Richmond Mutual Bancorporation, Inc. 10-Q

ITEM 1.FINANCIAL STATEMENTS Richmond Mutual Bancorporation, Inc. Condensed Consolidated Balance Sheets March 31, 2021 December 31, 2020 (Unaudited) Assets Cash and due from banks $ 13,713,168 $ 16,748,093 Interest-bearing demand deposits 51,810,044 32,020,364 Cash and cash equivalents 65,523,212 48,768,457 Investment securities - available for sale 258,158,592 244,505,189 Investment securities - held to maturity 10,211,437 12,225,275 Loans and leases, net of allowance for losses of $ 10,959,000 and $ 10,586,000 , respectively 763,731,414 736,400,098 Premises and equipment, net 14,718,289 14,892,110 Federal Home Loan Bank stock 9,049,600 9,049,600 Interest receivable 4,203,991 4,703,604 Mortgage-servicing rights 1,658,879 1,712,138 Cash surrender value of life insurance 3,548,371 3,525,736 Other assets 10,102,117 8,410,450 Total assets $ 1,140,905,902 $ 1,084,192,657 Liabilities Noninterest-bearing deposits 118,075,878 98,724,887 Interest bearing deposits 638,997,768 594,320,508 Total deposits 757,073,646 693,045,395 Federal Home Loan Bank advances 170,000,000 170,000,000 Advances by borrowers for taxes and insurance 535,910 492,524 Interest payable 207,893 222,118 Multi-employer pension plan liability 17,454,709 17,454,709 Other liabilities 6,114,110 10,265,203 Total liabilities 951,386,268 891,479,949 Commitments and Contingent Liabilities — — Stockholders' Equity Common stock, $ 0.01 par value Authorized - 90,000,000 shares Issued and outstanding - 13,050,996 shares and 13,193,760 shares at March 31, 2021 and December 31, 2020, respectively 130,510 131,938 Additional paid-in capital 122,814,920 124,246,425 Retained earnings 80,005,652 78,290,113 Unearned employee stock ownership plan (ESOP) ( 13,479,847 ) ( 13,664,373 ) Accumulated other comprehensive income 48,399 3,708,605 Total stockholders' equity 189,519,634 192,712,708 Total liabilities and stockholders' equity $ 1,140,905,902 $ 1,084,192,657 See Notes to Condensed Consolidated Statements. 1 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Income (Unaudited) Three Months Ended March 31, 2021 2020 Interest Income Loans and leases $ 9,628,305 $ 9,063,567 Investment securities 1,009,239 1,262,937 Other 6,904 125,030 Total interest income 10,644,448 10,451,534 Interest Expense Deposits 1,187,272 1,824,698 Borrowings 693,951 739,341 Total interest expense 1,881,223 2,564,039 Net Interest Income 8,763,225 7,887,495 Provision for losses on loans and leases 400,000 210,000 Net Interest Income After Provision for Losses on Loans and Leases 8,363,225 7,677,495 Non-Interest Income Service charges on deposit accounts 194,439 254,651 Card fee income 242,515 179,607 Loan and lease servicing fees ( 105,450 ) ( 65,692 ) Net gains on securities (includes $ 0 and $ 69,139 , respectively, related to accumulated other comprehensive loss reclassifications) — 69,139 Net gains on loan and lease sales 964,817 228,208 Other loan fees 247,891 82,874 Other income 222,372 204,281 Total non-interest income 1,766,584 953,068 Non-Interest Expenses Salaries and employee benefits 4,445,732 3,363,685 Net occupancy expenses 330,640 290,009 Equipment expenses 336,564 255,848 Data processing fees 526,173 476,803 Deposit insurance expense 71,000 56,000 Printing and office supplies 31,414 26,543 Legal and professional fees 346,518 241,366 Advertising expense 84,044 109,557 Bank service charges 30,751 37,355 Real estate owned expense 2,332 2,177 Loss on sale of real estate owned 1,278 — Other expenses 771,210 664,274 Total non-interest expenses 6,977,656 5,523,617 Income Before Income Tax Expense 3,152,153 3,106,946 Provision for income taxes (includes $ 0 and $ 17,522 , respectively, related to income tax expense from reclassification of items) 589,667 654,800 Net Income $ 2,562,486 $ 2,452,146 Earnings Per Share Basic $ 0.22 $ 0.20 Diluted $ 0.22 $ 0.20 See Notes to Condensed Consolidated Statements. 2 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three Months Ended March 31, 2021 2020 Net Income $ 2,562,486 $ 2,452,146 Other Comprehensive Income (Loss) Unrealized gain (loss) on available-for-sale securities, net of tax (benefit) expense of $( 972,966 ) and $ 957,976 , respectively. ( 3,660,206 ) 2,821,591 Less: reclassification adjustment for realized gains included in net income, net of tax expense of $ 0 and $ 17,523 , respectively. — 51,616 ( 3,660,206 ) 2,769,975 Comprehensive (Loss) Income $ ( 1,097,720 ) $ 5,222,121 See Notes to Condensed Consolidated Statements. 3 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) Common Stock Additional Paid-in Capital Retained Earnings Unearned ESOP Shares Accumulated Other Comprehensive Income/(Loss) Total Shares Outstanding Amount Balances, December 31, 2020 13,193,760 $ 131,938 $ 124,246,425 $ 78,290,113 $ ( 13,664,373 ) $ 3,708,605 $ 192,712,708 Net income — — — 2,562,486 — — 2,562,486 Other comprehensive loss — — — — — ( 3,660,206 ) ( 3,660,206 ) ESOP shares earned — — ( 1,821 ) — 184,526 — 182,705 Stock based compensation — — 507,624 — — — 507,624 Common stock dividends ($ 0.07 per share) — — — ( 846,947 ) — — ( 846,947 ) Repurchase of common stock ( 142,764 ) ( 1,428 ) ( 1,937,308 ) — — — ( 1,938,736 ) Balances, March 31, 2021 13,050,996 $ 130,510 $ 122,814,920 $ 80,005,652 $ ( 13,479,847 ) $ 48,399 $ 189,519,634 Common Stock Additional Paid-in Capital Retained Earnings Unearned ESOP Shares Accumulated Other Comprehensive Income/(Loss) Total Shares Outstanding Amount Balances, December 31, 2019 13,526,625 $ 135,266 $ 132,601,876 $ 70,111,434 $ ( 14,400,386 ) $ ( 660,744 ) $ 187,787,446 Net income — — — 2,452,146 — — 2,452,146 Other comprehensive income — — — — — 2,769,975 2,769,975 ESOP shares earned — — 2,858 — 183,829 — 186,687 Balances, March 31, 2020 13,526,625 $ 135,266 $ 132,604,734 $ 72,563,580 $ ( 14,216,557 ) $ 2,109,231 $ 193,196,254 See Notes to Condensed Consolidated Statements. 4 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2021 2020 Operating Activities Net income $ 2,562,486 $ 2,452,146 Items not requiring (providing) cash Provision for loan losses 400,000 210,000 Depreciation and amortization 293,402 238,330 Deferred income tax ( 93,250 ) ( 84,000 ) Stock based compensation 507,624 — Investment securities amortization, net 712,845 486,500 Investment securities gains — ( 69,139 ) Net gains on loan and lease sales ( 964,817 ) ( 228,208 ) Loss on sale of real estate owned 1,278 — Accretion of loan origination fees ( 881,097 ) ( 38,827 ) Amortization of mortgage-servicing rights 128,288 67,132 ESOP shares expense 182,705 186,687 Increase in cash surrender value of life insurance ( 21,361 ) ( 30,106 ) Loans originated for sale ( 27,868,042 ) ( 6,807,172 ) Proceeds on loans sold 26,770,692 8,147,368 Net change in Interest receivable 499,613 ( 195,661 ) Other assets ( 500,776 ) 354,702 Other liabilities ( 4,151,093 ) 26,550 Interest payable ( 14,225 ) 53,692 Net cash (used in) provided by operating activities ( 2,435,728 ) 4,769,994 Investing Activities Purchases of securities available for sale ( 37,779,114 ) ( 70,744,743 ) Proceeds from maturities and paydowns of securities available for sale 18,783,517 25,505,906 Proceeds from sales of securities available for sale — 11,461,388 Proceeds from maturities and paydowns of securities held to maturity 2,010,016 2,140,036 Net change in loans ( 25,020,579 ) ( 1,169,710 ) Proceeds from sales of real estate owned 30,270 — Purchases of premises and equipment ( 119,581 ) ( 158,241 ) Purchase of FHLB stock — ( 1,030,400 ) Net cash used in investing activities ( 42,095,471 ) ( 33,995,764 ) Financing Activities Net change in Demand and savings deposits 50,062,196 ( 8,410,494 ) Certificates of deposit 13,966,055 ( 3,572,941 ) Advances by borrowers for taxes and insurance 43,386 68,073 Proceeds from FHLB advances — 30,000,000 Repayment of FHLB advances — ( 2,000,000 ) Repurchase of common stock ( 1,938,736 ) — Dividends paid ( 846,947 ) — Net cash provided by financing activities 61,285,954 16,084,638 Net Change in Cash and Cash Equivalents 16,754,755 ( 13,141,132 ) Cash and Cash Equivalents, Beginning of Period 48,768,457 40,596,877 Cash and Cash Equivalents, End of Period $ 65,523,212 $ 27,455,745 Additional Cash Flows and Supplementary Information Interest paid $ 1,895,448 $ 2,510,347 Transfers from loans to other real estate owned — 31,548 See Notes to Condensed Consolidated Statements. 5 Richmond Mutual Bancorporation, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands except shares and per share amounts) Note 1: Basis of Presentation On July 1, 2019, Richmond Mutual Bancorporation, Inc., a Delaware corporation (“RMB-Delaware”), completed its reorganization from a mutual holding company form of organization to a stock form of organization (“corporate reorganization”). RMB-Delaware, which owned 100% of First Bank Richmond (the “Bank”), was succeeded by Richmond Mutual Bancorporation, Inc., a new Maryland corporation (“RMB-Maryland”). As part of the corporate reorganization, First Mutual of Richmond, Inc.’s (“MHC”) ownership interest in RMB-Delaware was sold in a public offering. Gross proceeds from the offering were $ 130.3 million. In conjunction with the corporate reorganization, RMB-Maryland contributed 500,000 shares and $ 1.25 million of cash to a newly formed charitable foundation, First Bank Richmond, Inc. Community Foundation (the “Foundation”). Additionally, a “liquidation account” was established for the benefit of certain depositors of the Bank in an amount equal to MHC’s ownership interest in the retained earnings of RMB-Delaware as of December 31, 2017 and March 31, 2019. In certain circumstances, where appropriate, the terms “Company”, “we”, “us” and “our” refer collectively to (i) RMB-Delaware and First Bank Richmond with respect to discussions in this document involving matters occurring prior to completion of the corporate reorganization and (ii) RMB-Maryland and First Bank Richmond with respect to discussions in this document involving matters occurring post-corporate reorganization, in each case unless the context indicates another meaning. The costs of the corporate reorganization and the issuance of the common stock have been deducted from the sales proceeds of the offering. The accompanying unaudited condensed consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include information or note disclosures necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. Accordingly, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on March 31, 2021 (SEC File No. 001-38956). However, in the opinion of management, all adjustments which are necessary for a fair presentation of the consolidated financial statements have been included. Those adjustments consist only of normal recurring adjustments. The results of operations for the period are not necessarily indicative of the results to be expected for the full year. Loans For all loan classes, the accrual of interest is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. 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. The Company charges off residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance, which provides for the charge-down of 1-4 family first and junior lien mortgages to the net realizable value, less costs to sell when the loan is 120 days past due, charge-off of unsecured open-end loans when the loan is 90 days past due, and charge down to the net realizable value when other secured loans are 90 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off. For all classes, all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status. 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 6 principal balance of the loan. 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. Note 2: Accounting Pronouncements In March 2020, the novel coronavirus disease of 2019 ("COVID-19") 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 the United States Congress ("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 March 31, 2021, the Company has 33 loans outstanding for $ 24.6 million that were modified 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 borrower. 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 has originated a total of approximately $ 100.0 million in PPP loans as of March 31, 2021, of which approximately $ 54.7 million were outstanding at March 31, 2021. The Jumpstart Our Business Startups Act (the "JOBS Act"), which was enacted in April 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year qualifies as an “emerging growth company.” The Company qualifies as and has elected to be an emerging growth company under the JOBS Act. An emerging growth company may elect to comply with new or amended accounting pronouncements in the same manner as a private company, but must make such election when the company is first required to file a registration statement. Such an election is irrevocable during the period a company is an emerging growth company. 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. 2016-13, Financial Instruments-Credit Losses (Topic 326). The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. 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. 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. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief” (ASU 2019-05). This ASU provides transition relief for entities adopting the FASB’s credit losses standard, ASU 2016-13 and allows companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option for certain financial instruments. In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” (ASU 2019-04). This 7 ASU clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments. 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. The Company has not quantified the impact of these ASUs. The Company is in the early stages of evaluating its historical data available for use in adoption of the new credit loss standards. Additionally, we have formed an implementation team that meets on a regular basis to coordinate efforts of our accounting, credit and operations areas. We will continue to evaluate methodologies available to us under the new standard. 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 adoption of ASU 2020-04 did not have a material impact on the Company's consolidated financial statements. In October 2020, the FASB issued 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 adoption of ASU 2020-08 did not have a material impact on the Company's 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 adoption of ASU 2019-12 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). Under the new guidance, lessees will be required to recognize the following for all leases, with the exception of short-term leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. For the Company, the amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2021. 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. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements, which provide entities with an additional (and optional) transition method to adopt the new lease standard. 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 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. Note 3: Investment Securities The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities are as follows: 8 March 31, 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale SBA Pools $ 15,647 $ 36 $ 155 $ 15,528 Federal agencies 7,756 5 228 7,533 State and municipal obligations 100,347 1,599 1,610 100,336 Mortgage-backed securities - government-sponsored enterprises (GSE) residential 134,335 1,618 1,204 134,749 Equity securities 13 — — 13 258,098 3,258 3,197 258,159 Held to maturity State and municipal obligations 10,211 234 — 10,445 10,211 234 — 10,445 Total investment securities $ 268,309 $ 3,492 $ 3,197 $ 268,604 December 31, 2020 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale 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 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 The amortized cost and fair value of securities at March 31, 2021, by contractual maturity, are shown below. 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 Amortized Cost Fair Value Amortized Cost Fair Value Within one year $ 954 $ 959 $ 1,751 $ 1,766 One to five years 6,331 6,520 5,373 5,491 Five to ten years 28,444 28,660 2,027 2,118 After ten years 88,021 87,258 1,060 1,070 123,750 123,397 10,211 10,445 Mortgage-backed securities –GSE residential 134,335 134,749 — — Equity securities 13 13 — — Totals $ 258,098 $ 258,159 $ 10,211 $ 10,445 9 Securities with a carrying value of $ 74,171,000 and $ 88,370,000 were pledged at March 31, 2021 and December 31, 2020, respectively, to secure certain deposits and for other purposes as permitted or required by law. Proceeds from sales of securities available for sale for the three months ended March 31, 2021 and 2020 were $ 0 and $ 11,461,000 , respectively. Gross gains were recognized on the sale of securities available-for-sale for the three months ended March 31, 2021 and 2020 of $ 0 and $ 74,000 , respectively. Gross losses were recognized on the sale of securities available for sale for the three months ended March 31, 2021 and 2020 of $ 0 and $ 5,000 , respectively. Certain investments in debt securities, as reflected in the table below, are reported in the condensed consolidated financial statements and notes at an amount less than their historical cost. Total fair value of these investments at March 31, 2021 and December 31, 2020 was $ 120,426,000 and $ 45,299,000 , respectively, which is approximately 45 % and 18 % of the Company’s aggregated available-for-sale and held-to-maturity investment portfolio at those dates, respectively. These declines primarily resulted from changes in market interest rates since their purchase. 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. Should the impairment of any other securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified. The following tables show the Company’s investments by 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 March 31, 2021 and December 31, 2020: Description of Securities March 31, 2021 Less Than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Available-for-sale SBA Pools $ 4,318 $ 83 $ 7,984 $ 72 $ 12,302 $ 155 Federal agencies 6,773 228 — — 6,773 228 State and municipal obligations 45,177 1,505 1,475 105 46,652 1,610 Mortgage-backed securities - GSE residential 54,165 1,202 534 2 54,699 1,204 Total temporarily impaired securities $ 110,433 $ 3,018 $ 9,993 $ 179 $ 120,426 $ 3,197 Description of Securities December 31, 2020 Less Than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Available-for-sale 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 24,013 67 684 2 24,697 69 Total available-for-sale 38,798 237 6,371 50 45,169 287 Held-to-maturity State and municipal obligations 130 — — — 130 — Total temporarily impaired securities $ 38,928 $ 237 $ 6,371 $ 50 $ 45,299 $ 287 10 Federal Agencies. The unrealized losses on the Company’s investments in direct obligations of U.S. federal agencies were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2021. Mortgage-Backed Securities – GSE Residential and SBA Pools. The unrealized losses on the Company’s investment in mortgage-backed securities and SBA pools were caused by interest rate changes and illiquidity. The Company expects to recover the amortized cost basis over the term of the securities. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2021. State and Municipal Obligations. The unrealized losses on the Company’s investments in securities of state and municipal obligations were caused by interest rate changes and illiquidity. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2021. Note 4: Loans, Leases and Allowance The following table shows the composition of the loan and lease portfolio at March 31, 2021 and December 31, 2020: March 31, 2021 December 31, 2020 Commercial mortgage $ 254,561 $ 247,564 Commercial and industrial 128,126 122,831 Construction and development 67,728 58,424 Multi-family 60,608 55,998 Residential mortgage 128,947 127,108 Home equity 6,104 5,982 Direct financing leases 117,725 117,171 Consumer 13,183 13,257 776,982 748,335 Less Allowance for loan and lease losses 10,959 10,586 Deferred loan fees 2,292 1,349 $ 763,731 $ 736,400 11 The following tables present the activity in the allowance for loan and lease losses for the three months ended March 31, 2021 and 2020: Commercial Mortgage (1) Commercial and Industrial Residential Mortgage (2) Leases Consumer Total Three Months Ended March 31, 2021: Balance, beginning of period $ 7,797 $ 1,248 $ 270 $ 1,054 $ 217 $ 10,586 Provision (credit) for losses 561 ( 133 ) ( 19 ) 75 ( 84 ) 400 Charge-offs — — — ( 194 ) ( 11 ) ( 205 ) Recoveries 1 23 6 94 54 178 Balance, end of period $ 8,359 $ 1,138 $ 257 $ 1,029 $ 176 $ 10,959 (1) Commercial mortgage includes commercial and multifamily real estate loans and commercial construction and development loans. (2) Residential mortgage includes one- to four-family and home equity loans and residential construction and development loans. Commercial Mortgage (1) Commercial and Industrial Residential Mortgage (2) Leases Consumer Total Three Months Ended March 31, 2020: Balance, beginning of period $ 4,564 $ 1,852 $ 109 $ 426 $ 138 $ 7,089 Provision (credit) for losses 72 ( 87 ) 38 190 ( 4 ) 210 Charge-offs — — ( 15 ) ( 55 ) ( 5 ) ( 75 ) Recoveries 32 7 16 22 6 83 Balance, end of period $ 4,668 $ 1,772 $ 148 $ 583 $ 135 $ 7,306 (1) Commercial mortgage includes commercial and multifamily real estate loans and commercial construction and development loans. (2) Residential mortgage includes one- to four-family and home equity loans and residential construction and development loans. The following tables present the balance in the allowance for loan and lease losses and the recorded investment in loans and leases based on portfolio segment and impairment method as of March 31, 2021 and December 31, 2020: March 31, 2021 Commercial Mortgage (1) Commercial and Industrial Residential Mortgage (2) Leases Consumer Total Allowance for loan and lease losses: Individually evaluated for impairment $ 811 $ 52 $ — $ — $ — $ 863 Collectively evaluated for impairment 7,548 1,086 257 1,029 176 10,096 Balance, March 31 $ 8,359 $ 1,138 $ 257 $ 1,029 $ 176 $ 10,959 Loans and leases: Individually evaluated for impairment 5,581 450 178 — — 6,209 Collectively evaluated for impairment 427,822 111,660 96,465 117,725 17,101 770,773 Ending Balance, March 31 $ 433,403 $ 112,110 $ 96,643 $ 117,725 $ 17,101 $ 776,982 (1) Commercial mortgage includes commercial and multifamily real estate loans and commercial construction and development loans. (2) Residential mortgage includes one- to four-family and home equity loans and residential construction and development loans. 12 December 31, 2020 Commercial Mortgage (1) Commercial and Industrial Residential Mortgage (2) Leases Consumer Total Allowance for loan and lease losses: 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 Loans and leases: 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 (1) Commercial mortgage includes commercial and multifamily real estate loans and commercial construction and development loans. (2) Residential mortgage includes one- to four-family and home equity loans and residential construction and development loans. The Company rates all loans and leases by credit quality using the following designations: Grade 1 – Exceptional Exceptional loans and leases are top-quality loans to individuals whose financial credentials are well known to the Company. These loans and leases have excellent sources of repayment, are well documented and/or virtually free of risk (i.e., CD secured loans). Grade 2 – Quality Loans and Leases These loans and leases 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 (“IDFI”) 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. Grade 3 – Acceptable Loans This category is for “average” quality loans and leases. These loans and leases have adequate sources of repayment with little identifiable risk of collection and they conform to Company policy and IDFI/FDIC regulations. Grade 4 – Acceptable but Monitored Loans and leases in this category may have a greater than average risk due to financial weakness or uncertainty but do not appear to require classification as special mention or substandard loans. Loans and leases rated “4” need to be monitored on a regular basis to ascertain that the reasons for placing them in this category do not advance or worsen. Grade 5 – Special Mention Loans and leases in this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or in the Company’s credit position at some future date. Special Mention loans and leases are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. 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 or leases has a higher probability of default than a pass rated loan or lease, its default is not imminent. Grade 6 – Substandard 13 Loans and leases in this category are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans and leases so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Substandard loans and leases have a high probability of payment default, or they have other well-defined weaknesses. Such loans and leases have a distinct potential for loss; however, an individual loan’s or lease’s potential for loss does not have to be distinct for the loan or lease to be rated substandard. The following are examples of situations that might cause a loan or lease to be graded a “6”: • Cash flow deficiencies (losses) jeopardize future loan or lease payments. • Sale of non-collateral assets has become a primary source of loan or lease repayment. • The relationship has deteriorated to the point that sale of collateral is now the Company’s primary source of repayment, unless this was the original source of loan or lease repayment. • The borrower is bankrupt or for any other reason future repayment is dependent on court action. Grade 7 – Doubtful A loan or lease classified as doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly questionable and improbable. A doubtful loan or lease has a high probability of total or substantial loss. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. Because of high probability of loss, nonaccrual accounting treatment will be required for doubtful loans and leases. Grade 8 – Loss Loans and leases classified loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan or lease has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan or lease even though partial recovery may be effected in the future. The risk characteristics of each loan and lease portfolio segment are as follows: Commercial and Industrial Commercial and industrial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may include a personal guarantee. Short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Commercial Mortgage including Construction Loans in this segment include commercial loans, commercial construction loans, and multi-family loans. This segment also includes loans secured by 1-4 family residences which were made for investment purposes. Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The characteristics of properties securing the Company’s commercial real estate portfolio are diverse, but with geographic location almost entirely in the Company’s market area. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In general, the Company avoids financing single purpose projects unless other underwriting factors are 14 present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate versus nonowner-occupied loans. Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews and financial analysis of the developers and property owners. Construction loans are generally based on estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing. Residential, Brokered and Consumer Residential, brokered and consumer loans consist of three segments – residential mortgage loans, brokered mortgage loans and personal loans. For residential mortgage loans that are secured by 1-4 family residences and are generally owner-occupied, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Brokered mortgages are purchased residential mortgage loans meeting the Company’s criteria established for originating residential mortgage loans. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer personal loans are secured by consumer personal assets, such as automobiles or recreational vehicles. Some consumer personal loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers. Leases Lease financing consists of direct financing leases and are used by commercial customers to finance capital purchases of equipment. The credit decisions for these transactions are based upon an assessment of the overall financial capacity of the applicant. A determination is made as to the applicant’s financial condition and ability to repay in accordance with the proposed terms as well as an overall assessment of the risks involved. The following tables present the credit risk profile of the Company’s loan and lease portfolio based on rating category and payment activity as of March 31, 2021 and December 31, 2020: March 31, 2021 Commercial Mortgage Industrial Construction and Development Multi- Family Residential Mortgage Home Equity Leases Consumer Total 1-4 Pass $ 246,578 $ 121,798 $ 62,828 $ 60,608 $ 126,766 $ 6,033 $ 117,661 $ 12,867 $ 755,139 5 Special Mention 6,939 3,514 — — — — — — 10,453 6 Substandard 1,044 2,814 4,900 — 2,181 71 11 316 11,337 7 Doubtful — — — — — — 53 — 53 8 Loss — — — — — — — — — $ 254,561 $ 128,126 $ 67,728 $ 60,608 $ 128,947 $ 6,104 $ 117,725 $ 13,183 $ 776,982 15 December 31, 2020 Commercial Mortgage Industrial Construction and 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 The following tables present the Company’s loan and lease portfolio aging analysis of the recorded investment in loans and leases as of March 31, 2021 and December 31, 2020: March 31, 2021 Delinquent Loans Current Total Portfolio Loans and Leases Total Loans and Leases > 90 Days Accruing 30-59 Days Past Due 60-89 Days Past Due 90 Days and Over Total Past Due Commercial mortgage $ 431 $ — $ 210 $ 641 $ 253,920 $ 254,561 $ 134 Commercial and industrial — 24 397 421 127,705 128,126 — Construction and development — — 4,900 4,900 62,828 67,728 — Multi-family — — — — 60,608 60,608 — Residential mortgage 2,071 142 2,154 4,367 124,580 128,947 2,029 Home equity 7 — 31 38 6,066 6,104 31 Leases 136 21 — 157 117,568 117,725 — Consumer 140 277 316 733 12,450 13,183 315 Totals $ 2,785 $ 464 $ 8,008 $ 11,257 $ 765,725 $ 776,982 $ 2,509 December 31, 2020 Delinquent Loans Current Total Portfolio Loans and Leases Total Loans and Leases > 90 Days Accruing 30-59 Days Past Due 60-89 Days Past Due 90 Days and Over Total Past Due Commercial mortgage $ 340 $ — $ 1,177 $ 1,517 $ 246,047 $ 247,564 $ 1,100 Commercial and industrial 1,251 203 439 1,893 120,938 122,831 — 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 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 16 The following tables present the Company’s impaired loans and specific valuation allowance at March 31, 2021 and December 31, 2020: March 31, 2021 Recorded Balance Unpaid Principal Balance Specific Allowance Impaired loans without a specific valuation allowance Commercial mortgage $ 77 $ 86 $ — Commercial and industrial 397 731 — Residential mortgage 124 246 — $ 598 $ 1,063 $ — Impaired loans with a specific valuation allowance Commercial mortgage $ 5,504 $ 5,504 $ 811 Commercial and industrial 53 64 52 Residential mortgage 54 54 — $ 5,611 $ 5,622 $ 863 Total impaired loans Commercial mortgage $ 5,581 $ 5,590 $ 811 Commercial and industrial 450 795 52 Residential mortgage 178 300 — Total impaired loans $ 6,209 $ 6,685 $ 863 December 31, 2020 Recorded Balance Unpaid Principal Balance Specific Allowance Impaired loans without a specific valuation allowance Commercial mortgage $ 76 $ 86 $ — Commercial and industrial 439 770 — Residential mortgage 269 491 — $ 784 $ 1,347 $ — Impaired loans without a specific valuation allowance Commercial mortgage $ 625 $ 625 $ 150 Commercial and industrial 54 64 52 $ 679 $ 689 $ 202 Total impaired loans Commercial mortgage $ 701 $ 711 $ 150 Commercial and industrial 493 834 52 Residential mortgage 269 491 — Total impaired loans $ 1,463 $ 2,036 $ 202 17 The following tables present the Company’s average investment in impaired loans and interest income recognized for the three months ended March 31, 2021 and 2020: Average Investment in Impaired Loans Interest Income Recognized Three Months Ended March 31, 2021: Total impaired loans Commercial mortgage $ 3,141 $ 7 Commercial and industrial 471 4 Residential mortgage 180 1 Total impaired loans $ 3,792 $ 12 Average Investment in Impaired Loans Interest Income Recognized Three Months Ended March 31, 2020: Total impaired loans Commercial mortgage $ 797 $ 7 Commercial and industrial 684 14 Residential mortgage 326 5 Total impaired loans $ 1,807 $ 26 The following table presents the Company’s nonaccrual loans and leases at March 31, 2021 and December 31, 2020: March 31, 2021 December 31, 2020 Commercial mortgage $ 77 $ 76 Commercial and industrial 450 493 Construction 4,900 — Residential mortgage 124 214 Leases 53 20 $ 5,604 $ 803 During the three months ended March 31, 2021 and 2020, there were no newly classified troubled debt restructured loans or leases (“TDRs”). For the three months ended March 31, 2021 and 2020, the Company recorded no charge-offs related to TDRs. As of both March 31, 2021 and December 31, 2020, TDRs had a related allowance of $ 52,000 . During the three months ended March 31, 2021, there were no TDRs for which there was a payment default within the first 12 months of the modification. The CARES Act provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term 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. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers are considered current under the CARES Act if they are less than 30 days past due on their contractual payments at the time a modification program is implemented. 18 In March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic. As of March 31, 2021, the Company had 33 loan and lease modifications outstanding related to the COVID-19 pandemic with an outstanding loan balance totaling $ 24.6 million in accordance with the CARES Act. Accordingly, the Company does not account for such loan modifications as TDRs. Loan modifications in accordance with the CARES Act and related regulatory guidance are still subject to an evaluation in regard to determining whether or not a loan is deemed to be impaired. At March 31, 2021 and December 31, 2020, the balance of real estate owned includes $ 0 and $ 32,000 , respectively, of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property. At March 31, 2021 and December 31, 2020, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceeds were in process was $ 520,000 and $ 283,000 , respectively. The following lists the components of the net investment in direct financing leases: March 31, 2021 December 31, 2020 Total minimum lease payments to be received $ 129,865 $ 129,114 Initial direct costs 6,639 6,353 136,504 135,467 Less: Unearned income ( 18,779 ) ( 18,296 ) Net investment in direct finance leases $ 117,725 $ 117,171 Leases serviced by First Bank Richmond for the benefit of others totaled approximately $ 22,000 and $ 86,000 at March 31, 2021 and December 31, 2020, respectively. Additionally, certain leases have been sold with partial recourse. First Bank Richmond estimates and records its obligation based upon historical loss percentages. At March 31, 2021 and December 31, 2020, First Bank Richmond has recorded a recourse obligation on leases sold with recourse of $ 0 , and has a maximum exposure of $ 22,000 and $ 86,000 , respectively, for these leases. The following table summarizes the future minimum lease payments receivable subsequent to March 31, 2021: 2021 $ 38,107 2022 39,561 2023 27,108 2024 16,659 2025 7,405 Thereafter 1,025 $ 129,865 Note 5: Fair Value of Financial Instruments Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets or liabilities Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3 Unobservable inputs supported by little or no market activity that are significant to the fair value of the assets or liabilities 19 Recurring Measurements The following tables present the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2021 and December 31, 2020: Fair Value Measurements Using Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) March 31, 2021 Available-for-sale securities SBA Pools $ 15,528 $ — $ 15,528 $ — Federal agencies 7,533 — 7,533 — State and municipal obligations 100,336 — 100,336 — Mortgage-backed securities - GSE residential 134,749 — 134,749 — Equity securities 13 13 — — $ 258,159 $ 13 $ 258,146 $ — Fair Value Measurements Using Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2020 Available-for-sale 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 126,150 — 126,150 — Equity securities 13 13 — — $ 244,505 $ 13 $ 244,492 $ — 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. There have been no significant changes in the valuation techniques during the three months ended March 31, 2021. Available-for-Sale Securities Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy, which includes equity securities. 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. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Nonrecurring Measurements 20 The following table presents the fair value measurement of assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2021 and December 31, 2020: Fair Value Measurements Using Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) March 31, 2021 Impaired loans, collateral dependent $ 4,748 $ — $ — $ 4,748 Mortgage-servicing rights 1,659 — — 1,659 December 31, 2020 Impaired loans, collateral dependent $ 532 $ — $ — $ 532 Mortgage-servicing rights 1,712 — — 1,712 Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below. Collateral-Dependent Impaired Loans, Net of ALLL The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy. The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by management. Appraisals are reviewed for accuracy and consistency by management. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by management by comparison to historical results. Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans. Mortgage-Servicing Rights Mortgage-servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models having significant inputs of discount rate, prepayment speed and default rate. Due to the nature of the valuation inputs, mortgage-servicing rights are classified within Level 3 of the hierarchy. Mortgage-servicing rights are tested for impairment on a quarterly basis based on an independent valuation. The valuation is reviewed by management for accuracy and for potential impairment. Unobservable (Level 3) Inputs 21 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 March 31, 2021 and December 31, 2020: Fair Value at March 31, 2021 Valuation Technique Unobservable Inputs Range Collateral-dependent impaired loans $ 4,748 Appraisal Marketability discount 0 - 16 % Mortgage-servicing rights $ 1,659 Discounted cash flow Discount rate 10 % Fair Value at December 31, 2020 Valuation Technique Unobservable Inputs Range Collateral-dependent impaired loans $ 532 Appraisal Marketability discount 0 - 12 % Mortgage-servicing rights $ 1,712 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 March 31, 2021 and December 31, 2020: Fair Value Measurements Using Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) March 31, 2021 Financial assets Cash and cash equivalents $ 65,523 $ 65,523 $ — $ — Available-for-sale securities 258,159 13 258,146 — Held-to-maturity securities 10,211 — 10,445 — Loans and leases receivable, net 763,731 — — 781,646 Federal Reserve and FHLB stock 9,050 — 9,050 — Interest receivable 4,204 — 4,204 — Financial liabilities Deposits 757,074 — 759,129 — FHLB advances 170,000 — 177,192 — Interest payable 208 — 208 — 22 Fair Value Measurements Using Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2020 Financial assets Cash and cash equivalents $ 48,768 $ 48,768 $ — $ — Available-for-sale securities 244,505 13 244,492 — Held-to-maturity securities 12,225 — 12,520 — Loans and leases receivable, net 736,400 — — 751,151 Federal Reserve and FHLB stock 9,050 — 9,050 — Interest receivable 4,704 — 4,704 — Financial liabilities Deposits 693,045 — 695,216 — FHLB advances 170,000 — 178,015 — Interest payable 222 — 222 — Note 6: Earnings per Share Basic EPS is computed by dividing net income allocated to common stock by the weighted average number of common shares outstanding during the period which excludes the participating securities. Diluted EPS includes the dilutive effect of additional potential common shares from stock compensation awards, but excludes awards considered participating securities. ESOP shares are not considered outstanding for EPS until they are earned. The following table presents the computation of basic and diluted EPS for the periods indicated: Three Months Ended March 31, 2021 Three Months Ended March 31, 2020 Net income $ 2,562 $ 2,452 Shares outstanding for Basic EPS: Average shares outstanding 13,124,015 13,526,625 Less: average restricted stock award shares not vested 431,501 — Less: average unearned ESOP Shares 1,005,311 1,059,419 Shares outstanding for Basic EPS 11,687,203 12,467,206 Additional Dilutive Shares 176,705 — Shares outstanding for Diluted EPS 11,863,908 12,467,206 Basic Earnings Per Share $ 0.22 $ 0.20 Diluted Earnings Per Share $ 0.22 $ 0.20 Note 7: Benefit Plans 401(k) The Company has a retirement savings 401(k) plan, in which substantially all employees may participate. The Company matches employees' contributions at the rate of 50 percent for the first six percent of base salary contributed by participants. The Company’s expense for the plan was $ 52,000 and $ 49,000 for the three months ended March 31, 2021 and 2020, respectively. Pension Plan 23 The Company participates in the Pentegra Defined Benefit Plan for Financial Institutions (the “DB Plan”), an industry-wide, tax-qualified defined-benefit pension plan. As previously disclosed, the Company has frozen and intends to terminate the Bank’s participation in the DB Plan, which will require it to pay an amount based on the underfunded status of the plan. As of March 31, 2021 the Company has accrued $ 17.5 million for this expense. The actual termination expense of the DB Plan may be higher or lower than the amount currently accrued for by the Company depending on a number of factors, including but not limited to the interest rate environment and the valuation of plan assets. Due to the current low interest rate environment, terminating the DB Plan at this time would require the Company to incur a substantial additional expense over and above the amount presently accrued. As a result, the Company’s Board of Directors will continue to monitor and evaluate the timing of, and costs associated with, termination of the DB Plan. Any additional expenses associated with the termination of the DB Plan will negatively impact our results of operations in the future. Employee Stock Ownership Plan As part of the reorganization and related stock offering, the Company established an Employee Stock Ownership Plan, or ESOP, covering substantially all employees. 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. Dividends on unallocated shares used to repay the loan for the Company are recorded as a reduction of the loan or accrued interest, as applicable. Dividends on allocated shares paid to participants are reported as compensation expense. Unearned ESOP shares which have not yet been allocated to ESOP participants are excluded from the computation of average shares outstanding for earnings per share calculation. Accordingly, $ 13,479,847 and $ 13,664,373 of common stock acquired by the ESOP was shown as a reduction of stockholders’ equity at March 31, 2021 and December 31, 2020, respectively. Shares are released to participants proportionately as the loan is repaid. ESOP expense for the three months ended March 31, 2021 and 2020 was $ 183,000 and $ 187,000 , respectively. March 31, 2021 March 31, 2020 Earned ESOP shares 90,196 22,545 Unearned ESOP shares 991,934 1,059,585 Total ESOP shares 1,082,130 1,082,130 Quoted per share price $ 13.56 $ 10.22 Fair value of earned shares $ 1,223 $ 230 Fair value of unearned shares $ 13,451 $ 10,829 Richmond Mutual Bancorporation, Inc. 2020 Equity Incentive Plan On September 15, 2020, the Company's stockholders approved the Richmond Mutual Bancorporation, Inc. 2020 Equity Incentive Plan ("2020 EIP") which provides for the grant to eligible participants of up to (i) 1,352,662 shares of Company common stock to be issued upon the exercise of stock options and stock appreciation rights and (ii) 541,065 shares of Company common stock to participants as restricted stock awards (which may be in the form of shares of common stock or share units giving the participant the right to receive shares of common stock at a specified future date). Restricted Stock Awards . On October 1, 2020, the Company awarded 449,086 shares of common stock under the 2020 EIP with a grant date fair value of $ 10.53 per share (total fair value of $ 4.7 million at issuance) to eligible participants. These awards vest in five equal annual installments with the first vesting occurring on June 30, 2021. Forfeited shares may be awarded to other eligible recipients in future grants until the 2020 EIP terminates in September 2030. Total compensation cost recognized in the income statement for restricted stock awards during the three months ended March 31, 2021 was $ 303,000 and the related tax benefit recognized was $ 64,000 . As of March 31, 2021, unrecognized compensation expense related to restricted stock awards was $ 4.0 million. Stock Option Plan. On October 1, 2020, the Company awarded options to purchase 1,095,657 of common stock under the 2020 EIP with an exercise price of $ 10.53 per share, the fair market value of a share of the Company's common stock on the date of 24 grant, to eligible participants. These options awarded vest in five equal annual installments with the first vesting occurring on June 30, 2021. Forfeited options may be awarded to other eligible recipients in future grants until the 2020 EIP terminates in September 2030. The following table summarizes the stock option activity in the 2020 EIP during the three months ended March 31, 2021. March 31, 2021 Number of Shares Weighted-Average Exercise Price Balance at beginning of year 1,095,657 $ 10.53 Granted — — Exercised — — Forfeited/expired — — Balance at end of year 1,095,657 10.53 Exercisable at end of period (1) 40,580 $ 10.53 (1) As a result of the acceleration of option vesting upon the death of a recipient. A summary of the status of the Company stock option shares as of March 31, 2021 is presented below. Shares Weighted Average Grant Date Fair Value Non-vested, beginning of year 1,055,077 $ 2.91 Vested — — Granted — — Forfeited — — Non-vested, March 31 1,055,077 $ 2.91 Total compensation cost recognized in the income statement for option-based payment arrangements during 2020 was $ 205,000 and the related tax benefit recognized was $ 23,000 . As of March 31, 2021, unrecognized compensation expense related to the stock option awards was $ 2.7 million. Note 8: Subsequent Event Subsequent to March 31, 2021 through May 14, 2021 the Company purchased 167,193 shares under the existing stock repurchase program, leaving 249,392 shares available for future repurchase. 25