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Item 8. Financial Statements and Supplementary Data

2021-03-31 compared with 2020-03-30 · 419 added, 190 removed, 796 unchanged (43% of the section changed)

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Shareholders, Board of Directors and Audit Committee

Richmond Mutual Bancorporation, Inc.

Richmond, Indiana

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Richmond Mutual Bancorporation, Inc.

(the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income (loss), comprehensive income (loss) stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 2020 and the related notes (collectively referred to as the "financial statements").

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since at least 1990;

however, an earlier year cannot be reliably determined.

Indianapolis, Indiana

March 31, 2021

Richmond Mutual Bancorporation, Inc.

Consolidated Balance Sheets

December 31, 2020 and 2019

December 31, 2020 December 31, 2019

Cash and due from banks $ 16,748,093 $ 9,088,398

5 unchanged sentences

$ 7,088,958 , respectively

736,400,098 687,258,190

Premises and equipment, net 14,892,110 14,087,169

3 unchanged sentences

Cash surrender value of life insurance 3,525,736 3,839,911

Non-interest bearing deposits

Other assets 8,410,450 10,872,682

Total assets $ 1,084,192,657 $ 986,042,071

Noninterest-bearing deposits $ 98,724,887 $ 60,297,443

Interest bearing deposits 594,320,508 556,921,370

8 unchanged sentences

Stockholders' Equity

Common stock, $.01 par value Authorized - 90,000,000 shares and 500 shares, respectively;

Issued and outstanding - 13,526,625 shares and 100 shares, respectively

Common stock, $ 0.01 par value

Authorized - 90,000,000 shares

Issued and outstanding - 13,193,760 shares and 13,526,625 shares at December 31, 2020 and 2019, respectively

131,938 135,266

Additional paid-in capital 124,246,425 132,601,876

1 unchanged sentence

Unearned employee stock ownership plan (ESOP) ( 13,664,373 ) ( 14,400,386 )

Accumulated other comprehensive loss

Accumulated other comprehensive gain (loss) 3,708,605 ( 660,744 )

Total stockholders' equity 192,712,708 187,787,446

7 unchanged sentences

Investment securities 4,411,750 3,847,101

Other 152,336 1,150,873

Total interest income 42,341,576 41,557,900

Interest Expense

Deposits 6,382,623 8,018,394

Borrowings 3,010,032 3,138,084

Total interest expense 9,392,655 11,156,478

1 unchanged sentence

Provision for losses on loans and leases 3,770,000 2,600,000

Net Interest Income After Provision for Losses on

Loans and Leases

Noninterest Income

Net Interest Income After Provision for Losses on Loans and Leases 29,178,921 27,801,422

Non-interest Income

Service charges on deposit accounts 730,847 1,078,285

1 unchanged sentence

Loan and lease servicing fees 381,552 144,238

Net gains on securities (includes $97,580

and $14,857, related to accumulated other

comprehensive loss reclassifications)

Net gains on securities (includes $ 196,317 and $ 97,580 , related to accumulated other comprehensive loss reclassifications)

196,317 97,580

Net gains on loan and lease sales 3,632,579 646,754

Other loan fees 696,287 545,378

Total noninterest income

Noninterest Expenses

Other income 844,828 599,089

Total non-interest income 7,325,312 3,859,834

Non-interest Expenses

Salaries and employee benefits 14,394,287 14,550,526

8 unchanged sentences

Bank service charges 129,950 135,650

Donation to establish First Bank Richmond,

Real estate owned expense 4,753 28,368

Loss on sale of real estate owned — 43,871

Donation to establish First Bank Richmond, Inc.

Charitable Foundation — 6,250,000

Loan tax and insurance expense

Other expenses 3,030,484 3,371,710

Total noninterest expenses

Total non-interest expenses 24,009,129 51,038,155

Income Before Income Tax Expense (Benefit) 12,495,104 ( 19,376,899 )

Provision (benefit) for income taxes (includes

$25,309 and $3,883, related to income tax

expense from reclassification of items)

Provision (benefit) for income taxes (includes $ 41,227 and $ 25,309 , related to income tax expense from reclassification of items)

2,477,453 ( 5,292,413 )

Net Income (Loss) $ 10,017,651 $ ( 14,084,486 )

Earnings (Loss) Per Share

Basic (for period July 2, 2019 to December 31, 2019)

Diluted (for period July 2, 2019 to December 31, 2019)

Basic (for 2019 period:

July 2, 2019 to December 31, 2019) $ 0.82 $ ( 1.27 )

Diluted (for 2019 period:

July 2, 2019 to December 31, 2019) $ 0.82 $ ( 1.27 )

See Notes to Consolidated Financial Statements

3 unchanged sentences

Net Income (Loss) $ 10,017,651 $ ( 14,084,486 )

Other Comprehensive Income (Loss)

Unrealized gain (loss) on available-for-sale

securities, net of tax expense (benefit) of $1,327,234

and ($282,375)

reclassification adjustment for realized gains

included in net income, net of tax expense of

$25,309 and $3,883

Other Comprehensive Income

Unrealized gain on available-for-sale securities, net of tax expense of $ 1,202,699 and $ 1,327,234

4,524,439 3,789,813

reclassification adjustment for realized gains included in net income, net of tax expense of $ 41,227 and $ 25,309

155,090 72,271

4,369,349 3,717,542

Comprehensive Income (Loss) $ 14,387,000 $ ( 10,366,944 )

3 unchanged sentences

Years Ended December 31, 2020 and 2019

Preferred Stock

Common Stock Additional

Capital Retained

Earnings Unearned

Shares Accumulated

Comprehensive

Income (Loss) Total

Outstanding Amount

Balances, December 31, 2018 100 $ 1 $ 12,750,999 $ 77,480,318 $ — $ ( 4,378,286 ) $ 85,853,032

Cumulateive effect per ASU 2018-02

Redemption of preferred stock

Other comprehensive income (loss)

Net loss — — — ( 14,084,486 ) — — ( 14,084,486 )

Other comprehensive income — — — — — 3,717,542 3,717,542

ESOP shares earned — — 10,202 — 305,929 — 316,131

Issuance of common stock, net of offering costs 13,026,625 130,266 127,596,674 — ( 14,706,315 ) — 113,020,625

Stock contributed to charitable foundation 500,000 5,000 4,995,000 — — — 5,000,000

Reorganization of Richmond Mutual Bancorporation ( 100 ) ( 1 ) ( 12,750,999 ) 6,715,602 — — ( 6,035,398 )

Balances, December 31, 2019 13,526,625 135,266 132,601,876 70,111,434 ( 14,400,386 ) ( 660,744 ) 187,787,446

Other comprehensive income (loss)

Net income — — — 10,017,651 — — 10,017,651

Other comprehensive income — — — — — 4,369,349 4,369,349

ESOP shares earned — — ( 88,506 ) — 736,013 — 647,507

Issuance of common stock, net of

offering costs

Stock contributed to charitble foundation

Reorganization of Richmond Mutual

Bancorporation

Granting of restricted stock awards 449,086 4,491 ( 4,491 ) — — — —

Stock based compensation — — 810,881 — — — 810,881

Common stock dividends ($ 0.15 per share)

— — — ( 1,838,972 ) — — ( 1,838,972 )

Repurchase of common stock ( 781,951 ) ( 7,819 ) ( 9,073,335 ) — — — ( 9,081,154 )

Balances, December 31, 2020 13,193,760 $ 131,938 $ 124,246,425 $ 78,290,113 $ ( 13,664,373 ) $ 3,708,605 $ 192,712,708

9 unchanged sentences

Deferred income tax ( 35,000 ) ( 6,239,000 )

Stock based compensation 810,881 —

Investment securities (accretion) amortization, net 2,617,575 1,221,613

1 unchanged sentence

Gain on sale of loans and leases held for sale ( 3,632,579 ) ( 646,754 )

Loss on sale of real estate owned

Loss on sale of premises and equipment 42,968 —

Accretion of loan origination fees ( 1,735,552 ) ( 190,508 )

Amortization of mortgage-servicing rights 465,079 192,966

Termination of multi-employer pension plan

Multi-employer pension plan expense — 19,298,000

Common stock contributed to Foundation — 5,000,000

ESOP shares expense 647,507 316,131

Increase in cash surrender value of life insurance

Decrease (increase) in cash surrender value of life insurance 314,174 ( 121,691 )

Loans originated for sale ( 105,499,317 ) ( 27,746,922 )

2 unchanged sentences

Interest receivable ( 1,651,224 ) ( 366,370 )

Other assets 1,025,766 253,190

Other liabilities 1,526,372 2,221,973

2 unchanged sentences

Investing Activities

Net change in interest-bearing time deposits

Purchases of securities available for sale ( 167,378,042 ) ( 164,291,637 )

(164,291,637)

Proceeds from maturities and paydowns of securities available for sale 93,106,632 22,947,574

4 unchanged sentences

Purchases of premises and equipment ( 1,880,372 ) ( 960,004 )

Redemption (purchase) of FHLB stock

Proceeds from sale of premises and equipment 31,000 —

Purchase of FHLB stock ( 1,449,200 ) ( 1,039,800 )

Net cash used in investing activities ( 89,256,460 ) ( 106,768,646 )

(106,768,646)

(101,535,890)

Financing Activities

3 unchanged sentences

Advances by borrowers for taxes and insurance ( 52,974 ) 1,971

Redemption of preferred stock

Proceeds from FHLB advances 64,000,000 85,000,000

Repayment of FHLB advances ( 48,000,000 ) ( 67,100,000 )

(427,700,000)

Repayment of other borrowings — ( 5,207,256 )

Proceeds from stock conversion — 113,020,625

Repurchase of common stock ( 9,081,154 ) —

Dividends paid ( 1,838,972 ) —

29 unchanged sentences

The former Mutual Federal Savings Bank continues to operate in Ohio under the name Mutual Federal, a division of First Bank Richmond.

First Bank generates commercial, mortgage and consumer loans and receives deposits from customers located primarily in Wayne and Shelby Counties, in Indiana;

and Shelby, Miami, and Franklin Counties, in Ohio.

First Bank generates commercial, mortgage and consumer loans and leases, and receives deposits from customers located primarily in Wayne and Shelby Counties in Indiana, and Shelby, Miami, and Franklin Counties in Ohio.

First Bank’s loans are generally secured by specific items of collateral including real property, consumer assets and business assets.

2 unchanged sentences

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, loan servicing rights, and fair values of financial instruments.

Additionally, the uncertainties related to the Covid-19 pandemic could cause significant changes to these estimates compared to what was known at the time these consolidated financial statements were prepared.

Consolidation - The consolidated financial statements include the accounts of the Company and First Bank after elimination of all material intercompany transactions.

26 unchanged sentences

For all loan classes, the entire balance of the loan is considered past due if the minimum payment contractually required to be paid is not received by the contractual due date.

For all loan classes, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

For all loan classes, loans are

placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral.

11 unchanged sentences

When cash payments are received on impaired loans in each loan class, the Company records the payment as interest income unless collection of the remaining recorded principal amount is doubtful, at which time payments are used to reduce the principal balance of the loan.

has demonstrated the ability to perform in accordance with the renegotiated terms for a period of at least six months.

Troubled debt restructured loans recognize interest income on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms, no principal reduction has been granted and the loan has demonstrated the ability to perform in accordance with the renegotiated terms for a period of at least six months.

Allowance for loan and lease losses is established as losses are estimated to have occurred through a provision for loan losses charged to income.

28 unchanged sentences

Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two.

If such efforts by the Company do not result in a satisfactory arrangement, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated.

If such efforts by the Company do not result in a satisfactory arrangement, the loan is referred to legal counsel, at which time

foreclosure proceedings are initiated.

At any time prior to a sale of the property at foreclosure, the Company may terminate foreclosure proceedings if the borrower is able to work-out a satisfactory payment plan.

25 unchanged sentences

No asset impairment was recognized during the years ended December 31, 2020 and 2019.

Revenue Recognition - Accounting Standards Codification 606, “Revenue from Contracts with Customers” (ASC 606) provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Revenue Recognition - Accounting Standards Codification 606, “Revenue from Contracts with Customers” (ASC 606) provides that an entity should recognize revenue to depict the transfer of promised

goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The guidance enumerates five steps that entities should follow in achieving this core principle.

7 unchanged sentences

The Company files consolidated income tax returns with its parent and subsidiary.

In February of 2018, the FASB issued ASU No.

2018-02, Income Statement - Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income .

This guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017.

The Company had approximately $537,000 stranded tax effects included in accumulated other comprehensive income and reclassified into retained earnings during 2018.

Uncertain Tax Positions - The Company has adopted the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 740, Income Taxes , concerning the accounting and disclosures for uncertain tax positions, previously deferred by ASC 740-10-65.

As part of the implementation of this standard, management evaluated its current tax positions and determined the adoption of this standard had no material impact on the consolidated financial statements of the Company.

Share Based Compensation - At December 31, 2020, the Company had share-based compensation plans, which are described more fully in Note 13.

All share-based payments are to be recognized as expense, based upon their fair values, in the financial statements over the vesting period of the awards.

The Company has recorded approximately $ 323,000 in compensation expense relating to vesting of stock options, which are recognized as they occur, for the year ended December 31, 2020.

Advertising Expense - The Company's advertising costs are expensed as incurred.

COVID-19 - On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which provides relief from certain accounting and financial reporting requirements under U.S.

Section 4013 of the CARES Act provides temporary relief from the accounting and reporting requirements for troubled debt restructurings ("TDRs") under ASC 310-40 for loan modifications related to the novel coronavirus disease of 2019 (“COVID-19”) pandemic.

In addition, on April 7, 2020, a group of banking agencies issued an interagency statement (“Interagency Statement”) for evaluating whether loan modifications that occur in response to the COVID-19 pandemic are TDRs.

The Interagency Statement was originally issued on March 22, 2020, but the banking agencies revised it to address the relationship between their TDR accounting and disclosure guidance and the TDR guidance in Section 4013 of the CARES Act.

Section 4013 of the CARES Act permits the suspension of ASC 310-40 for loan modifications that are made by financial institutions in response to the COVID-19 pandemic if (1) the borrower was not more than 30 days past due as of December 31, 2019, and (2) the modifications are related to arrangements that defer or delay the payment of principal or interest, or change the interest rate on the loan.

The Interagency Statement indicates that a lender can conclude that a borrower is not experiencing financial difficulty if either (1) short-term (e.g., six months) modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented, or (2) the modification or deferral program is mandated by the federal government or a state government.

Accordingly, any loan modification made in response to the

COVID-19 pandemic that meets either of these practical expedients would not be considered a TDR.

The Company adopted this guidance effective March 27, 2020.

Accounting Pronouncements

In March 2020, the COVID-19 coronavirus was identified as a global pandemic and began affecting the health of large populations around the world.

As a result of the spread of COVID-19, economic uncertainties arose which can ultimately affect the financial position, results of operations and cash flows of the Company, as well as the Company's customers.

In response to economic concerns over COVID-19, in March 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was passed into law by Congress.

The CARES Act included relief for individual Americans, health care workers, small businesses and certain industries hit hard by the COVID-19 pandemic.

The 2021 Consolidated Appropriations Act , passed by Congress in December 2020, extended certain provisions of the CARES Act affecting the Company into 2021.

The CARES Act included several provisions designed to help financial institutions like the Company in working with their customers.

Section 4013 of the CARES Act, as extended, allows a financial institution to elect to suspend generally accepted accounting principles and regulatory determinations with respect to qualifying loan modifications related to COVID-19 that would otherwise be categorized as a troubled debt restructuring ("TDR") until January 1, 2022.

The Company has taken advantage of this provision to extend certain payment modifications to loan customers in need.

As of December 31, 2020, the Company has 48 loans outstanding for $ 54.7 million that were modified during 2020 under the CARES Act guidance.

The CARES Act also approved the Paycheck Protection Program ("PPP"), administered by the Small Business Administration ("SBA") with funding provided by financial institutions.

The 2021 Consolidated Appropriations Act approved a new round of PPP loans in 2021.

The PPP provides loans to eligible businesses through financial institutions like the Company, with loans being eligible for forgiveness of some or all of the principal amount by the SBA if the borrower meets certain requirements.

The SBA guarantees repayment of the loans to the Company if the borrower's loan is not forgiven and is then not repaid by the member.

The Company earns a 1% interest rate on PPP loans, plus a processing fee from the SBA for processing and originating a loan.

The company originated approximately $ 64.9 million in PPP loans during 2020, of which approximately $ 43.3 are still outstanding at December 31, 2020.

The JOBS Act, which was enacted in April 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets.

3 unchanged sentences

The Company has elected to comply with new or amended accounting pronouncements in the same manner as a private company.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses (Topic 326).

1 unchanged sentence

The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

institutions and other organizations will now use forward-looking information to better inform their credit loss estimates.

Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates.

Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses.

Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances.

The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio.

organization’s portfolio.

These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements.

6 unchanged sentences

This ASU clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments.

The amendments in these ASUs are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, assuming the adoption of an ASU implementing the FASB board decision in November 2019 extending the adoption date for certain registrants, including the Company, with early adoption permitted.

In October 2019, the FASB voted to extend the implementation of ASU No.

2016-13 for certain financial institutions including smaller reporting companies.

As a result, ASU 2016-13 will be effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.

The Company is evaluating its current expected loss methodology on the loan and investment portfolios to identify the necessary modifications in accordance with this standard.

3 unchanged sentences

We will continue to evaluate methodologies available to us under the new standard.

The FASB has issued ASU No.

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This ASU applies to contracts, hedging relationships and other transactions that reference LIBOR or other rate references expected to be discontinued because of reference rate reform.

The ASU permits an entity to make necessary modifications to eligible contracts or transactions without requiring contract remeasurement or reassessment of a previous accounting determination.

This ASU is effective for all entities as of March 12, 2020 through December 31, 2022.

The Company does not expect the adoption of ASU 2020-04 to have a material impact on its consolidated financial statements.

In October 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-08, “Receivables – Nonrefundable Fees and Other Costs” (“ASU 2020-08”).

ASU 2020-08 clarifies that the Company should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period.

ASU 2020-08 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The Company does not expect the adoption of ASU 2020-08 to have a material impact on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

ASU 2019-12 provides that state franchise or similar taxes that are based, at least in part on an entity’s income, be included in an entity’s income tax recognized as income-based taxes.

The ASU further clarifies that the effect of any change in tax laws or rates used in the computation of the annual effective tax rate are required to be reflected in the first interim period that includes the enactment date of the legislation.

Technical changes to eliminate exceptions to Topic 740 related to intra-period tax allocations for entities with losses from continuing operations, deferred tax liabilities related to change in ownership of foreign entities, and interim-period tax allocations for businesses with losses where the losses are expected to be realized.

The amendments in ASU 2019-12 are effective for public business entities with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

The Company does not expect ASU 2019-12 to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement .

This ASU contains some technical adjustments related to the fair value disclosure requirements of public companies.

Included in this ASU is the additional disclosure requirement of unrealized gains and losses for the period in recurring level 3 fair value disclosures and the range and weighted average of significant unobservable inputs, among other

technical changes.

The Company adopted ASU 2018-13 on January 1, 2020.

The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842).

4 unchanged sentences

Based on leases outstanding as of December 31, 2020, the new standard will not have a material impact on the Company’s balance sheet or income statement.

We will begin evaluating the current leases and their respective lease term and conditions to quantify the potential impact to our financial statements upon adoption.

In July 2018, the FASB issued ASU No.

1 unchanged sentence

Under this new transition method, an entity initially applies the new lease standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (Topic 842, Leases).

The amendments in ASU 2018-11 also provide lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue guidance (Topic 606) and certain criteria are met.

Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new lease standard will continue to be in accordance with current GAAP (Topic 842, Leases).

The amendments in ASU 2018-11 also provide lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (Topic 606) and certain criteria are met.

Restriction on Cash and Due From Banks

The Company is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank.

The reserve required at December 31, 2019 was $10,776,000.

At December 31, 2020, the Company’s cash accounts exceeded federally insured limits by approximately $ 8,229,000 .

The Company’s cash balances with the Federal Reserve Bank and the Federal Home Loan Bank, which are not federally insured, totaled approximately $ 31,924,000 at December 31, 2020.

The Federal Reserve Board announced on March 15, 2020 the reduction of the reserve requirement ratios to zero percent effective March 26, 2020.

This action eliminated the restriction on a portion of the Company's cash and cash equivalents for December 31, 2020.

Investment Securities

1 unchanged sentence

Available for sale

treasury securities

SBA Pools $ 16,283 $ 111 $ 94 $ 16,300

Federal agencies 5,760 12 15 5,757

State and municipal obligations 93,616 2,778 109 96,285

Mortgage-backed securities –

government-sponsored enterprises

(GSE) residential

Mortgage-backed securities - government-sponsored enterprises (GSE) residential 124,139 2,080 69 126,150

Equity securities 13 — — 13

239,811 4,981 287 244,505

Held to maturity

State and municipal obligations 12,225 295 — 12,520

12,225 295 — 12,520

Total investment securities $ 252,036 $ 5,276 $ 287 $ 257,025

Available for sale

treasury securities $ 2,997 $ — $ 6 $ 2,991

SBA Pools 14,497 — 114 14,383

Federal agencies 21,765 — 119 21,646

State and municipal obligations 45,635 357 152 45,840

Mortgage-backed securities –

government-sponsored enterprises

GSE residential

Mortgage-backed securities – government-sponsored enterprises (GSE) residential 117,769 111 969 116,911

Equity securities 13 — — 13

202,676 468 1,360 201,784

Held to maturity

State and municipal obligations 15,917 244 5 16,156

Corporate obligations

15,917 244 5 16,156

Total investment securities $ 218,593 $ 712 $ 1,365 $ 217,940

1 unchanged sentence

Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Available for Sale

Held to Maturity

Available for Sale Held to Maturity

Value Amortized

Within one year $ 933 $ 937 $ 2,931 $ 2,944

2 unchanged sentences

After ten years 82,547 84,443 1,060 1,077

Mortgage-backed securities –

GSE residential

115,659 118,342 12,225 12,520

Mortgage-backed securities –GSE residential 124,139 126,150 — —

Equity securities 13 13 — —

Totals $ 239,811 $ 244,505 $ 12,225 $ 12,520

Securities with a carrying value of $ 88,370,000 and $ 114,907,000 were pledged at December 31, 2020 and 2019, respectively, to secure certain deposits and for other purposes as permitted or required by law.

Proceeds from sales of securities available for sale during year ended December 31, 2019 and 2018 were $65,892,348 and $5,871,002, respectively.

Proceeds from sales of securities available for sale during years ended December 31, 2020 and 2019 were $ 34,738,000 and $ 65,892,000 , respectively.

Gross gains of $ 260,000 and $ 184,000 resulting from sales of available-for-sale securities were realized for the years ended December 31, 2020 and 2019, respectively.

1 unchanged sentence

Certain investments in debt securities are reported in the consolidated financial statements and notes at an amount less than their historical cost.

Total fair value of these investments at

December 31, 2019 and 2018 was $138,391,000 and $126,736,000, which is approximately 63% and 88%, respectively, of the Company’s available-for-sale and held-to-maturity investment portfolio.

Total fair value of these investments at December 31, 2020 and 2019 was $ 45,299,000 and $ 138,391,000 , which is approximately 18 % and 63 %, respectively, of the Company’s available-for-sale and held-to-maturity investment portfolio.

Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary.

1 unchanged sentence

The following tables show the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2020 and 2019:

Less Than 12 Months

12 Months or More

Less Than 12 Months 12 Months or More Total

Description of

Securities Fair

Value Unrealized

Available-for-sale

treasury securities

SBA Pools $ 5,213 $ 46 $ 5,687 $ 48 $ 10,900 $ 94

Federal agencies 985 15 — — 985 15

State and municipal obligations 8,587 109 — — 8,587 109

Mortgage-backed securities –

GSE residential

Mortgage-backed securities – GSE residential 24,013 67 684 2 24,697 69

Total available-for-sale 38,798 237 6,371 50 45,169 287

1 unchanged sentence

State and municipal obligations 130 — — — 130 —

Total temporarily

impaired securities

Less Than 12 Months

12 Months or More

Total temporarily impaired securities $ 38,928 $ 237 $ 6,371 $ 50 $ 45,299 $ 287

Less Than 12 Months 12 Months or More Total

Description of

Securities Fair

Value Unrealized

Available-for-sale

treasury securities $ 2,991 $ 6 $ — $ — $ 2,991 $ 6

SBA Pools 14,262 114 — — 14,262 114

Federal agencies 9,657 109 2,990 10 12,647 119

State and municipal obligations 12,606 130 2,948 22 15,554 152

Mortgage-backed securities –

GSE residential

Mortgage-backed securities – GSE residential 57,928 464 34,344 505 92,272 969

Total available-for-sale 97,444 823 40,282 537 137,726 1,360

1 unchanged sentence

State and municipal obligations 665 5 — — 665 5

Total temporarily

impaired securities

Total temporarily impaired securities $ 98,109 $ 828 $ 40,282 $ 537 $ 138,391 $ 1,365

Federal Agencies and U.S.

17 unchanged sentences

Construction and development 58,424 53,426

Multi-family 55,998 66,002

Residential mortgage 127,108 131,294

Home equity lines of credit 5,982 6,996

Direct financing leases 117,171 109,592

Consumer 13,257 13,534

748,335 694,803

Allowance for loan and lease losses 10,586 7,089

Deferred loan fees 1,349 456

$ 736,400 $ 687,258

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2020 and 2019:

Mortgage Commercial

Industrial Residential

Mortgage Leases Consumer Total

Allowance for loan losses:

Balance, January 1 $ 4,564 $ 1,852 $ 109 $ 426 $ 138 $ 7,089

Provision charged to expense

Provision (recovery) charged to expense 3,191 ( 695 ) 150 915 209 3,770

Charge-offs — — ( 36 ) ( 408 ) ( 151 ) ( 595 )

Recoveries 42 91 47 121 21 322

Balance, December 31 $ 7,797 $ 1,248 $ 270 $ 1,054 $ 217 $ 10,586

Individually evaluated

for impairment

Collectively evaluated

for impairment

Individually evaluated for impairment

$ 150 $ 52 $ — $ — $ — $ 202

Collectively evaluated for impairment 7,647 1,196 270 1,054 217 10,384

Balance, December 31 $ 7,797 $ 1,248 $ 270 $ 1,054 $ 217 $ 10,586

Individually evaluated

for impairment

Collectively evaluated

for impairment

Ending balance:December 31

Individually evaluated for impairment

$ 701 $ 493 $ 269 $ — $ — $ 1,463

Collectively evaluated for impairment

404,278 106,794 101,380 117,171 17,249 746,872

Ending balance:

December 31 $ 404,979 $ 107,287 $ 101,649 $ 117,171 $ 17,249 $ 748,335

Mortgage Commercial

Industrial Residential

Mortgage Leases Consumer Total

Allowance for loan losses:

Balance, January 1 $ 3,147 $ 1,817 $ 139 $ 389 $ 108 $ 5,600

Provision charged to expense

Provision (recovery) charged to expense 1,413 934 ( 28 ) 154 127 2,600

Charge-offs ( 15 ) ( 909 ) ( 66 ) ( 315 ) ( 123 ) ( 1,428 )

Recoveries 19 10 64 198 26 317

Balance, December 31 $ 4,564 $ 1,852 $ 109 $ 426 $ 138 $ 7,089

Individually evaluated

for impairment

Collectively evaluated

for impairment

Individually evaluated for impairment

$ — $ 202 $ — $ — $ — $ 202

Collectively evaluated for impairment

4,564 1,650 109 426 138 6,887

Balance, December 31 $ 4,564 $ 1,852 $ 109 $ 426 $ 138 $ 7,089

Individually evaluated

for impairment

Collectively evaluated

for impairment

Ending balance:December 31

Individually evaluated for impairment $ 803 $ 694 $ 347 $ — $ — $ 1,844

Collectively evaluated for impairment 377,494 73,920 114,061 109,592 17,892 692,959

Ending balance:

December 31 $ 378,297 $ 74,614 $ 114,408 $ 109,592 $ 17,892 $ 694,803

First Bank rates all loans by credit quality using the following designations:

3 unchanged sentences

Grade 2 - Quality Loans

These loans have excellent sources of repayment with no identifiable risk of collection, and they conform in all respects to Company policy and DFI/FDIC regulations.

These loans have excellent sources of repayment with no identifiable risk of collection, and they conform in all respects to Company policy and Indiana Department of Financial Institutions ("DFI") and Federal Deposit Insurance Corporation ("FDIC") regulations.

Documentation exceptions are minimal or are in the process of being corrected and are not of a type that could subsequently expose the Company to risk of loss.

10 unchanged sentences

This special mention rating is designed to identify a specific level of risk and concern about an asset’s quality.

Although a special mention loan has a higher probability of default than a pass rated loan, its default is not imminent.

Although a special mention loan has a higher probability of default than a grade 1-4 or "pass" rated loan, its default is not imminent.

Grade 6 - Substandard

54 unchanged sentences

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of December 31, 2020 and 2019:

Mortgage Commercial

Industrial Construction

Development Multi-

Family Residential

Mortgage Home

Equity Leases Consumer Total

1-4 Pass $ 239,055 $ 114,411 $ 53,524 $ 55,998 $ 123,963 $ 5,916 $ 117,136 $ 13,256 $ 723,259

5 Special Mention 6,976 5,542 4,900 — — — — — 17,418

6 Substandard 1,533 2,878 — — 3,145 66 15 1 7,638

7 Doubtful — — — — — — 20 20

8 Loss — — — — — — — — —

$ 247,564 $ 122,831 $ 58,424 $ 55,998 $ 127,108 $ 5,982 $ 117,171 $ 13,257 $ 748,335

Mortgage Commercial

Industrial Construction

Development Multi-

Family Residential

Mortgage Home

Equity Leases Consumer Total

1-4 Pass $ 220,240 $ 75,814 $ 53,426 $ 66,002 $ 127,888 $ 6,871 $ 109,424 $ 13,519 $ 673,184

5 Special Mention 7,489 5,731 — — 189 64 — — 13,473

6 Substandard 1,681 3,004 — — 3,217 61 94 15 8,072

7 Doubtful — — — — — — 74 — 74

8 Loss — — — — — — — — —

$ 229,410 $ 84,549 $ 53,426 $ 66,002 $ 131,294 $ 6,996 $ 109,592 $ 13,534 $ 694,803

The Company evaluates the loan risk grading system definitions and allowance for loan loss methodology on an ongoing basis.

1 unchanged sentence

The following tables present the Company’s loan portfolio aging analysis of the recorded investment in loans as of December 31, 2020 and 2019:

Delinquent Loans

Delinquent Loans Total Portfolio Loans Total Loans >90 Days Accruing

Past Due 60-89 Days

Past Due 90 Days and

Over Total Past

Commercial mortgage $ 340 $ — $ 1,177 $ 1,517 $ 246,047 $ 247,564 $ 1,100

1 unchanged sentence

Construction and development — 4,900 — 4,900 53,524 58,424 —

Multi-family — — — — 55,998 55,998 —

Residential mortgage 1,913 243 2,680 4,836 122,272 127,108 2,554

Delinquent Loans

Home equity 138 15 25 178 5,804 5,982 25

Leases 234 65 — 299 116,872 117,171 —

Consumer 318 129 317 764 12,493 13,257 317

Totals $ 4,194 $ 5,555 $ 4,638 $ 14,387 $ 733,948 $ 748,335 $ 3,996

Delinquent Loans Total Portfolio Loans Total Loans >90 Days Accruing

Past Due 60-89 Days

Past Due 90 Days and

Over Total Past

Commercial mortgage $ 217 $ — $ 184 $ 401 $ 229,009 $ 229,410 $ —

1 unchanged sentence

Construction and development — 257 249 506 52,920 53,426 249

Multi-family — — — — 66,002 66,002 —

Residential mortgage 762 240 2,452 3,454 127,840 131,294 2,256

Home equity 189 36 15 240 6,756 6,996 15

Leases 108 29 79 216 109,376 109,592 49

Consumer 271 35 15 321 13,213 13,534 15

Totals $ 1,767 $ 1,689 $ 3,432 $ 6,888 $ 687,915 $ 694,803 $ 2,587

The following tables present the Company’s impaired loans as of December 31, 2020 and 2019:

Balance Unpaid

Balance Specific

Allowance Average

Investment in

Loans without a specific

valuation allowance

Loans Interest

Loans without a specific valuation allowance

Commercial mortgage $ 76 $ 86 $ — $ 235 $ 10

1 unchanged sentence

Residential mortgage 269 491 — 292 13

Loans with a specific

valuation allowance

$ 784 $ 1,347 $ — $ 959 $ 52

Loans with a specific valuation allowance

Commercial mortgage $ 625 $ 625 $ 150 $ 561 $ 28

Commercial and industrial 54 64 52 135 7

$ 679 $ 689 $ 202 $ 696 $ 35

Total impaired loans

3 unchanged sentences

Total impaired loans $ 1,463 $ 2,036 $ 202 $ 1,655 $ 87

Balance Unpaid

Balance Specific

Allowance Average

Investment in

Loans without a specific

valuation allowance

Loans Interest

Loans without a specific valuation allowance

Commercial mortgage $ 803 $ 1,256 $ — $ 726 $ 64

1 unchanged sentence

Residential mortgage 347 614 — 369 19

Loans with a specific

valuation allowance

Commercial mortgage

$ 1,585 $ 5,090 $ — $ 1,893 $ 142

Loans with a specific valuation allowance

Commercial and industrial $ 259 $ 266 $ 202 $ 101 $ 14

$ 259 $ 266 $ 202 $ 101 $ 14

Total impaired loans

7 unchanged sentences

Residential mortgage 214 315

$ 803 $ 1,225

During 2020 and 2019, there were no newly classified troubled debt restructured loans.

4 unchanged sentences

Initial direct costs 6,353 5,720

135,467 126,290

Unearned income ( 18,296 ) ( 16,698 )

5 unchanged sentences

The following summarizes the future minimum lease payments receivable in subsequent years:

2021 $ 49,907

Thereafter 715

Premises and Equipment

Land $ 3,061 $ 3,061

Buildings 14,908 14,969

Furniture and equipment 8,837 8,167

1 unchanged sentence

Construction in progress 512 393

Total cost 29,906 28,525

Accumulated depreciation and amortization ( 15,014 ) ( 14,438 )

Net $ 14,892 $ 14,087

Loan Servicing

11 unchanged sentences

Balances, beginning of period 307 105

Additions 114 202

Reductions ( 401 ) —

Balances, end of period 20 307

4 unchanged sentences

Certificates and other time deposits of $250,000 or more

48,968 43,830

Other certificates and time deposits 170,226 180,935

$ 693,045 $ 617,219

Certificates maturing in years ending December 31:

2021 $ 102,741

Thereafter 472

Federal Home Loan Bank Advances

1 unchanged sentence

The maturities of these borrowings at December 31, 2020 are as follows:

FHLB Advances

Thereafter 95,000

First mortgage loans and investment securities totaling $ 284,435,000 and $ 315,219,000 were pledged as collateral for FHLB advances at December 31, 2020 and 2019, respectively.

10 unchanged sentences

Currently payable

Federal $ 2,443 $ 947

Federal ( 253 ) ( 5,204 )

State 218 ( 1,035 )

Total income tax expense (benefit) $ 2,477 $ ( 5,292 )

5 unchanged sentences

Low Income Housing Tax Credit ( 111 ) ( 87 )

Other 76 ( 65 )

Actual tax expense (benefit) $ 2,477 $ ( 5,292 )

6 unchanged sentences

Defined Benefit Plan 4,045 4,294

Accrued directors fees

Deferred Compensation 424 469

Unrealized loss on securities available for sale — 231

Charitable contributions 924 1,194

Other 823 638

Total assets 8,834 8,769

FHLB stock dividend 169 176

Mortgage-servicing rights, purchased

Unrealized gain on securities available for sale 985 —

State taxes 208 250

Mortgage-servicing rights 405 254

Total liabilities 1,979 732

Net deferred tax asset $ 6,855 $ 8,037

As of December 31, 2019, the Company has $1,409,000 of net operating loss carryforwards for Indiana franchise tax purposes, which will begin to expire in 2026.

The Company also has approximately $5,688,000 of federal charitable contribution carryforwards, which will begin to expire in 2024.

As of December 31, 2020, the Company had approximately $ 4,400,000 of federal charitable contribution carryforwards, which will begin to expire in 2024.

At December 31, 2020 and 2019, the Company determined that it is more likely than not that the deferred tax assets will be realized, largely based on available tax planning strategies and its projections of future taxable income.

Therefore, no valuation reserve was recorded at

December 31, 2019 and 2018.

Therefore, no valuation reserve was recorded at December 31, 2020 and 2019.

The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning the evaluation of both positive and negative evidence, the forecasts of future income, applicable tax planning strategies and assessments of current and future economic and business conditions.

1 unchanged sentence

Failure to achieve sufficient projected taxable income might affect the ultimate realization of the net deferred tax assets.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, included in stockholder’ equity, are as follows:

Net unrealized loss on available-for-sale securities

Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss), included in stockholder’s equity, are as follows:

Net unrealized gain (loss) on available-for-sale securities $ 4,694 $ ( 892 )

Tax effect ( 985 ) 231

Net-of-tax amount $ 3,709 $ ( 661 )

28 unchanged sentences

If the Company chooses to stop participating in some of its multi-employer plans, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

The Pentegra Plan has not required and does not require a financial improvement plan (FIP) or a rehabilitation plan (RP).

Total contributions by all employer participants in the Pentegra Plan, as reported on Form 5500, totaled $137.6 million and $126.2 million, respectively, for the plan years ended June 30, 2019 and 2018.

The Pentegra Plan has not required and does not require a financial improvement plan or a rehabilitation plan.

Total contributions by all employer participants in the Pentegra Plan, as reported on Form 5500, totaled $ 237,376,000 and $ 137,617,000 , respectively, for the plan years ended June 30, 2020 and 2019.

The Company’s contributions to the Pentegra Plan totaled $ 722,000 and $ 2,230,000 , respectively, for the years ended December 31, 2020 and 2019 and do not represent more than 5 % of the total contributions made by all employer participants in the Pentegra Plan.

The Company is in process of terminating its participation in the Pentegra Plan and has accrued for approximately $14.3 million, after tax, for this expense.

The Company is in process of terminating its participation in the Pentegra Plan and has accrued approximately $ 17,455,000 for this expense.

This accrual is subject to change upon final termination.

Employee Stock Ownership Plan

As part of the reorganization and related stock offering, the Company established an Employee Stock Ownership Plan (ESOP) covering substantially all employees.

The ESOP acquired 1,082,130 shares of Company common stock at an average of $13.59 per share on the open market with funds provided by a loan from the Company.

The ESOP acquired 1,082,130 shares of Company common stock at an average price of $ 13.59 per share on the open market with funds provided by a loan from the Company.

The Company is obligated at the option of each beneficiary to repurchase shares of the ESOP upon the beneficiary’s termination or after retirement.

4 unchanged sentences

Shares are released to participants proportionately as the loan is repaid.

ESOP expense for the year ended December 31, 2019 was $316,000.

December 31, 2019

ESOP expense for the years ended December 31, 2020 and 2019 was $ 648,000 and $ 316,000 , respectively.

December 31, 2020 December 31, 2019

Allocated ESOP shares 76,669 22,544

4 unchanged sentences

Fair value of unearned shares $ 13,735 $ 16,911

Restricted Stock Awards

On September 15, 2020 the Company established the Richmond Mutual Bancorporation, Inc.

2020 Equity Incentive Plan with 541,065 common shares authorized.

From this plan, the Company awarded employees and outside directors 449,086 common shares with a grant date fair value of $ 10.53 per share (total fair value of $ 4.7 million at issuance) on October 1, 2020.

These common shares vest over a five-year period with the first vesting occurring in 2021.

Forfeited shares may be awarded to other eligible recipients in future grants until the plan termination date in 2030.

Total compensation cost recognized in the income statement for restricted stock awards during 2020 was $ 488,000 and the related tax benefit recognized was $ 102,000 .

Stock Option Plan

The Richmond Mutual Bancorporation, Inc.

2020 Equity Incentive Plan also authorized the granting of up to 1,352,662 stock options.

From this plan the Company granted employees and outside directors 1,095,657 stock options with an exercise price of $ 10.53 per share.

These awarded stock options vest over a five-year period with the first vesting occurring in 2021.

Forfeited shares may be awarded to other eligible recipients in future grants until the plan termination date in 2030.

The following table summarizes the stock option activity in the 2020 Equity Incentive Plan during the year ended December 31, 2020.

Number of Shares Weighted-Average Exercise Price

Balance at beginning of year — $ —

Granted 1,095,657 10.53

Exercised — —

Forfeited/expired — —

Balance at end of year 1,095,657 10.53

Exercisable at end of year (1)

40,580 $ 10.53

(1) As a result of the acceleration of option vesting upon the death of a recipient.

The fair value of options granted is estimated on the date of grant using a Black Scholes model with the following assumptions:

December 31, 2020

Dividend yields 1.90 %

Volatility factors of expected market price of common stock 26.98 %

Risk-free interest rates 0.40 %

Expected life of options 6.4 years

A summary of the status of the Company stock option shares as of December 31, 2020 are presented below.

Shares Weighted Average Grant Date Fair Value

Non-vested, beginning of year — $ —

Vested ( 40,580 ) 2.91

Granted 1,095,657 2.91

Forfeited — —

Non-vested, end of year 1,055,077 $ 2.91

Total compensation cost recognized in the income statement for option-based payment arrangements during 2020 was $ 323,000 and the related tax benefit recognized was $ 48,000 .

Earnings per Share

4 unchanged sentences

For the Period

July 2, 2019 to

December 31, 2019

For the Year Ended July 2, 2019 to

December 31, 2020 December 31, 2019

Net income (loss) $ 10,018 $ ( 15,806 )

1 unchanged sentence

Average shares outstanding 13,414,367 13,526,625

average RSA shares not vested 111,107 —

average unearned ESOP Shares 1,039,056 1,062,936

7 unchanged sentences

Generally, the Bank's payment of dividends is limited to net income for the current year plus the two preceding calendar years, less capital distributions paid over the comparable time period.

The Bank’s payment of dividends is also subject to the restrictions of the capital conservation buffer as mentioned in Note 16.

The Bank’s payment of dividends is also subject to the restrictions of the capital conservation buffer as discussed in Note 16.

Regulatory Capital

11 unchanged sentences

First Bank’s actual and required capital amounts and ratios are as follows:

Required for Adequate Capital

Actual Required for Adequate Capital To Be Well

Amount Ratio Amount Ratio Amount Ratio

As of December 31, 2020

9 unchanged sentences

The above minimum capital requirements exclude the capital conservation buffer required to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers.

The capital conservation buffer was 2.50% at December 31, 2019 and 1.875% at December 31, 2018.

The capital conservation buffer was 2.50 % at both December 31, 2020 and December 31, 2019.

The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital.

5 unchanged sentences

Balance, beginning of the year $ 9,818 $ 7,723

New loans 28 3,473

Change in composition — ( 17 )

Repayments ( 735 ) ( 1,361 )

Balance, end of the year $ 9,111 $ 9,818

12 unchanged sentences

Fair Value Measurements Using

Quoted Prices

Value Quoted Prices

(Level 1) Significant

(Level 2) Significant

December 31, 2020

Available-for-sale securities

Treasury securities

SBA Pools $ 16,300 $ — $ 16,300 $ —

Federal agencies 5,757 — 5,757 —

State and municipal obligations 96,285 — 96,285 —

Mortgage-backed securities -

GSE residential

Mortgage-backed securities - GSE residential 126,150 — 126,150 —

Equity securities 13 13 — —

$ 244,505 $ 13 $ 244,492 $ —

Fair Value Measurements Using

Quoted Prices

Value Quoted Prices

(Level 1) Significant

(Level 2) Significant

December 31, 2019

Available-for-sale securities

Treasury securities $ 2,991 $ — $ 2,991 $ —

SBA Pools 14,383 — 14,383 —

Federal agencies 21,646 — 21,646 —

State and municipal obligations 45,840 — 45,840 —

Mortgage-backed securities -

GSE residential

Mortgage-backed securities - GSE residential 116,911 — 116,911 —

Equity securities 13 13 — —

$ 201,784 $ 13 $ 201,771 $ —

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

3 unchanged sentences

If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.

Level 2 securities include agency securities, obligations of state and political subdivisions, and mortgage-backed securities.

Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without

relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities.

Level 2 securities include agency securities, obligations of state and political subdivisions, mortgage-backed securities, and SBA pools.

Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities.

In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

2 unchanged sentences

Fair Value Measurements Using

Quoted Prices

Value Quoted Prices

(Level 1) Significant

(Level 2) Significant

December 31, 2020

25 unchanged sentences

The following tables present the fair value measurement of assets recognized in the accompanying consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2020 and 2019:

Fair Value at

Collateral-dependent

Marketability

impaired loans

Mortgage-servicing rights

Discount rate

Fair Value at

Collateral-dependent

Marketability

impaired loans

Mortgage-servicing rights

Discount rate

Fair Value at December 31, 2020 Valuation

Technique Unobservable

Collateral-dependent impaired loans $ 532 Appraisal Marketability discount 0 %- 12 %

Mortgage-servicing rights $ 1,712 Discounted cash flow Discount rate 10 %

Fair Value at December 31, 2019 Valuation

Technique Unobservable

Collateral-dependent impaired loans $ 57 Appraisal Marketability discount 0 % - 75 %

Mortgage-servicing rights $ 1,033 Discounted cash flow Discount rate 10 %

Fair Value of Financial Instruments

The following tables present estimated fair values of the Company’s financial instruments at December 31, 2020 and 2019.

Quoted Prices

Value Quoted Prices

(Level 1) Significant

(Level 2) Significant

December 31, 2020

7 unchanged sentences

Financial liabilities

Deposits 693,045 — 695,216 —

FHLB advances 170,000 — 178,015 —

Interest payable 222 — 222 —

Fair Value Measurements Using

Quoted Prices

Value Quoted Prices

(Level 1) Significant

(Level 2) Significant

December 31, 2019

7 unchanged sentences

Financial liabilities

Deposits 617,219 — 619,635 —

FHLB advances 154,000 — 155,304 —

19 unchanged sentences

Investment in subsidiaries 157,034 141,388

Other assets 4,810 4,395

Total assets $ 194,580 $ 189,618

Other Liabilities $ 1,867 $ 1,831

2 unchanged sentences

Condensed Statements of Income and Comprehensive Income

Other income $ 668 $ 272

Expenses - other expenses 2,140 9,352

Income (loss) before income taxes and equity in

undistributed net income (loss) of subsidiaries

Income (loss) before income taxes and equity in undistributed net income (loss) of subsidiaries ( 1,472 ) ( 9,080 )

Income tax benefit ( 372 ) ( 2,047 )

Income (loss) before equity in undistributed

net income (loss) of subsidiary

Income (loss) before equity in undistributed net income (loss) of subsidiary ( 1,100 ) ( 7,033 )

Equity in undistributed net income (loss) of subsidiaries 11,118 ( 7,051 )

6 unchanged sentences

Common Stock contributed to Foundation — 5,000

ESOP expense 648 316

Other changes ( 538 ) ( 5,140 )

Stock based Compensation 811 —

Net cash used in operating activities ( 179 ) ( 6,857 )

3 unchanged sentences

Dividends paid ( 1,839 ) —

Redemption of preferred stock

Repurchase of Common Stock ( 9,081 ) —

Net cash provided by (used in) financing activities ( 10,920 ) 49,157

10 unchanged sentences

Subsequent Events

Subsequent events have been evaluated through March 30, 2020, which is the date the consolidated financial statements were available to be issued.

As a result of the spread of the COVID-19 coronavirus, economic uncertainties have arisen which may negatively affect the financial position, results of operations and cash flows of the Company.

The coronavirus outbreak may also have an adverse effect on the Company’s clients directly or indirectly, including those engaged in international trade, travel and tourism.

These effects could include disruptions or restrictions in customers’ supply chains or employee productivity, closures of clients’ facilities, decreases in demand for clients’ products and services or in other economic activities.

Their businesses may be adversely affected by quarantines and travel restrictions in countries most affected by the coronavirus.

In addition, entire industries such as agriculture, may be adversely impacted due to lower exports caused by reduced economic activity in the affected countries.

If the Company’s clients are adversely affected, or if the virus leads to a widespread health crisis that impacts U.S.

economic growth, the Company’s condition and results of operations could be adversely affected.

The duration of these uncertainties and the ultimate financial effects cannot be reasonably estimated at this time.

Subsequent events have been evaluated through March 31, 2021, which is the date the consolidated financial statements were issued.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data