What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-03-30 compared with 2021-03-31 · 233 added, 191 removed, 225 unchanged (65% of the section changed)

11 unchanged sentences

Important factors that could cause our actual results to differ materially from the results anticipated or projected, include, but are not limited to, the following:

• the effect of the novel coronavirus disease of 2019 ("COVID-19"), including on the Company's credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S.

and global economies, and consumer and corporate clients, including economic activity, employment levels and market liquidity;

• potential adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company's business operations or financial markets, generally resulting from the ongoing novel coronavirus 2019 ("COVID-19") and any governmental or societal responses thereto;

• general economic conditions, either nationally or in our market areas, that are worse than expected;

5 unchanged sentences

• competition among depository and other financial institutions and equipment financing companies;

• the impact and intended termination of our frozen defined benefit plan;

• inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans and leases we have made and make;

4 unchanged sentences

• our ability to manage market risk, credit risk and operational risk in the current economic environment;

• the future of the LIBOR, and the transition away from LIBOR toward new interest rate benchmarks;

• our ability to enter new markets successfully and capitalize on growth opportunities;

23 unchanged sentences

First Bank Richmond’s risk-based capital ratio at December 31, 2021 was 17.3%, exceeding the 10.0% requirement for a well-capitalized institution.

For the year ended December 31, 2020, we reported net income of $10.0 million, compared with a net loss of $14.1 million for 2019.

Critical Accounting Policies

For the year ended December 31, 2021, we reported net income of $11.1 million, compared with net income of $10.0 million for 2020.

Critical Accounting Policies and Estimates

Certain accounting policies are important to the portrayal of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain.

8 unchanged sentences

The determination of the allowance is inherently subjective, as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on other classified loans and pools of homogeneous loans, and consideration of past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors, all of which may be susceptible to significant change.

Mortgage Servicing Rights .

Mortgage servicing rights, or MSRs, associated with loans originated and sold, where servicing is retained, are capitalized and included in the consolidated balance sheet.

Mortgage Servicing Rights ("MSRs") .

MSRs associated with loans originated and sold, where servicing is retained, are capitalized and included in the consolidated balance sheet.

The value of the capitalized servicing rights represents the fair value of the right to service loans in the portfolio.

5 unchanged sentences

Impairment, if any, is recognized through a valuation allowance and is recorded as a reduction in loan servicing fee income.

Under FASB Codification Topic 320 (ASC 320), Investments-Debt, investment securities must be classified as held to maturity, available for sale or trading.

Under Financial Accounting Standards Board ("FASB") Codification Topic 320 (ASC 320), Investments-Debt, investment securities must be classified as held to maturity, available for sale or trading.

Management determines the appropriate classification at the time of purchase.

The classification of securities is significant since it directly impacts the accounting for unrealized gains and losses on securities.

Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and the Company has the ability to hold the securities to maturity.

Securities not classified as held to maturity are classified as available for sale and are carried at fair value, with the unrealized holding gains and losses, net of tax, reported in other comprehensive income and do not affect earnings until realized.

Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and we have the ability to hold the securities to maturity.

The fair values of our securities are generally determined by reference to quoted prices from reliable independent sources utilizing observable inputs.

2 unchanged sentences

When quoted prices are not available and are not provided by third party pricing services, management judgment is necessary to determine fair value.

As such, fair value is determined using discounted cash flow analysis models, incorporating default rates, estimation of prepayment characteristics and implied volatility.

As such, fair value is determined using discounted cash flow analysis models, incorporating default rates, estimation of prepayment characteristics and implied volatilities.

We evaluate all securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, for determining if any other-than-temporary-impairments (“OTTI”) exist pursuant to guidelines established in ASC 320.

6 unchanged sentences

The previous amortized cost basis less the OTTI recognized in earnings will become the new amortized cost basis of the investment.

If management intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current period credit loss, the OTTI will be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date.

between the investment’s amortized cost basis and its fair value at the balance sheet date.

Any recoveries related to the value of these securities are recorded as an unrealized gain (as accumulated other comprehensive income (loss) in stockholders’ equity) and not recognized in income until the security is ultimately sold.

19 unchanged sentences

We will continue to focus our efforts on our existing markets as well as to further develop the Columbus, Ohio market through our loan production office.

We anticipate that the majority of our

commercial and multi-family real estate and commercial construction loan originations will range in size from $1.0 million to $8.0 million, while the majority of our commercial and industrial loan originations will range in size from $250,000 to $1.5 million.

We anticipate that the majority of our commercial and multi-family real estate and commercial construction loan originations will range in size from $1.0 million to $8.0 million, while the majority of our commercial and industrial loan originations will range in size from $250,000 to $1.5 million.

At December 31, 2021, our commercial loan portfolio, which includes commercial and multi-family real estate loans, commercial and industrial loans and construction loans, totaled $562.0 million, or 66.4% of total loans and leases, with approximately $202.0 million of these loans, or 23.9% of our total loans and leases, located in the Columbus, Ohio market.

1 unchanged sentence

Deposits are our primary source of funds for lending and investment.

We intend to continue to focus on increasing core deposits (which we define as all deposits except for certificates of deposit greater than $250,000 and brokered certificates of deposit) in our primary market area, with a particular emphasis on noninterest-bearing deposits.

We intend to continue to focus on increasing core deposits (which we define as all deposits except for certificates of deposit of $250,000 or more and brokered certificates of deposit) in our primary market area, with a particular emphasis on noninterest-bearing deposits.

We will continue to enhance our offering of retail deposit products to maintain and increase our market share, while continuing to build our product offering of commercial deposit products to strengthen our relationships with our business customers.

15 unchanged sentences

In order to maintain what we believe to be acceptable levels of net interest income in varying interest rate environments, we actively manage our interest rate risk and assume a moderate amount of interest rate risk consistent with board policies.

COVID 19 Response

In response to the COVID-19 pandemic, the Company is offering a number of options designed to support our customers and the communities that we serve.

Paycheck Protection Program ("PPP").

The CARES Act was signed into law on March 27, 2020, and authorized the SBA to temporarily guarantee loans under a loan program called the Paycheck Protection Program, or PPP.

As a qualified SBA lender, the Company was automatically authorized to originate PPP loans upon commencement of the program in April 2020.

The SBA guarantees 100% of the PPP loans made to eligible borrowers.

The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be forgiven and repaid by the SBA.

As of the conclusion of the PPP on August 8, 2020, we had funded 482 PPP loans totaling $64.9 million.

Many of the PPP applications were from our existing clients but we also served those who had not had a banking relationship with us in the past.

In addition to the 1% interest earned on these loans, the SBA pays us fees for processing PPP loans in the following amounts:

(i) 5% for loans of not more than $350,000;

(ii) 3% for loans of more than $350,000 and less than $2,000,000;

and (iii) 1% for loans of at least $2,000,000.

The SBA processing fees for the approved loans totaled $2.3 million for the year ended December 31, 2020.

As of December 31, 2020, SBA had approved 200 loan forgiveness applications totaling $21.6 million with an additional 63 applications totaling $18.4 million pending approval.

Recent legislation reopened the PPP through March 31, 2021, by authorizing $284.5 billion in funding for eligible small businesses and non-profits.

In January 2021, we began accepting and processing loan applications under this second PPP program and will continue working with clients to assist them with accessing other borrowing options, including SBA and other government sponsored lending programs, as appropriate.

We may utilize the FRB's Paycheck Protection Program Liquidity Facility (“PPPLF”), pursuant to which the Company would pledge its PPP loans as collateral to obtain FRB non-recourse loans.

The PPPLF will take the PPP loans as collateral at face value.

As of December 31, 2020, we had not utilized the PPPLF.

Loan Modifications.

We offer payment and financial relief programs for borrowers impacted by COVID-19, primarily through loan and lease payment deferments of principal and interest up to 90 days, although requests for payment relief during the fourth quarter of 2020 declined significantly from the second and third prior quarters of 2020.

We continue to monitor our loan portfolio and strive to work with our customers and communities.

Deferred loans are re-evaluated at the end of the initial deferral period and will either return to the original loan terms or be reassessed at that time to determine if a further modification should be granted and if a downgrade in risk rating is appropriate.

At December 31, 2020, the number of loans and leases granted payment deferrals was 48, representing $54.7 million in loans and leases outstanding, compared to 70 loans and leases at September 30, 2020 totaling $35.3 million, and 752 loans and leases at June 30, 2020 totaling $175.1 million.

The increase in the outstanding deferred loan amount was primarily attributable to four first time deferrals of large loans totaling $11.7 million in the fourth quarter.

Of the loans currently deferred at December 31, 2020, ten loans, representing $11.9 million in loans and leases outstanding, were new deferrals and 38 loans, representing $42.8 million in loans and leases outstanding, were repeat deferrals.

The following table summarizes information relating to loan deferments at December 31, 2020 and September 30, 2020:

December 31, 2020 September 30, 2020

Selected Consolidated Financial and Other Data

The Financial Condition Data and Operating Data as of and for the years ended December 31, 2021 and 2020 are

derived from the audited financial statements and related notes included elsewhere in this Form 10-K.

The following information is only a summary and is qualified in its entirety by the detailed information included elsewhere herein and should be read along with Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.

At December 31,

(In thousands)

Number of Loans

Balance Number of Loans

Commercial mortgage

Selected Financial Condition Data:

Total assets $ 1,267,640 $ 1,084,193

Loans and leases, net (1)

832,846 734,413

Commercial and industrial

Construction and development

Securities available for sale, at fair value 357,538 244,505

Investment securities, at amortized cost 9,041 12,225

Federal Reserve Bank and FHLB stock 9,992 9,050

Deposits 900,175 693,045

FHLB advances 180,000 170,000

Stockholders’ equity 180,481 192,713

(1) Net of allowances for loan and lease losses, loans in process and deferred loan fees.

Years Ended December 31,

(In thousands)

Selected Operations Data:

Total interest income $ 45,926 $ 42,861

Total interest expense 7,682 9,393

Net interest income 38,244 33,468

Provision for loan and lease losses 1,430 3,770

Net interest income after provision for loan and lease losses 36,814 29,698

Service charges on deposit accounts 882 731

Card fee income 1,087 843

Loan and lease servicing fees (84) 382

Gain on loan and lease sales 2,450 3,633

Gain on sales of securities 56 196

Other income 1,025 1,021

Total non-interest income 5,416 6,806

Total non-interest expenses 28,649 24,009

Income before provision for income taxes 13,581 12,495

Provision for income taxes 2,436 2,477

Net income $ 11,145 $ 10,018

At or For the

Years Ended December 31,

Selected Financial Ratios and Other Data:

Performance ratios:

Return on average assets (ratio of net income (loss) to average total assets) 0.94 % 0.95 %

Return on average equity (ratio of net income (loss) to average equity) 6.03 % 5.21 %

Yield on interest-earning assets 4.01 % 4.20 %

Rate paid on interest-bearing liabilities 0.89 % 1.24 %

Interest rate spread information:

Average during period 3.12 % 2.96 %

End of period 2.91 % 2.87 %

Net interest margin (1)

3.34 % 3.28 %

Residential mortgage

Operating expense to average total assets 2.42 % 2.28 %

Average interest-earning assets to average interest-bearing liabilities 131.81 % 134.41 %

Efficiency ratio (2)

65.70 % 59.91 %

Direct financing leases

Asset quality ratios:

Non-performing assets to total assets (3)

0.64 % 0.45 %

Non-performing loans and leases to total gross loans and leases (4)

0.95 % 0.64 %

The following table summarizes information relating to hospitality loan deferments (which are included in the table above) at December 31, 2020 and September 30, 2020:

December 31, 2020 September 30, 2020

($ in thousands) Number of Loans Balance Percent of total loans in category Number of loans Balance Percent of total loans in category

Restaurants 1 $ 375 6.78 % 0 $ — — %

Hotels 12 37,056 56.17 % 13 24,384 38.05 %

Total Loans 13 $ 37,431 52.35 % 13 $ 24,384 34.83 %

Branch Operations and Additional Client Support.

Many of our employees continue to work remotely or have flexible work schedules, and we have established protective measures within our offices to help ensure the safety of those employees who must work on-site.

We have also taken steps to resume more normal branch activities with specific guidelines in place to ensure the safety of our clients and our personnel.

We continuously monitor and conform our practices based on updates from the Center for Disease Control, World Health Organization, Financial Regulatory Agencies, and local and state health departments.

We continue to work closely with our borrowers to evaluate pandemic related challenges.

Allowance for loan and lease losses to non-performing loans and leases (4)

150.76 % 220.57 %

Allowance for loan and lease losses to loans and leases 1.43 % 1.42 %

Net (recoveries)/charge-offs to average outstanding loans and leases during the period (0.01 %) 0.04 %

Capital ratios:

Common equity tier 1 capital (to risk weighted assets) (5)

16.02 % 20.64 %

Tier 1 leverage (core) capital (to adjusted tangible assets) (5)

12.53 % 14.28 %

Tier 1 risk-based capital (to risk weighted assets) (5)

16.02 % 20.64 %

Total risk-based capital (to risk weighted assets) (5)

17.25 % 21.90 %

Equity to total assets at end of period 14.27 % 17.85 %

Average equity to average assets 15.64 % 18.25 %

Per share data:

Basic earnings per share $ 0.98 $ 0.82

Diluted earnings per share 0.96 0.82

Cash dividends paid 0.78 0.15

Book value at year end 14.55 14.61

Tangible book value (6)

Number of full-service offices 12 12

Full-time equivalent employees 173 170

_____________________

(1) Net interest income divided by average interest earning assets.

(2) Total other (non-interest) expenses as a percentage of net interest income (on a tax equivalent basis) and total other (non-interest) income, excluding net securities transactions.

(3) Non-performing assets consist of non-accruing loans and leases, accruing loans and leases more than 90 days past due and foreclosed assets.

(4) Non-performing loans and leases consist of non-accruing loans and leases and accruing loans and leases more than 90 days past due.

(5) Capital ratios are for First Bank Richmond.

(6) Tangible book value per share is a non-GAAP measure used by management and others within the financial services industry.

Tangible book value per share is calculated by dividing tangible common equity by the number of shares outstanding.

Financial Condition at December 31, 2021 Compared to December 31, 2020

Total assets increased $98.2 million, or 10.0%, to $1.1 billion at December 31, 2020 from $986.0 million at December 31, 2019.

This increase was driven by a $49.2 million, or 7.2%, increase in the loan and lease portfolio, net of

allowance for loan and lease losses, a $39.0 million, or 17.9%, increase in investment securities and an $8.2 million, or 20.1%, increase in cash and cash equivalents.

The growth in the loan portfolio occurred primarily in the PPP loan portfolio, which totaled $43.3 million at December 31, 2020.

The increase in assets was funded by a $75.8 million, or 12.3%, increase in deposits and a $16.0 million, or 10.4% increase in advances from the FHLB.

Total assets increased $183.4 million, or 16.9%, to $1.3 billion at December 31, 2021 from $1.1 billion at December 31, 2020.

This increase was driven by a $98.4 million, or 13.4%, increase in the loan and lease portfolio, net of allowance for loan and lease losses, a $109.8 million, or 42.8%, increase in investment securities partially offset by a $25.7 million, or 52.8%, decrease in cash and cash equivalents.

The increase in loans and investment securities was funded by a $207.1 million, or 29.9%, increase in deposits and a $10.0 million, or 5.9% increase in advances from the FHLB.

Loans and Leases.

Our loan and lease portfolio, net of allowance for loan and lease losses, increased $98.4 million, or 13.4%, to $832.8 million at December 31, 2021 from $734.4 million at December 31, 2020.

The majority of the growth occurred in the commercial and industrial loan portfolio which increased $38.3 million or 45.3%.

The growth in the commercial and industrial loan portfolio consisted of PPP loans which equaled $43.3 million at year-end 2020.

We also experienced an $18.2 million, or 7.9%, increase in the commercial real estate portfolio, a $7.6 million, or 6.9%, increase in direct financing leases, and a $5.0 million, or 9.4%, increase in the construction and development portfolio.

These increases were partially offset by a $4.2 million, or 3.2%, decrease in our residential mortgage portfolio as a result of selling a substantial majority of the residential loans originated during 2020 and normal paydowns and maturities.

The majority of the PPP loans were generated within the western Ohio and Richmond, Indiana market area.

Nonperforming loans and leases, consisting of nonaccrual loans and leases and accruing loan and leases more than 90 days past due, total $4.8 million, or 0.64%, of total loans and leases at December 31, 2020, compared to $3.8 million, or 0.55% of total loans and leases at December 31, 2019.

The increase in nonperforming loans and leases was primarily the result of a $1.1 million commercial real estate participation loan more than 90 days past due and still accruing that is working towards resolution by the lead bank.

The majority of the growth occurred in the multi-family loan portfolio which increased $51.4 million or 91.8% and construction and development loan portfolio which increased $35.3 million, or 60.3%.

We also experienced a $13.6 million, or 5.5%, increase in the commercial real estate portfolio, a $9.6 million, or 8.2%, increase in direct financing leases, and a $9.0 million, or 7.2%, increase in the residential mortgage portfolio.

These increases were partially offset by a $23.1 million, or 18.8%, decrease in our commercial and industrial loan portfolio as a result of a decline in outstanding PPP loans of $34.0 million, or 78.4%, from $43.3 million at December 31, 2020 to $9.4 million on December 31, 2021.

The following table presents information concerning the composition of our loan and lease portfolio in dollar amounts and in percentages (before deductions for loans in process, deferred fees and discounts and allowances for loan and lease losses) as of the dates indicated.

At December 31,

Amount Percent Amount Percent

(Dollars in thousands)

Real estate loans:

Residential (1)

$ 134,155 15.86 % $ 125,121 16.76 %

Home equity lines of credit 7,146 0.84 5,982 0.80

Multi-family 107,421 12.70 55,998 7.50

Commercial 261,202 30.88 247,564 33.17

Construction and development 93,678 11.07 58,424 7.83

Total real estate loans 603,602 71.35 493,089 66.07

Consumer loans 15,905 1.88 13,257 1.78

Commercial business loans and leases:

Commercial and industrial 99,682 11.78 122,831 16.46

Leases 126,762 14.98 117,171 15.70

Total commercial business loans and leases 226,444 26.77 240,002 32.16

Total loans and leases 845,951 100.00 % 746,348 100.00 %

Deferred fees and discounts 997 1,349

Allowance for loan and lease losses 12,108 10,586

Total loans and leases, net $ 832,846 $ 734,413

(1) Includes $3.2 million and $3.6 million of loans secured by second mortgages on residential properties at December 31, 2021 and 2020, respectively.

Nonperforming loans and leases, consisting of nonaccrual loans and leases and accruing loan and leases more than 90 days past due, totaled $8.0 million, or 0.95%, of total loans and leases at December 31, 2021, compared to $4.8 million, or 0.64% of total loans and leases at December 31, 2020.

The increase in nonperforming loans and leases was primarily the result

of a $4.9 million non-accruing commercial real estate loan more than 90 days past due that is currently subject to litigation between the developer and other parties.

At the time of origination, this loan had a loan to value ratio of 73%.

At December 31, 2021, TDRs totaled $456,000 compared to $541,000 at December 31, 2020.

1 unchanged sentence

Among other criteria, this guidance provided that short-term loan modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs.

As of December 31, 2020, the Company had outstanding 48 loan modifications qualifying under the CARES Act related to the COVID-19 pandemic with an outstanding loan balance totaling $54.7 million.

Loan modifications in accordance with the CARES Act and related regulatory guidance are still subject to an evaluation in regards to determining whether or not a loan is deemed to be impaired.

As of December 31, 2021, the Company had no outstanding loan and lease modifications qualifying under the CARES Act related to the COVID-19 pandemic.

This was a decrease from 48 loans and leases with modifications totaling $54.7 million at December 31, 2020.

Allowance for Loan and Lease Losses.

1 unchanged sentence

At December 31, 2021, the allowance for loan and lease losses totaled 1.43% of total loans and leases outstanding compared to 1.42% at December 31, 2020.

Management expects that the vast majority of PPP borrowers will seek full or partial forgiveness of their loan obligations from the SBA within a short time frame, which in turn will reimburse the Bank for the amount forgiven.

Net charge-offs during the year ended 2020 were $273,000, or 0.04% of average loans and leases outstanding compared to $1.1 million, or 0.16% of average loans and leases outstanding during 2019.

Net recoveries during the year ended 2021 were $92,000, or 0.01% of average loans and leases outstanding compared to net charge-offs of $273,000, or 0.04% of average loans and leases outstanding during 2020.

The allowance for loan and lease losses to non-performing loans and leases was 150.8% at December 31, 2021, compared to 220.6% at December 31, 2020.

Management regularly analyzes conditions within its geographic markets and evaluates its loan and lease portfolio.

The Company evaluated its exposure to potential loan and lease losses as of December 31, 2020, which evaluation included consideration of potential credit losses due to the deteriorating economic conditions driven by the impact of the COVID-19 pandemic.

The full impact of the pandemic on the Company's deposit and loan customers is still not fully known at this time.

The Company evaluated its exposure to potential loan and lease losses as of December 31, 2021, which evaluation included consideration of potential credit losses due to the economic conditions driven by the impact of the COVID-19 pandemic.

The full impact of the pandemic on the Company's deposit and loan customers is still not fully known at this time due to the different variants of the COVID-19 infection arise.

The Company has increased its qualitative factors when determining the adequacy of its allowance for loan and lease losses.

Credit metrics are being reviewed and stress testing is being performed on the loan portfolio.

Potentially higher risk segments of the portfolio, such as hotels and restaurants , are being closely monitored as are loan payment deferrals.

Potentially higher risk segments of the portfolio, such as hotels and restaurants , continue to be closely monitored.

Investment Securities.

Investment securities increased $109.8 million, or 42.8%, to $366.6 million at December 31, 2021, from $256.7 million at December 31, 2020.

The increase was primarily due to the purchase of $190.8 million of available for sale investment securities during 2021, partially offset by the routine amortization and repayment of investment principal balances and securities called and matured.

Total deposits increased $207.1 million, or 29.9%, to $900.2 million at December 31, 2021 from $693.0 million at December 31, 2020.

This increase in deposits was due to increases in demand deposits of $93.2 million, or 35.5%, and savings accounts of $21.6 million, or 29.4%, primarily linked to overall changes in spending and savings habits by businesses and consumers due to the COVID-19 pandemic.

The increase in retail deposits allowed for a decrease in brokered deposits of $33.4 million, or 58.9%, during 2020.

This increase in deposits was primarily due to an increase in brokered deposits of $98.5 million, or 423.1%, as well as an increase in savings and money market accounts of $44.1 million, or 21.0%, an increase in demand deposits of $37.9 million, or 15.8%, and increases in non-brokered time deposits of $26.6 million, or 12.1%, which management primarily attributes to overall changes in spending and savings habits by businesses and consumers due to the COVID-19 pandemic.

Management increased longer-term brokered time deposits as a result of continued low rates being offered in the market for these deposits.

At December 31, 2021, brokered deposits equaled 13.5% of total deposits compared to $23.3 million, or 3.4% of total deposits at December 31, 2020.

3 unchanged sentences

Stockholders’ Equity.

Stockholders’ equity totaled $192.7 million as of December 31, 2020, an increase of $4.9 million, or 2.6%, from December 31, 2019.

The increase in stockholders’ equity was the result of 2020 net income of $10.0 million, an increase of $4.4 million in other comprehensive income, an increase of $648,000 due to ESOP shares earned, and an increase of $811,000 due to awards made pursuant to the Company's stock-based compensation plan.

These increases were partially offset by cash dividends paid in 2020 of $1.8 million, and the repurchase of common stock totaling $9.1 million.

Stockholders’ equity totaled $180.5 million as of December 31, 2021, a decrease of $12.2 million, or 6.3%, from December 31, 2020.

The decrease in stockholders’ equity primarily was the result of the repurchase of $11.9 million of Company common stock, the payment of $9.3 million in dividends to Company stockholders and a reduction in accumulated comprehensive income of $4.9 million, partially offset by net income of $11.1 million.

First Bank Richmond’s tangible common equity ratio and its risk-based capital ratios exceeded “well-capitalized” levels as defined by all regulatory standards as of December 31, 2021.

Comparison of Results of Operations for the Years Ended December 31, 2021 and 2020

We reported net income of $10.0 million for 2020 compared to a net loss of $14.1 million in 2019.

The net loss for 2019 was affected by the estimated $14.3 million after-tax charge associated with the planned termination of the DB Plan, an after-tax charge of $4.9 million associated with the Company’s contribution to the Foundation which was formed in connection with our reorganization and stock offering completed on July 1, 2019, and an after-tax charge of $1.3 million related to the adoption of a nonqualified deferred compensation plan in the second quarter of 2019.

Net income totaled $11.1 million for 2021 compared to $10.0 million in 2020, an increase of $1.1 million or 11.3%.

The increase in net income was due to a $3.1 million, or 7.2%, increase in interest income, a $1.7 million, or 18.2%, decrease in interest expense and a $2.3 million, or 62.1%, reduction in the provision for loan losses, partially offset by a $1.4 million, or 20.4%, decrease in non-interest income and a $4.6 million, or 19.3%, increase in non-interest expense, which included a $665,000 non-recurring expense to terminate the Company's defined benefit plan ("DB Plan")..

Interest Income .

Total interest income for 2020 increased $784,000 or 1.9% over 2019.

The increase primarily was a result of a $49.0 million increase in the average balance of loans and leases outstanding year-over-year, partially offset by a 19 basis point decrease in average yield on loans and leases, resulting in a $1.2 million increase in loan interest income.

Interest on investment securities, including FHLB stock, increased $566,000, or 14.7%, due to a $82.4 million increase in the portfolio, partially offset by a 53 basis point decrease in the average yield.

Interest on cash and cash equivalents decreased $1.0 million as average balances decreased $20.1 million and the yield declined 165 basis points.

Total interest income for 2021 increased $3.1 million or 7.2% over 2020.

The increase primarily was a result of a $50.7 million increase in the average balance of loans and leases outstanding year-over-year, partially offset by a four basis point decrease in average yield on loans and leases, resulting in a $2.3 million increase in loan interest income.

Interest on investment securities, including FHLB stock, increased $883,000, or 20.0%, due to a $83.2 million increase in the average balance of the portfolio, partially offset by a 19 basis point decrease in the average yield.

Interest on cash and cash equivalents decreased $100,000 as average balances decreased $11.5 million and the yield declined 21 basis points.

Interest Expense .

Total interest expense decreased $1.7 million, or 18.2%, to $7.7 million during 2021 compared to $9.4 million during 2020.

The primary reason for this decrease was a decrease in the average rate paid on all deposit accounts and borrowings as well as a decrease in the average balance of certificates of deposit.

The average balance of savings and money market accounts increased $18.4 million, or 10.9%, to $188.4 million in 2020 compared to $169.9 million in 2019.

The average rate paid on savings and money market accounts declined 16 basis points in 2020 to 0.56% from 0.72% in 2019.

The average balance of interest-bearing checking accounts increased $16.1 million, or 15.8%, to $118.7 million in 2020 from $102.5 million in 2019.

The average rate paid on interest-bearing checking accounts decreased 11 basis points to 0.25% in 2020 from 0.36% in 2019.

The average balance of certificate of deposits declined $24.7 million, or 8.2%, to $278.0 million in 2020 from $302.7 million in 2019.

The average rate paid on certificates of deposit decreased 31 basis points to 1.81% in 2020 from 2.12% in 2019.

The decline in the average balance of certificate of deposit was attributable to a decrease in brokered certificates of deposit of $39.5 million, or 42.1%, to $54.4 million in 2020 from $94.0 million in 2019.

The average rate paid on brokered certificates of deposit dropped 53 basis points to 1.70% in 2020 from 2.23% in 2019.

The average balance of FHLB borrowings increased $30.9 million, or 21.4%, to $175.1 million in 2020 from $144.2 million in 2019.

The average rate on FHLB borrowings decreased 46 basis points to 1.72% in 2020 from 2.18% in 2019.

The Company increased its FHLB borrowings in 2020 to procure longer term borrowings at lower rates as a result of the drop in rates experienced in the first quarter of 2020.

The decrease was the result of a 35 basis point decline in the average rate paid on interest-bearing liabilities, primarily certificate accounts and borrowings, partially offset by an increase in the average balance in all categories of interest-bearing liabilities.

The decline in the rate paid on certificate of deposit accounts was the primary driver for the decrease in interest expense in 2021.

The average rate paid on certificate of deposit accounts decreased 65 basis points to 1.16% in 2021 from 1.81% in 2020, including an 85 basis point decrease in brokered certificate of deposit accounts, which was partially offset by a $9.0 million increase in the average balance of these accounts, resulting in a $1.7 million decrease in interest expense.

The average balance of savings and money market accounts increased $59.1 million, or 31.4%, to $247.4 million in 2021 compared to $188.4 million in 2020, while the rate paid on these accounts declined five basis points to 0.51% in 2021 from 0.56% in 2020, resulting in a $194,000 increase in interest expense.

The average balance of interest-bearing checking accounts increased $36.3 million, or 30.6%, to $154.9 million in 2021 from $118.7 million in 2020, while the average rate paid on interest-bearing checking accounts decreased two basis points to 0.23% in 2021 from 0.25% in 2020, resulting in a $69,000 increase in interest expense.

Interest expense on borrowings, consisting solely of FHLB advances, decreased $264,000, or 8.8%, due to an 18 basis point decrease on the average rate paid to 1.54% in 2021 from 1.72% in 2020, partially offset by a $3.5 million, or 2.0%, increase in the average balance of borrowings to $178.5 million in 2021 from $175.1 million in 2020.

Net Interest Income .

Net interest income before provision for loan and lease losses increased $2.5 million, or 8.4%, to $32.9 million in 2020 compared to $30.4 million in 2019, primarily due to the increase in average earning assets exceeding the growth in interest-bearing liabilities.

Our net interest margin in 2020 was 3.22%, a decrease of 12 basis points compared to 2019.

The decrease in net interest margin reflects a lower overall yield on average interest-earning assets of 43 basis points in 2020 compared to 2019, while the overall rate on interest-bearing liabilities declined only 31 basis points from 2019 to 2020.

Net interest income before provision for loan and lease losses increased $4.8 million, or 14.3%, to $38.2 million in 2021 compared to $33.5 million in 2020, primarily due to the increase in average earning assets exceeding the growth in average interest-bearing liabilities and a 16 basis point increase in the average interest rate spread.

Our net interest margin in 2021 was 3.34%, an increase of six basis points compared to 2020.

During the year, the recognition of deferred fees related to PPP loan forgiveness had a positive impact on the net interest margin.

The average yield on PPP loans was 8.62%, including the recognition of deferred fees, resulting in a positive impact to loan yield of 15 basis points during 2021, compared to an average yield of 4.06% with a negative impact to loan yield of seven basis points during 2020.

Provision for Loan and Lease Losses .

The provision for loan and lease losses in 2020 was $3.8 million, a $1.2 million increase over the $2.6 million provision in 2019.

The increase in the provision was due to the continued uncertainty of the economic impact of the COVID-19 pandemic on the Bank's loan and lease portfolio.

Net charge-offs in 2020 were $273,000 compared to $1.1 million in 2019.

Due to the increased provision expense, the allowance increased as a percentage of the total loan and lease portfolio to 1.42% at year-end 2020.

Net charge-offs in 2020 equaled 0.04% of total average loans and leases outstanding compared to 0.16% of total average loans and leases outstanding in 2019.

The provision for loan and lease losses in 2021 was $1.4 million, a $2.3 million or 62.1% decrease, compared to $3.8 million in 2020.

The decrease in the provision was due to the quality of the Bank's loan and lease portfolio.

Net recoveries in 2021 were $92,000 compared to net charge-offs of $273,000 in 2020.

The allowance as a percentage of the total loan and lease portfolio was 1.43% at year-end 2021, compared to 1.42% at year-end 2020.

Net recoveries in 2021 equaled 0.01% of total average loans and leases outstanding compared to net charge-offs of 0.04% of total average loans and leases outstanding in 2020.

Non-Interest Income .

Total non-interest income increased $3.5 million, or 89.8%, to $7.3 million for 2020 compared to $3.9 million for 2019.

The increase in total noninterest income was primarily driven by an increase in the net gain on loan and lease sales of $3.0 million, or 461.7%, to $3.6 million in 2020 from $647,000 in 2010, and by smaller increases in other loan fees and loan and lease servicing fees.

These increases were partially offset by a $347,000, or 32.2%, decrease in service charges on deposit accounts in 2020 compared to 2019.

The decrease in service charges on deposit accounts was the result of

higher customer balances maintained in deposit accounts along with the waiving of overdraft fees and the waiving of certain ATM fees during a portion of 2020.

Total non-interest income decreased $1.4 million, or 20.4%, to $5.4 million for 2021 compared to $6.8 million for 2020.

The decrease was primarily driven by a decrease in the net gain on loan and lease sales of $1.2 million, or 32.6%, to $2.5 million in 2021 from $3.6 million in 2020, primarily due to a decrease in the volume of loans sold in 2021.

Loan and lease servicing fees decreased $466,000, or 122.1%, from 2020 to 2021, primarily due to recording a mortgage servicing rights impairment charge of $360,000 in 2021 compared to a write-up of mortgage servicing rights of $286,000 in 2020.

Net gain on the sale of securities decreased $141,000, or 71.6%, due to a substantial decline in the volume of available for sale securities sold during 2021 compared to 2020.

These decreases were partially offset by a $244,000, or 28.9% increase in card fee income and a $151,000, or 20.6%, increase in service charges on deposit accounts in 2021 compared to 2020.

The increase in card fee income was the result of an overall increase in debit card usage, while the increase in service charges on deposit accounts was the result of higher overdraft fees and ATM fees compared to the waiving of overdraft fees and certain ATM fees during a portion of 2020.

Non-Interest Expenses .

Total noninterest expense decreased $27.0 million, or 53.0%, to $24.0 million during 2020 compared to 2019.

The decrease primarily was the result of the $19.3 million estimated DB Plan expense, the $6.25 million expense attributable to the contribution to the Foundation, and the $1.7 million expense related to the adoption of a nonqualified deferred compensation plan incurred in 2019.

Excluding these three 2019 non-recurring expenses, noninterest expenses increased $219,000 in 2020 compared to 2019.

Salaries and employee benefits decreased $156,000, or 1.1%, in 2020 compared to 2019.

Pension plan expense decreased $20.1 million, or 98.1%, in 2020 compared to 2019.

This was due to the recognition of the estimated $19.3 million DB Plan pre-tax expense incurred in 2019 associated with the expected termination of the DB Plan.

Equipment expense increased $175,000, or 17.5%, to $1.2 million in 2020 from $1.0 million in 2019 due to additional depreciation and maintenance expense.

Data processing fees increased $105,000, or 6.0%, to $1.9 million in 2020 from $1.7 million in 2019 primarily due to higher transaction volumes and additional services utilized from the Company's IT provider.

Legal and professional fees increased $124,000, or 12.3%, to $1.1 million in 2020 from $1.0 million in 2019.

This is primarily attributable to ongoing expenses associated with operating as a public company.

Advertising expenses declined $452,000, or 54.9%, to $372,000 in 2020 from $824,000 in 2019.

Much of this was attributable to sponsorships involving 501(c)(3) non-profits now being funded by the Foundation.

In 2019, the Company expensed $6.25 million to fund the Foundation while in 2020 there was no comparable expense.

Other expenses decreased $341,000, or 10.1%, to $3.0 million in 2020 from $3.4 million in 2019.

This was primarily due to state taxes associated with the leasing portfolio decreasing by $100,000, employee expenses associated with education and travel decreasing by $140,000, and charitable contributions decreasing $185,000.

Contributions in 2020 to registered 501(c)(3) organizations were primarily funded through the Foundation that was established in 2019.

Total non-interest expense increased $4.6 million, or 19.3%, to $28.6 million during 2021 compared to 2020.

The increase primarily was the result of a $3.4 million increase in salaries and benefits.

Salaries and employee benefits increased $3.4 million, or 22.7%, in 2021 compared to 2020, primarily due to a $1.2 million, or 11.9%, increase in salaries resulting from the addition of three full-time-equivalent hires in 2021 as well as annual merit increases, a $1.0 million, or 123.3%, increase in expenses related to the grant of new awards and the vesting of existing awards made pursuant to our equity incentive plan, and a $665,000 expense related to the final termination of the DB Plan.

Data processing expenses increased $330,000, or 17.8%, to $2.2 million in 2021 from $1.9 million in 2020 due to higher software expenses associated with the Company's continued investment in digital banking services.

Equipment expenses increased

$131,000, or 11.1%, to $1.3 million in 2021 from $1.2 million in 2020.

Other expenses increased $507,000, or 16.7%, in 2021 to $3.5 million from $3.0 million in 2020, primarily due to an increase in Ohio franchise taxes paid due to the Company's increasing presence in Ohio, additional loan related expenses due to the significant increase in loan activity during the year, additional expenses associated with the Company's investment in low income housing projects, $79,000 in losses due to electronic fraud on customers' accounts, and additional expense of $66,000 associated with converting our digital banking services to a new provider.

Income Tax Expense .

Income tax expense increased in 2020 by $7.8 million compared to 2019, reflecting a tax rate of 19.8% for 2020.

This increase in income tax expense was due to pre-tax income increasing during 2020 compared to 2019 for the reasons discussed above.

Income tax expense decreased $42,000 in 2021 compared to 2020, despite higher net income, due to a lower effective tax rate in 2021.

This decrease in income tax expense was primarily due to increased holdings of tax-free municipal securities.

The effective tax rate for the year ended 2021 was 17.9% compared to 19.8% in 2020.

Average Balances, Interest and Average Yields/Cost

The following tables set forth for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities.

Average balances have

been calculated using quarterly balances.

Average balances have been calculated using daily balances.

Average balances of loans and leases receivable include loans held for sale.

Non-accruing loans have been included in the table as loans carrying a zero yield.

1 unchanged sentence

Years Ended December 31,

2020 2019 2018

Outstanding Interest

(Dollars in thousands)

23 unchanged sentences

It distinguishes between the changes related to outstanding balances and that due to the changes in interest rates.

For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume).

For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to

December 31, Years Ended

2019 2019 vs.

increase/ (decrease) Increase/

changes in rate (i.e., changes in rate multiplied by old volume).

For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

increase/ (decrease)

Volume Rate Volume Rate

(In thousands)

12 unchanged sentences

Change in net interest income $ 4,776

Off-Balance Sheet Activities

In the normal course of operations, we engage in a variety of financial transactions that are not recorded in our financial statements, including commitments to extend credit and unused lines of credit.

These transactions involve varying degrees of off-balance sheet risks.

While these contractual obligations represent our potential future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon.

Such commitments are subject to the same credit policies and approval process accorded to loans we make.

At December 31, 2020, we had $179.9 million in loan commitments and unused lines of credit.

We are required to have enough cash and investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure safe and sound operations.

Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans.

Historically, liquid assets have been maintained above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows.

Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained.

Liquidity management involves the matching of cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs and the ability of the Company to manage those requirements.

We strive to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance in short-term investments at any given time will cover adequately any reasonably anticipated, immediate need for funds.

Additionally, First Bank Richmond maintains a relationship with the FHLB of Indianapolis which could provide funds on short-term notice if needed.

Liquidity management is both a daily and long-term function of the management of our business.

It is overseen by the Asset and Liability Management Committee.

Excess liquidity is generally invested in short-term investments, such as overnight

deposits and holding excess funds at the Federal Reserve Board.

On a long-term basis, we maintain a strategy of investing in various lending products and investment securities, including mortgage-backed and municipal securities.

First Bank Richmond uses its sources of funds primarily to meet its ongoing commitments, pay maturing deposits, fund deposit withdrawals and fund loan commitments.

First Bank Richmond can also generate funds from borrowings, primarily FHLB advances.

In addition, we have historically sold eligible long-term, fixed-rate residential mortgage loans in the secondary market in order to reduce interest rate risk and to create another source of liquidity.

Liquidity, represented by cash, cash equivalents, and investment securities, is a product of our operating, investing and financing activities.

Primary sources of funds are deposits, amortization, prepayments and maturities of outstanding loans and mortgage-backed securities, maturities of investment securities and other short-term investments and funds provided from operations.

While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.

In addition, excess funds are invested in short-term interest-earning assets, which provide liquidity to meet lending requirements.

Cash is also generated through borrowings.

FHLB advances are utilized to leverage our capital base and provide funds for lending and investment activities, as well as to enhance interest rate risk management.

Funds are used primarily to meet ongoing commitments, pay maturing deposits, fund withdrawals, and to fund loan commitments.

It is management’s policy to offer deposit rates that are competitive with other local financial institutions.

Based on this management strategy, we believe that a majority of maturing deposits will remain with us.

As disclosed in our Consolidated Statements of Cash Flows in Item 8 of this Form 10-K, cash and cash equivalents increased $8.2 million to $48.8 million as of December 31, 2020, from $40.6 million at December 31, 2019.

Net cash provided by operating activities was $16.6 million for the year ended December 31, 2020.

Net cash of $89.3 million was used in investing activities for the year ended December 31, 2020, primarily due to the purchase of investment securities and the funding of loans.

There was $80.9 million of cash provided by financing activities for the year ended December 31, 2020, which primarily consisted of an increase in deposits and additional FHLB advances, partially offset by the repurchase of common stock and payment of dividends.

Capital and Liquidity

Shareholders' equity totaled $180.5 million at December 31, 2021 and $192.7 million at December 31, 2020.

In addition to net income of $11.1 million, other sources of capital during 2021 included $128,000 in proceeds from stock option exercises, $796,000 related to the allocation of ESOP shares during the year and $1.8 million related to stock-based compensation.

Uses of capital during 2021 included $9.3 million of dividends paid on common stock, other comprehensive loss, net of tax, of $4.9 million and $11.9 million of stock repurchases.

The decrease in the accumulated other comprehensive income/loss component of shareholders' equity was caused by changes to the unrealized gains and losses on available-for-sale securities.

We paid regular quarterly dividends of $0.07 per common share and a special dividend of $0.50 per common share during 2021, and regular quarterly dividends per share commencing in the second quarter of 2020 of $0.05 per share during 2020.

This equates to a dividend payout ratio of 83.8% in 2021 and 18.4% in 2020.

We currently expect to continue the current practice of paying quarterly cash dividends on common stock subject to the Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice.

Assuming continued payment during 2022 at the current dividend rate of $0.10 per share, our average total dividend paid each quarter would be approximately $1.2 million based on the number of our current outstanding shares (which assumes no increases or decreases in the number of shares, except in connection with the anticipated vesting of currently outstanding equity awards).

The amount of dividends, if any, we may pay may be limited as more fully discussed in "Note 16:

Regulatory Capital" in the accompanying notes to consolidated financial statements contained in Item 8 of this Form 10-K.

Stock Repurchase Plans.

From time to time, our board of directors has authorized stock repurchase plans.

In general, stock-repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders.

Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards.

On May 19, 2021, the Board of Directors authorized a third stock repurchase program for up to 1,263,841 shares, or approximately 10% of its outstanding shares.

This repurchase program commenced on July 3, 2021, and will expire on July 3, 2022 unless completed sooner.

See Part II, Item 5 - Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Liquidity measures the ability to meet current and future cash flow needs as they become due.

The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of interest rate market opportunities.

The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds.

The objective of our liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund our operations and to meet obligations and other commitments on a timely basis and at a reasonable cost.

We seek to achieve this objective and ensure that funding needs are met by maintaining an appropriate level of liquid funds through asset/liability management, which includes managing the mix and time to maturity of financial assets and financial liabilities on our balance sheet.

Our liquidity position is enhanced by our ability to raise additional funds as needed in the wholesale markets.

Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will mature in the near future.

Liquid assets generally include cash, interest-bearing deposits in banks, securities available for sale, maturities and cash flow from securities held to maturity, sales of fixed rate residential mortgage loans in the secondary market, and federal funds sold and resell agreements.

Liability liquidity generally is provided by access to funding sources which include core deposits and advances from the FHLB and other borrowing relationships with third party financial institutions.

Our liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate.

Liquidity risk management is an important element in our asset/liability management process.

We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management.

These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs.

As of December 31, 2021, we had approximately $13.8 million held in an interest-bearing account at the Federal Reserve.

We also have the ability to borrow funds as a member of the FHLB.

As of December 31, 2021, based upon available, pledgeable collateral, our total remaining borrowing capacity with the FHLB was approximately $93.4 million.

Furthermore, at December 31, 2021, we had approximately $219.9 million in securities that were unencumbered by a pledge and could be used to support additional borrowings through repurchase agreements or the Federal Reserve discount window, as needed.

As of December 31, 2021, management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations.

In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us.

In the ordinary course of business we have entered into contractual obligations and have made other commitments to make future payments.

Refer to the accompanying notes to consolidated financial statements elsewhere in this report for the expected timing of such payments as of December 31, 2021.

These include payments related to (i) long-term borrowings (Note 9 - Federal Home Loan Bank Advances), (ii) time deposits with stated maturity dates (Note 8 - Deposits) and (iii) commitments to extend credit and standby letters of credit (Note 12 - Commitments and Contingent Liabilities).

Richmond Mutual Bancorporation is a separate legal entity from First Bank Richmond and must provide for its own liquidity.

In addition to its own operating expenses (many of which are paid to First Bank Richmond), Richmond Mutual Bancorporation is responsible for paying for any stock repurchases, dividends declared to its stockholders and other general corporate expenses.

Richmond Mutual Bancorporation’s primary source of funds are the proceeds it received and retained in connection with its recent stock offering and dividends from First Bank Richmond, which are subject to regulatory limits.

At December 31, 2020, Richmond Mutual Bancorporation, on an unconsolidated basis, had $32.7 million in cash, noninterest-bearing deposits and liquid investments generally available for general corporate purposes.

Except as set forth above, management is not aware of any trends, events, or uncertainties that will have, or that are reasonably likely to have a material impact on liquidity, capital resources or operations.

Further, management is not aware of any current recommendations by regulatory agencies, which, if they were to be implemented, would have this effect.

Capital Resources

In addition to its own operating expenses, Richmond Mutual Bancorporation is responsible for paying for any stock repurchases, dividends declared to its stockholders and other general corporate expenses.

Since Richmond Mutual Bancorporation is a holding company and does not conduct operations, its primary sources of liquidity are interest on investment securities purchased with proceeds from our initial public offering, dividends upstreamed from First Bank Richmond and borrowings from outside sources.

Banking regulations may limit the amount of dividends that may be to us paid by First Bank Richmond.

Regulatory Capital" in the accompanying notes to consolidated financial statements contained in Part II, Item 8 and "How We Are Regulated - Dividends" contained in Part I, Item I of this Form 10-K.

At December 31, 2021, Richmond Mutual Bancorporation, on an unconsolidated basis, had $21.5 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs.

See also the "Consolidated Statements of Cash Flows" included in "Item 8.

Financial Statements and Supplementary Data" of this Form 10-K for further information.

Regulatory Capital Requirements.

First Bank Richmond is subject to minimum capital requirements imposed by the FDIC.

5 unchanged sentences

Amount Ratio Amount Ratio Amount Ratio

At December 31, 2020 (Dollars in thousands)

As of December 31, 2021 (Dollars in thousands)

Total risk-based capital (to risk weighted assets) $ 169,589 17.3 % $ 78,590 8.0 % $ 98,238 10.0 %

11 unchanged sentences

If Richmond Mutual Bancorporation was subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at December 31, 2021, it would have exceeded all regulatory capital requirements.

Impact of Inflation

The effects of price changes and inflation can vary substantially for most financial institutions.

While management believes that inflation affects the economic value of total assets, it believes that it is difficult to assess the overall impact.

Management believes this to be the case due to the fact that generally neither the timing nor the magnitude of inflationary changes in the economy coincides with changes in interest rates.

Since virtually all of our assets and liabilities are monetary in nature, interest rates generally have a more significant impact on our performance than does inflation.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis