash equivalents

$ 12,832,392 $ 12,832,392

Loans, net (excluding impaired at fair value)

460,366,062 459,954,062

Accrued interest receivable

2,219,654 2,219,654

Financial liabilities

Deposits

466,312,856 467,319,454

FHLB advances

5,000,000 5,000,000

Notes payable

7,000,000 7,000,000

Accrued interest payable

43,110 43,110

In accordance with our adoption of ASU 2016-01, the methods utilized to measure the fair value of financial instruments at September 30, 2021 and June 30, 2021 represent an approximation of exit price, however, an actual exit price may differ.

25

Royal Financial, Inc.

Notes to Condensed Consolidated Financial Statements

NOTE 10MERGERACTIVITY

On July 28, 2021, the Company and Finward Bancorp, entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Finward Bancorp will acquire the Company and the Bank. Under the terms of the Merger Agreement, each share of Company common stock will be converted into the right to receive either $20.14 or 0.4609 shares of Finward Bancorp common stock. Stockholders holding less than 101 shares of Royal Financial, Inc. common stock will only have the right to receive fixed consideration of $20.14 in cash and will not be entitled to make an election with respect to the merger consideration.

The Merger Agreement contains representations and warranties of both parties and customary conditions to the parties’ obligations to close the transaction, as well as agreements to cooperate in the process of consummating the transaction. Consummation of the transaction remains subject to customary closing conditions, including receipt of requisite stockholder approval and all required regulatory approvals. The merger was subsequently completed on January 31, 2022.

26

Disclaimer

Finward Bancorp published this content on 15 April 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 April 2022 21:23:16 UTC.

Publicnow 2022

All news about FINWARD BANCORP

Sales 2022 89,4 M

Net income 2022 21,8 M

Net Debt 2022

P/E ratio 2022 8,95x
Yield 2022 2,76%
Capitalization 195 M
195 M
Capi. / Sales 2022 2,18x
Capi. / Sales 2023 2,10x
Nbr of Employees 267
Free-Float 85,1%


Duration :


Period :

Finward Bancorp Technical Analysis Chart | MarketScreener

Income Statement Evolution

Sell

Buy

Mean consensus BUY
Number of Analysts 2
Last Close Price 45,40 $
Average target price 56,00 $
Spread / Average Target 23,3%

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