Richmond Mutual Bancorporation, Inc. 10-Q

ITEM 1.FINANCIAL STATEMENTS Richmond Mutual Bancorporation, Inc. Condensed Consolidated Balance Sheets March 31, 2022 December 31, 2021 (Unaudited) Assets Cash and due from banks $ 8,065,393 $ 8,473,558 Interest-bearing demand deposits 11,510,573 14,564,587 Cash and cash equivalents 19,575,966 23,038,145 Investment securities - available for sale 326,835,054 357,537,845 Investment securities - held to maturity 8,146,327 9,040,825 Loans held for sale 583,000 557,500 Loans and leases, net of allowance for losses of $ 12,317,000 and $ 12,108,000 , respectively 849,987,070 832,846,017 Premises and equipment, net 14,145,653 14,347,088 Federal Home Loan Bank stock 9,780,900 9,992,400 Interest receivable 4,081,814 4,192,827 Mortgage-servicing rights 1,572,386 1,646,509 Cash surrender value of life insurance 3,640,799 3,619,140 Other assets 17,763,603 10,821,445 Total assets $ 1,256,112,572 $ 1,267,639,741 Liabilities Noninterest-bearing deposits 113,661,721 114,302,794 Interest-bearing deposits 795,833,541 785,872,606 Total deposits 909,495,262 900,175,400 Federal Home Loan Bank advances 182,000,000 180,000,000 Advances by borrowers for taxes and insurance 586,547 531,030 Interest payable 289,840 258,032 Other liabilities 6,398,208 6,193,944 Total liabilities 1,098,769,857 1,087,158,406 Commitments and Contingent Liabilities — — Stockholders' Equity Common stock, $ 0.01 par value Authorized - 90,000,000 shares Issued and outstanding - 12,310,004 shares and 12,400,195 shares at March 31, 2022 and December 31, 2021, respectively 123,100 124,002 Additional paid-in capital 113,263,417 114,339,810 Retained earnings 82,037,495 80,157,893 Unearned employee stock ownership plan (ESOP) ( 12,744,530 ) ( 12,928,359 ) Accumulated other comprehensive loss ( 25,336,767 ) ( 1,212,011 ) Total stockholders' equity 157,342,715 180,481,335 Total liabilities and stockholders' equity $ 1,256,112,572 $ 1,267,639,741 See Notes to Condensed Consolidated Statements. 1 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Income (Unaudited) Three Months Ended March 31, 2022 2021 Interest Income Loans and leases $ 10,265,959 $ 9,867,278 Investment securities 1,668,651 1,009,239 Other 7,478 6,904 Total interest income 11,942,088 10,883,421 Interest Expense Deposits 1,248,651 1,187,272 Borrowings 639,823 693,951 Total interest expense 1,888,474 1,881,223 Net Interest Income 10,053,614 9,002,198 Provision for losses on loans and leases 200,000 400,000 Net Interest Income After Provision for Losses on Loans and Leases 9,853,614 8,602,198 Noninterest Income Service charges on deposit accounts 234,545 194,439 Card fee income 277,770 242,515 Loan and lease servicing fees 27,868 ( 105,450 ) Net gains on loan and lease sales 242,986 964,817 Other income 332,193 231,290 Total noninterest income 1,115,362 1,527,611 Noninterest Expenses Salaries and employee benefits 4,451,297 4,445,732 Net occupancy expenses 363,533 330,640 Equipment expenses 310,555 336,564 Data processing fees 658,915 526,173 Deposit insurance expense 81,000 71,000 Printing and office supplies 40,284 31,414 Legal and professional fees 347,500 346,518 Advertising expense 92,192 84,044 Bank service charges 29,801 30,751 Real estate owned expense 2,501 2,332 Loss on sale of real estate owned — 1,278 Other expenses 956,241 771,210 Total noninterest expenses 7,333,819 6,977,656 Income Before Income Tax Expense 3,635,157 3,152,153 Provision for income taxes (includes $ 0 and $ 0 , respectively, related to income tax expense from reclassification of items) 617,565 589,667 Net Income $ 3,017,592 $ 2,562,486 Earnings Per Share Basic $ 0.27 $ 0.22 Diluted $ 0.26 $ 0.22 See Notes to Condensed Consolidated Statements. 2 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Comprehensive Loss (Unaudited) Three Months Ended March 31, 2022 2021 Net Income $ 3,017,592 $ 2,562,486 Other Comprehensive Loss Unrealized loss on available-for-sale securities, net of tax benefit of $ 6,412,910 , and $ 972,966 , respectively. ( 24,124,756 ) ( 3,660,206 ) ( 24,124,756 ) ( 3,660,206 ) Comprehensive Loss $ ( 21,107,164 ) $ ( 1,097,720 ) 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 Loss Total Shares Outstanding Amount Balances, December 31, 2021 12,400,195 $ 124,002 $ 114,339,810 $ 80,157,893 $ ( 12,928,359 ) $ ( 1,212,011 ) $ 180,481,335 Net income — — — 3,017,592 — — 3,017,592 Other comprehensive loss — — — — — ( 24,124,756 ) ( 24,124,756 ) ESOP shares earned — — 42,292 — 183,829 — 226,121 Stock based compensation — — 379,421 — — — 379,421 Common stock dividends ($ 0.10 per share) — — — ( 1,137,990 ) — — ( 1,137,990 ) Repurchase of common stock ( 90,191 ) ( 902 ) ( 1,498,106 ) — — — ( 1,499,008 ) Balances, March 31, 2022 12,310,004 $ 123,100 $ 113,263,417 $ 82,037,495 $ ( 12,744,530 ) $ ( 25,336,767 ) $ 157,342,715 Common Stock Additional Paid-in Capital Retained Earnings Unearned ESOP Shares Accumulated Other Comprehensive Income 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 See Notes to Condensed Consolidated Statements. 4 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2022 2021 Operating Activities Net income $ 3,017,592 $ 2,562,486 Items not requiring (providing) cash Provision for loan losses 200,000 400,000 Depreciation and amortization 265,213 293,402 Deferred income tax ( 72,711 ) ( 93,250 ) Stock based compensation 379,421 507,624 Investment securities amortization, net 451,165 712,845 Net gains on loan and lease sales ( 242,986 ) ( 964,817 ) Loss on sale of real estate owned — 1,278 Accretion of loan origination fees ( 460,332 ) ( 881,097 ) Amortization of mortgage-servicing rights 40,748 128,288 ESOP shares expense 226,121 182,705 Increase in cash surrender value of life insurance ( 21,659 ) ( 21,361 ) Loans originated for sale ( 10,784,144 ) ( 27,868,042 ) Proceeds on loans sold 10,809,644 26,770,692 Net change in Interest receivable 111,013 499,613 Other assets ( 274,611 ) ( 500,776 ) Other liabilities 204,264 ( 4,151,093 ) Interest payable 31,808 ( 14,225 ) Net cash provided by (used in) operating activities 3,880,546 ( 2,435,728 ) Investing Activities Purchases of securities available for sale ( 12,357,092 ) ( 37,779,114 ) Proceeds from maturities and paydowns of securities available for sale 12,061,563 18,783,517 Proceeds from maturities and paydowns of securities held to maturity 891,488 2,010,016 Net change in loans ( 16,824,787 ) ( 25,020,579 ) Proceeds from sales of real estate owned — 30,270 Purchases of premises and equipment ( 63,778 ) ( 119,581 ) Proceeds from sale of FHLB stock 211,500 — Net cash used in investing activities ( 16,081,106 ) ( 42,095,471 ) Financing Activities Net change in Demand and savings deposits 23,120,244 50,062,196 Certificates of deposit ( 13,800,382 ) 13,966,055 Advances by borrowers for taxes and insurance 55,517 43,386 Proceeds from FHLB advances 15,000,000 — Repayment of FHLB advances ( 13,000,000 ) — Repurchase of common stock ( 1,499,008 ) ( 1,938,736 ) Dividends paid ( 1,137,990 ) ( 846,947 ) Net cash provided by financing activities 8,738,381 61,285,954 Net Change in Cash and Cash Equivalents ( 3,462,179 ) 16,754,755 Cash and Cash Equivalents, Beginning of Period 23,038,145 48,768,457 Cash and Cash Equivalents, End of Period $ 19,575,966 $ 65,523,212 Additional Cash Flows and Supplementary Information Interest paid $ 1,856,666 $ 1,895,448 Transfers from loans to other real estate owned 58,500 — See Notes to Condensed Consolidated Statements. 5 Richmond Mutual Bancorporation, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Amounts) Note 1: Basis of Presentation The accompanying financial information is unaudited and has been prepared from the consolidated financial statements of Richmond Mutual Bancorporation, Inc., and its wholly owned direct and indirect subsidiaries, First Bank Richmond and FB Richmond Holdings, Inc. References in this document to Richmond Mutual Bancorporation refer to Richmond Mutual Bancorporation, Inc. References to “we,” “us,” and “our” or the “Company” refers to Richmond Mutual Bancorporation and its wholly-owned direct and indirect subsidiaries, First Bank Richmond and FB Richmond Holdings, Inc., unless the context otherwise requires. 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, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 30, 2022 (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 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 6 Security Act ("CARES Act") was passed into law by the U.S. 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 2022. 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, 2022 the Company had no loans outstanding 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 First Bank Richmond, 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 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 $ 38.2 million in PPP loans during 2021, of which approximately $ 6.0 million were outstanding at March 31, 2022. The Jumpstart Our Business Startups Act (the "JOBS Act"), 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”. 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 No. 2019-04 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 credit loss ("CECL") methodology on the loan and investment portfolios to identify the necessary modifications in accordance with ASU 2016-13. A CECL implementation team consisting of management from multiple areas of the Company have been involved in evaluating loss estimation methods and application of these methods to the specific segments and subsegments of the loan portfolio. Management has been actively monitoring FASB developments and evaluating the use of the different methods allowed. Due to continuing development of our methodology, additional time is required to quantify the effect of CECL on the Company's Consolidated Financial Statements. The Company continues to refine its modeling and will finalize a method or methods of adoption in time for the effective date. 7 In March 2022 the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures . The ASU eliminates the accounting guidance for troubled debt restructured loans (“TDRs”) by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, the ASU requires public business entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. This ASU will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, upon the Company’s adoption of the amendments in ASU 2016-13, which is commonly referred to as the current expected credit loss methodology. 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 No. 2020-04 to have a material impact on its consolidated financial statements. In October 2020, the FASB issued ASU No. 2020-08, “Receivables – Nonrefundable Fees and Other Costs”. ASU No. 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 No. 2020-08 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of ASU No. 2020-08 did not have a material impact on the Company's consolidated financial statements. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . ASU No. 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 No. 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 adopted ASU No. 2019-12 on January 1, 2021. The adoption of ASU No. 2019-12 did not have a material impact on the Company's 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 No. 2018-13 on January 1, 2020. The adoption of ASU No. 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). Under the new guidance, lessees are 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 became effective for annual periods and interim periods within those annual periods beginning after December 15, 2021. The Company adopted the amendments to ASU No. 2016-02 on January 1, 2022. The adoption of the amendments did not have a material impact on the Company's consolidated financial statements. 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, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale SBA Pools $ 8,232 $ — $ 342 $ 7,890 Federal agencies 15,000 — 1,154 13,846 State and municipal obligations 168,866 65 19,334 149,597 Mortgage-backed securities - government-sponsored enterprises (GSE) residential 156,309 6 11,021 145,294 Corporate obligations 10,500 — 292 10,208 358,907 71 32,143 326,835 Held to maturity State and municipal obligations 8,146 40 19 8,167 8,146 40 19 8,167 Total investment securities $ 367,053 $ 111 $ 32,162 $ 335,002 December 31, 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale SBA Pools $ 8,691 $ 29 $ 107 $ 8,613 Federal agencies 15,000 — 274 14,726 State and municipal obligations 166,489 2,261 1,298 167,452 Mortgage-backed securities - government-sponsored enterprises (GSE) residential 164,629 712 2,831 162,510 Corporate obligations 4,250 2 28 4,224 Equity securities 13 — — 13 359,072 3,004 4,538 357,538 Held to maturity State and municipal obligations 9,041 147 2 9,186 9,041 147 2 9,186 Total investment securities $ 368,113 $ 3,151 $ 4,540 $ 366,724 The amortized cost and fair value of securities at March 31, 2022, 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 $ 1,159 $ 1,161 $ 1,196 $ 1,199 One to five years 8,668 8,564 4,862 4,868 Five to ten years 44,608 42,636 1,198 1,209 After ten years 148,163 129,180 890 891 202,598 181,541 8,146 8,167 Mortgage-backed securities –GSE residential 156,309 145,294 — — Totals $ 358,907 $ 326,835 $ 8,146 $ 8,167 9 Securities with a carrying value of $ 120,074,000 and $ 136,463,000 were pledged at March 31, 2022 and December 31, 2021, respectively, to secure certain deposits and for other purposes as permitted or required by law. There were no sales of securities available for sale for the three months ended March 31, 2022 and 2021. 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, 2022 and December 31, 2021 was $ 315,723,000 and $ 223,842,000 , respectively, which is approximately 94 % and 61 % 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, 2022 and December 31, 2021: Description of Securities March 31, 2022 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 $ 2,486 $ 110 $ 4,582 $ 232 $ 7,068 $ 342 Federal agencies 9,292 708 4,554 446 13,846 1,154 State and municipal obligations 120,755 15,366 20,615 3,968 141,370 19,334 Mortgage-backed securities - GSE residential 123,280 8,535 20,548 2,486 143,828 11,021 Corporate obligations 8,458 292 — — 8,458 292 Total available-for-sale 264,271 25,011 50,299 7,132 314,570 32,143 Held-to-maturity State and municipal obligations 1,153 19 — — 1,153 19 Total temporarily impaired securities $ 265,424 $ 25,030 $ 50,299 $ 7,132 $ 315,723 $ 32,162 10 Description of Securities December 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 $ 2,838 $ 81 $ 3,214 $ 26 $ 6,052 $ 107 Federal agencies 14,726 274 — — 14,726 274 State and municipal obligations 74,235 1,044 7,809 254 82,044 1,298 Mortgage-backed securities - GSE residential 111,104 2,576 6,523 255 117,627 2,831 Corporate obligations 2,972 28 — — 2,972 28 Total available-for-sale 205,875 4,003 17,546 535 223,421 4,538 Held-to-maturity State and municipal obligations 421 2 — — 421 2 Total temporarily impaired securities $ 206,296 $ 4,005 $ 17,546 $ 535 $ 223,842 $ 4,540 Federal Agency Obligations. 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, 2022. SBA Pools and Mortgage-Backed Securities - GSE Residential . 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 fair 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, 2022. State, Municipal, and Corporate 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, 2022. 11 Note 4: Loans, Leases and Allowance The following table shows the composition of the loan and lease portfolio at March 31, 2022 and December 31, 2021: March 31, 2022 December 31, 2021 Commercial mortgage $ 257,755 $ 261,202 Commercial and industrial 96,609 99,682 Construction and development 102,123 93,678 Multi-family 116,439 107,421 Residential mortgage 135,155 134,155 Home equity 8,393 7,146 Direct financing leases 130,451 126,762 Consumer 16,130 15,905 863,055 845,951 Less Allowance for loan and lease losses 12,317 12,108 Deferred loan fees 751 997 $ 849,987 $ 832,846 The following tables present the activity in the allowance for loan and lease losses for the three months ended March 31, 2022 and 2021: Balance, beginning of period Provision (credit) for losses Charge-offs Recoveries Balance, end of period Three Months Ended March 31, 2022: Commercial mortgage $ 4,742 $ ( 19 ) $ — $ 7 $ 4,730 Commercial and industrial 1,639 ( 97 ) — 15 1,557 Construction and development 2,286 148 — — 2,434 Multi-family 1,875 157 — — 2,032 Residential mortgage 263 ( 6 ) — 6 263 Home equity 29 6 — — 35 Leases 1,079 ( 15 ) ( 10 ) 10 1,064 Consumer 195 26 ( 24 ) 5 202 Total $ 12,108 $ 200 $ ( 34 ) $ 43 $ 12,317 Balance, beginning of period Provision (credit) for losses Charge-offs Recoveries Balance, end of period Three Months Ended March 31, 2021: Commercial mortgage $ 4,628 $ ( 208 ) $ — $ 6 $ 4,426 Commercial and industrial 2,270 ( 50 ) — 18 2,238 Construction and development 1,068 660 — — 1,728 Multi-family 1,039 3 — — 1,042 Residential mortgage 324 ( 2 ) — 6 328 Home equity 18 1 — — 19 Leases 1,054 75 ( 194 ) 94 1,029 Consumer 185 ( 79 ) ( 11 ) 54 149 Total $ 10,586 $ 400 $ ( 205 ) $ 178 $ 10,959 12 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, 2022 and December 31, 2021: Allowance for loan and lease losses: Loans and leases: Individually evaluated for impairment Collectively evaluated for impairment Balance, March 31 Individually evaluated for impairment Collectively evaluated for impairment Balance, March 31 As of March 31, 2022: Commercial mortgage $ — $ 4,730 $ 4,730 $ 116 $ 257,639 $ 257,755 Commercial and industrial 298 1,259 1,557 978 95,631 96,609 Construction and development 750 1,684 2,434 4,900 97,223 102,123 Multi-family — 2,032 2,032 — 116,439 116,439 Residential mortgage — 263 263 117 135,038 135,155 Home equity — 35 35 — 8,393 8,393 Leases — 1,064 1,064 — 130,451 130,451 Consumer — 202 202 — 16,130 16,130 Total $ 1,048 $ 11,269 $ 12,317 $ 6,111 $ 856,944 $ 863,055 Allowance for loan and lease losses: Loans and leases: Individually evaluated for impairment Collectively evaluated for impairment Balance, December 31 Individually evaluated for impairment Collectively evaluated for impairment Balance, December 31 As of December 31, 2021: Commercial mortgage $ — $ 4,742 $ 4,742 $ 128 $ 261,074 $ 261,202 Commercial and industrial 299 1,340 1,639 995 98,687 99,682 Construction and development 750 1,536 2,286 4,900 88,778 93,678 Multi-family — 1,875 1,875 — 107,421 107,421 Residential mortgage — 263 263 119 134,036 134,155 Home equity — 29 29 — 7,146 7,146 Leases — 1,079 1,079 — 126,762 126,762 Consumer — 195 195 — 15,905 15,905 Total $ 1,049 $ 11,059 $ 12,108 $ 6,142 $ 839,809 $ 845,951 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. 13 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 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. 14 No material changes have been made to the risk characteristics pertaining to the loan and lease portfolio contained in the Company's 2021 Form 10-K. 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, 2022 and December 31, 2021: Pass Special Mention Substandard Doubtful Loss Total As of March 31, 2022: Commercial mortgage $ 252,647 $ 4,992 $ 116 $ — $ — $ 257,755 Commercial and industrial 88,227 7,032 1,350 — — 96,609 Construction and development 97,223 — 4,900 — — 102,123 Multi-family 116,439 — — — — 116,439 Residential mortgage 133,294 — 1,861 — — 135,155 Home equity 8,327 — 66 — — 8,393 Leases 130,308 — 97 46 — 130,451 Consumer 16,112 — 18 — — 16,130 Total $ 842,577 $ 12,024 $ 8,408 $ 46 $ — $ 863,055 Pass Special Mention Substandard Doubtful Loss Total As of December 31, 2021: Commercial mortgage $ 256,043 $ 5,031 $ 128 $ — $ — $ 261,202 Commercial and industrial 91,082 7,191 1,409 — — 99,682 Construction and development 88,778 — 4,900 — — 93,678 Multi-family 107,421 — — — — 107,421 Residential mortgage 132,223 — 1,932 — — 134,155 Home equity 7,097 — 49 — — 7,146 Leases 126,707 — 13 42 — 126,762 Consumer 15,883 — 22 — — 15,905 Total $ 825,234 $ 12,222 $ 8,453 $ 42 $ — $ 845,951 15 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, 2022 and December 31, 2021: March 31, 2022 Delinquent Loans and Leases 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 $ 27 $ 418 $ 116 $ 561 $ 257,194 $ 257,755 $ — Commercial and industrial 387 570 367 1,324 95,285 96,609 — Construction and development 96 — 4,900 4,996 97,127 102,123 — Multi-family — — — — 116,439 116,439 — Residential mortgage 647 360 1,861 2,868 132,287 135,155 1,745 Home equity 120 — 31 151 8,242 8,393 31 Leases 86 152 — 238 130,213 130,451 — Consumer 88 59 18 165 15,965 16,130 18 Totals $ 1,451 $ 1,559 $ 7,293 $ 10,303 $ 852,752 $ 863,055 $ 1,794 December 31, 2021 Delinquent Loans and Leases 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 $ 29 $ — $ 128 $ 157 $ 261,045 $ 261,202 $ — Commercial and industrial 33 579 366 978 98,704 99,682 — Construction and development 55 96 4,900 5,051 88,627 93,678 — Multi-family — — — — 107,421 107,421 — Residential mortgage 710 174 1,932 2,816 131,339 134,155 1,813 Home equity 131 — 12 143 7,003 7,146 12 Leases 144 82 — 226 126,536 126,762 — Consumer 59 30 22 111 15,794 15,905 22 Totals $ 1,161 $ 961 $ 7,360 $ 9,482 $ 836,469 $ 845,951 $ 1,847 16 The following tables present the Company’s impaired loans and specific valuation allowance at March 31, 2022 and December 31, 2021: March 31, 2022 Recorded Balance Unpaid Principal Balance Specific Allowance Impaired loans without a specific valuation allowance Commercial mortgage $ 116 $ 199 $ — Commercial and industrial 366 566 — Residential mortgage 117 243 — $ 599 $ 1,008 $ — Impaired loans with a specific valuation allowance Commercial and industrial $ 612 $ 648 $ 298 Construction and development 4,900 4,900 750 $ 5,512 $ 5,548 $ 1,048 Total impaired loans Commercial mortgage $ 116 $ 199 $ — Commercial and industrial 978 1,214 298 Construction and development 4,900 4,900 750 Residential mortgage 117 243 — Total impaired loans $ 6,111 $ 6,556 $ 1,048 December 31, 2021 Recorded Balance Unpaid Principal Balance Specific Allowance Impaired loans without a specific valuation allowance Commercial mortgage $ 128 $ 199 $ — Commercial and industrial 367 566 — Residential mortgage 119 244 — $ 614 $ 1,009 $ — Impaired loans with a specific valuation allowance Commercial and industrial $ 628 $ 658 $ 299 Construction and development 4,900 4,900 750 $ 5,528 $ 5,558 $ 1,049 Total impaired loans Commercial mortgage $ 128 $ 199 $ — Commercial and industrial 995 1,224 299 Construction and development 4,900 4,900 750 Residential mortgage 119 244 — Total impaired loans $ 6,142 $ 6,567 $ 1,049 The following tables present the Company’s average investment in impaired loans and leases, and interest income recognized for the three months ended March 31, 2022 and 2021: 17 Average Investment in Impaired Loans and Leases Interest Income Recognized Three Months Ended March 31, 2022: Total impaired loans Commercial mortgage $ 122 $ 12 Commercial and industrial 987 7 Construction and development 4,900 — Residential mortgage 118 1 Total impaired loans and leases $ 6,127 $ 20 Average Investment in Impaired Loans and Leases Interest Income Recognized Three Months Ended March 31, 2021: Total impaired loans Commercial mortgage $ 76 $ — Commercial and industrial 1,086 10 Construction and development 2,450 — Residential mortgage 180 2 Total impaired loans and leases $ 3,792 $ 12 The following table presents the Company’s nonaccrual loans and leases at March 31, 2022 and December 31, 2021: March 31, 2022 December 31, 2021 Commercial mortgage $ 116 $ 128 Commercial and industrial 978 995 Construction 4,900 4,900 Residential mortgage 117 119 Leases 46 42 $ 6,157 $ 6,184 During the three months ended March 31, 2022 and 2021, there were no newly classified TDRs. For the three months ended March 31, 2022 and 2021, the Company recorded no charge-offs related to TDRs. As of March 31, 2022 and December 31, 2021, TDRs had a related allowance of $ 48,000 and $ 49,000 , respectively. During the three months ended March 31, 2022, 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, 2022, the Company had no loan and lease modifications outstanding related to the COVID-19 pandemic in accordance with the CARES Act. At March 31, 2022 and December 31, 2021, the balance of real estate owned included $ 86,000 and $ 27,000 , respectively, of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property. At March 31, 2022 and December 31, 2021, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceeds were in process was $ 885,000 and $ 885,000 , respectively. The following lists the components of the net investment in direct financing leases: March 31, 2022 December 31, 2021 Total minimum lease payments to be received $ 143,600 $ 140,214 Initial direct costs 7,870 7,035 151,470 147,249 Less: Unearned income ( 21,019 ) ( 20,487 ) Net investment in direct finance leases $ 130,451 $ 126,762 There were no leases serviced by the Company for the benefit of others at March 31, 2022 and December 31, 2021. Certain leases have been sold from time to time by the Company with partial recourse. The Company estimates and records its obligation based upon historical loss percentages. At both March 31, 2022 and December 31, 2021, the Company did not have any recorded recourse obligations on leases sold. The following table summarizes the future minimum lease payments receivable subsequent to March 31, 2022: 2022 $ 41,326 2023 43,736 2024 31,387 2025 18,375 2026 7,858 Thereafter 918 $ 143,600 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, 2022 and December 31, 2021: 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, 2022 Available-for-sale securities SBA Pools $ 7,890 $ — $ 7,890 $ — Federal agencies 13,846 — 13,846 — State and municipal obligations 149,597 — 149,597 — Mortgage-backed securities - GSE residential 145,294 — 145,294 — Corporate obligations 10,208 — 10,208 — $ 326,835 $ — $ 326,835 $ — 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, 2021 Available-for-sale securities SBA Pools $ 8,613 $ — $ 8,613 $ — Federal agencies 14,726 — 14,726 — State and municipal obligations 167,452 — 167,452 — Mortgage-backed securities - GSE residential 162,510 — 162,510 — Corporate obligations 4,224 — 4,224 — Equity securities 13 13 — — $ 357,538 $ 13 $ 357,525 $ — 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, 2022. 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, 2022 and December 31, 2021: 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, 2022 Impaired loans, collateral dependent $ 314 $ — $ — $ 314 Mortgage-servicing rights 1,572 — — 1,572 December 31, 2021 Impaired loans, collateral dependent $ 4,587 $ — $ — $ 4,587 Mortgage-servicing rights 1,647 — — 1,647 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, 2022 and December 31, 2021: Fair Value at March 31, 2022 Valuation Technique Unobservable Inputs Range Collateral-dependent impaired loans $ 314 Appraisal Marketability discount 0 - 42 % Mortgage-servicing rights $ 1,572 Discounted cash flow Discount rate 10 % Fair Value at December 31, 2021 Valuation Technique Unobservable Inputs Range Collateral-dependent impaired loans $ 4,587 Appraisal Marketability discount 0 - 39 % Mortgage-servicing rights $ 1,647 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, 2022 and December 31, 2021: 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, 2022 Financial assets Cash and cash equivalents $ 19,576 $ 19,576 $ — $ — Available-for-sale securities 326,835 — 326,835 — Held-to-maturity securities 8,146 — 8,167 — Loans held for sale 583 — — 579 Loans and leases receivable, net 849,987 — — 849,749 Federal Reserve and FHLB stock 9,781 — 9,781 — Interest receivable 4,082 — 4,082 — Financial liabilities Deposits 909,495 — 907,798 — FHLB advances 182,000 — 184,801 — Interest payable 290 — 290 — 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, 2021 Financial assets Cash and cash equivalents $ 23,038 $ 23,038 $ — $ — Available-for-sale securities 357,538 13 357,525 — Held-to-maturity securities 9,041 — 9,186 — Loans held for sale 558 — — 555 Loans and leases receivable, net 832,846 — — 833,975 Federal Reserve and FHLB stock 9,992 — 9,992 — Interest receivable 4,193 — 4,193 — Financial liabilities Deposits 900,175 — 900,528 — FHLB advances 180,000 — 185,065 — Interest payable 258 — 258 — 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, 2022 Three Months Ended March 31, 2021 Net income $ 3,018 $ 2,562 Shares outstanding for Basic EPS: Average shares outstanding 12,347,125 13,124,015 Less: average restricted stock award shares not vested 348,395 431,501 Less: average unearned ESOP Shares 951,205 1,005,311 Shares outstanding for Basic EPS 11,047,525 11,687,203 Additional Dilutive Shares 426,940 176,705 Shares outstanding for Diluted EPS 11,474,465 11,863,908 Basic Earnings Per Share $ 0.27 $ 0.22 Diluted Earnings Per Share $ 0.26 $ 0.22 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. 23 The Company’s expense for the plan was $ 53,000 and $ 52,000 for the three months ended March 31, 2022 and 2021, respectively. 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, $ 12,744,530 and $ 12,928,359 of common stock acquired by the ESOP was shown as a reduction of stockholders’ equity at March 31, 2022 and December 31, 2021, respectively. Shares are released to participants proportionately as the loan is repaid. ESOP expense for the three months ended March 31, 2022 and 2021 was $ 226,000 and $ 183,000 , respectively. March 31, 2022 December 31, 2021 Earned ESOP shares 144,302 130,775 Unearned ESOP shares 937,828 951,355 Total ESOP shares 1,082,130 1,082,130 Quoted per share price $ 17.06 $ 16.05 Fair value of earned shares $ 2,462 $ 2,099 Fair value of unearned shares $ 15,999 $ 15,269 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. On April 1, 2021, the Company awarded an additional 4,000 shares of common stock under the 2020 EIP with a grant date fair value of $ 13.86 (total fair value of $ 55,000 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. 24 The following table summarizes the restricted stock awards activity in the 2020 EIP during the three months ended March 31, 2022. Three Months Ended March 31, 2022 Number of Restricted Shares Weighted Average Grant Date Fair Value Non-vested, beginning of period 348,395 $ 10.56 Granted — — Vested — — Forfeited — — Non-vested, March 31, 2022 348,395 10.56 Total compensation cost recognized in the income statement for restricted stock awards during the three months ended March 31, 2022 was $ 226,000 , and the related tax benefit recognized was $ 48,000 . As of March 31, 2022, unrecognized compensation expense related to restricted stock awards was $ 3.0 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 value of a share of the Company's common stock on the date of grant, to eligible participants. On April 1, 2021, the Company awarded options to purchase 8,000 shares of common stock under the 2020 EIP with an exercise price of $ 13.86 per share, the fair value of a share of the Company's common stock on the date of the 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, 2022. Three Months Ended March 31, 2022 Number of Shares Weighted-Average Exercise Price Balance at beginning of period 1,050,961 $ 10.56 Granted — — Exercised — — Forfeited/expired — — Balance, March 31, 2022 1,050,961 10.56 Exercisable at end of period 200,503 $ 10.56 The fair value of options granted is estimated on the date of the grant using a Black Scholes model with the following assumptions: April 1, 2021 Dividend yields 1.90 % Volatility factors of expected market price of common stock 26.98 % Risk-free interest rates 1.16 % Expected life of options 6.1 years A summary of the status of the Company stock option shares as of March 31, 2022 is presented below. 25 Shares Weighted Average Grant Date Fair Value Non-vested, beginning of year 850,458 $ 2.91 Vested — — Granted — — Forfeited — — Non-vested, March 31, 2022 850,458 $ 2.91 Total compensation cost recognized in the income statement for option-based payment arrangements for the three months ended March 31, 2022 was $ 153,000 , and the related tax benefit recognized was $ 17,000 . As of March 31, 2022, unrecognized compensation expense related to the stock option awards was $ 2.0 million. Note 8: Subsequent Event Subsequent to March 31, 2022 through May 13, 2022 the Company purchased 355,348 shares of the Company's common stock pursuant to the existing stock repurchase program, leaving 554,014 shares available for future repurchase. 26