Richmond Mutual Bancorporation, Inc. 10-Q

ITEM 1.FINANCIAL STATEMENTS Richmond Mutual Bancorporation, Inc. Condensed Consolidated Balance Sheets June 30, 2022 December 31, 2021 (Unaudited) Assets Cash and due from banks $ 8,603,915 $ 8,473,558 Interest-bearing demand deposits 5,815,221 14,564,587 Cash and cash equivalents 14,419,136 23,038,145 Investment securities - available for sale 302,632,256 357,537,845 Investment securities - held to maturity 8,143,564 9,040,825 Loans held for sale 1,120,250 557,500 Loans and leases, net of allowance for losses of $ 12,381,000 and $ 12,108,000 , respectively 891,876,871 832,846,017 Premises and equipment, net 14,009,598 14,347,088 Federal Home Loan Bank stock 9,780,900 9,992,400 Interest receivable 4,130,639 4,192,827 Mortgage-servicing rights 1,641,264 1,646,509 Cash surrender value of life insurance 3,662,559 3,619,140 Other assets 20,222,690 10,821,445 Total assets $ 1,271,639,727 $ 1,267,639,741 Liabilities Noninterest-bearing deposits 116,774,111 114,302,794 Interest-bearing deposits 828,558,721 785,872,606 Total deposits 945,332,832 900,175,400 Federal Home Loan Bank advances 180,000,000 180,000,000 Advances by borrowers for taxes and insurance 515,059 531,030 Interest payable 267,798 258,032 Other liabilities 6,579,282 6,193,944 Total liabilities 1,132,694,971 1,087,158,406 Commitments and Contingent Liabilities — — Stockholders' Equity Common stock, $ 0.01 par value Authorized - 90,000,000 shares Issued and outstanding - 11,848,113 shares and 12,400,195 shares at June 30, 2022 and December 31, 2021, respectively 118,481 124,002 Additional paid-in capital 106,200,912 114,339,810 Retained earnings 84,423,594 80,157,893 Unearned employee stock ownership plan (ESOP) ( 12,560,701 ) ( 12,928,359 ) Accumulated other comprehensive loss ( 39,237,530 ) ( 1,212,011 ) Total stockholders' equity 138,944,756 180,481,335 Total liabilities and stockholders' equity $ 1,271,639,727 $ 1,267,639,741 See Notes to Condensed Consolidated Statements. 1 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Income (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Interest Income Loans and leases $ 10,682,371 $ 9,856,694 $ 20,948,330 $ 19,723,972 Investment securities 1,733,844 1,248,844 3,402,495 2,258,083 Other 31,630 6,074 39,108 12,978 Total interest income 12,447,845 11,111,612 24,389,933 21,995,033 Interest Expense Deposits 1,274,830 1,221,389 2,523,481 2,408,661 Borrowings 624,363 700,611 1,264,186 1,394,562 Total interest expense 1,899,193 1,922,000 3,787,667 3,803,223 Net Interest Income 10,548,652 9,189,612 20,602,266 18,191,810 Provision for losses on loans and leases 200,000 530,000 400,000 930,000 Net Interest Income After Provision for Losses on Loans and Leases 10,348,652 8,659,612 20,202,266 17,261,810 Noninterest Income Service charges on deposit accounts 248,412 198,782 482,957 393,221 Card fee income 302,013 274,688 579,783 517,203 Loan and lease servicing fees 178,071 248,738 205,939 143,288 Net gains on securities (includes $ 0 , $ 37,912 , $ 0 , and $ 37,912 , respectively, related to accumulated other comprehensive income reclassifications) — 37,912 — 37,912 Net gains on loan and lease sales 221,778 569,411 464,764 1,534,228 Other income 226,202 311,174 558,395 542,464 Total noninterest income 1,176,476 1,640,705 2,291,838 3,168,316 Noninterest Expenses Salaries and employee benefits 4,514,862 4,313,870 8,966,159 8,759,602 Net occupancy expenses 347,779 293,693 711,312 624,333 Equipment expenses 323,412 315,200 633,967 651,764 Data processing fees 567,909 562,614 1,226,824 1,088,787 Deposit insurance expense 81,000 64,000 162,000 135,000 Printing and office supplies 54,783 46,397 95,067 77,811 Legal and professional fees 335,862 288,523 683,362 635,041 Advertising expense 103,803 81,826 195,995 165,870 Bank service charges 30,957 28,996 60,758 59,747 Real estate owned expense 5,785 8,370 8,286 10,702 Loss on sale of real estate owned 847 — 847 1,278 Other expenses 790,669 875,991 1,746,910 1,647,201 Total noninterest expenses 7,157,668 6,879,480 14,491,487 13,857,136 Income Before Income Tax Expense 4,367,460 3,420,837 8,002,617 6,572,990 Provision for income taxes (includes $ 0 , $ 7,962 , $ 0 , and $ 7,962 , respectively, related to income tax expense from reclassification of items) 882,118 639,490 1,499,683 1,229,157 Net Income $ 3,485,342 $ 2,781,347 $ 6,502,934 $ 5,343,833 Earnings Per Share Basic $ 0.32 $ 0.24 $ 0.60 $ 0.46 Diluted $ 0.31 $ 0.24 $ 0.58 $ 0.45 See Notes to Condensed Consolidated Statements. 2 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net Income $ 3,485,342 $ 2,781,347 $ 6,502,934 $ 5,343,833 Other Comprehensive (Loss) Income Unrealized (loss) gain on available-for-sale securities, net of tax (benefit) expense of $( 3,695,140 ), $ 437,111 , $( 10,108,049 ), and $( 535,855 ), respectively. ( 13,900,763 ) 1,644,369 ( 38,025,519 ) ( 2,015,837 ) Less: reclassification adjustment for realized gains included in net income, net of tax expense of $ 0 , $ 7,962 , $ 0 , and $ 7,962 , respectively. — 29,950 — 29,950 ( 13,900,763 ) 1,614,419 ( 38,025,519 ) ( 2,045,787 ) Comprehensive (Loss) Income $ ( 10,415,421 ) $ 4,395,766 $ ( 31,522,585 ) $ 3,298,046 See Notes to Condensed Consolidated Statements. 3 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) Three Months Ended June 30, 2022 Common Stock Additional Paid-in Capital Retained Earnings Unearned ESOP Shares Accumulated Other Comprehensive Loss Total Shares Outstanding Amount Balances, March 31, 2022 12,310,004 $ 123,100 $ 113,263,417 $ 82,037,495 $ ( 12,744,530 ) $ ( 25,336,767 ) $ 157,342,715 Net income — — — 3,485,342 — — 3,485,342 Other comprehensive loss — — — — — ( 13,900,763 ) ( 13,900,763 ) ESOP shares earned — — 23,775 — 183,829 — 207,604 Stock based compensation — — 383,637 — — — 383,637 Common stock dividends ($ 0.10 per share) — — — ( 1,099,243 ) — — ( 1,099,243 ) Repurchase of common stock ( 461,891 ) ( 4,619 ) ( 7,469,917 ) — — — ( 7,474,536 ) Balances, June 30, 2022 11,848,113 $ 118,481 $ 106,200,912 $ 84,423,594 $ ( 12,560,701 ) $ ( 39,237,530 ) $ 138,944,756 Six Months Ended June 30, 2022 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 — — — 6,502,934 — — 6,502,934 Other comprehensive loss — — — — — ( 38,025,519 ) ( 38,025,519 ) ESOP shares earned — — 66,067 — 367,658 — 433,725 Stock based compensation — — 763,058 — — — 763,058 Common stock dividends ($ 0.20 per share) — — — ( 2,237,233 ) — — ( 2,237,233 ) Repurchase of common stock ( 552,082 ) ( 5,521 ) ( 8,968,023 ) — — — ( 8,973,544 ) Balances, June 30, 2022 11,848,113 $ 118,481 $ 106,200,912 $ 84,423,594 $ ( 12,560,701 ) $ ( 39,237,530 ) $ 138,944,756 Three Months Ended June 30, 2021 Common Stock Additional Paid-in Capital Retained Earnings Unearned ESOP Shares Accumulated Other Comprehensive Income Total Shares Outstanding Amount Balances, March 31, 2021 13,050,996 $ 130,510 $ 122,814,920 $ 80,005,652 $ ( 13,479,847 ) $ 48,399 $ 189,519,634 Net income — — — 2,781,347 — — 2,781,347 Other comprehensive income — — — — — 1,614,419 1,614,419 ESOP shares earned — — 6,978 — 183,830 — 190,808 Granting of restricted stock awards 4,000 40 ( 40 ) — — — — Stock based compensation — — 527,759 — — — 527,759 Common stock dividends ($ 0.57 per share) — — — ( 6,829,864 ) — — ( 6,829,864 ) Repurchase of common stock ( 370,019 ) ( 3,700 ) ( 5,231,093 ) — — — ( 5,234,793 ) Balances, June 30, 2021 12,684,977 $ 126,850 $ 118,118,524 $ 75,957,135 $ ( 13,296,017 ) $ 1,662,818 $ 182,569,310 4 Six Months Ended June 30, 2021 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 — — — 5,343,833 — — 5,343,833 Other comprehensive loss — — — — — ( 2,045,787 ) ( 2,045,787 ) ESOP shares earned — — 5,158 — 368,356 — 373,514 Granting of restricted stock awards 4,000 40 ( 40 ) — — — — Stock based compensation — — 1,035,383 — — — 1,035,383 Common stock dividends ($ 0.64 per share) — — — ( 7,676,811 ) — — ( 7,676,811 ) Repurchase of common stock ( 512,783 ) ( 5,128 ) ( 7,168,402 ) — — — ( 7,173,530 ) Balances, June 30, 2021 12,684,977 $ 126,850 $ 118,118,524 $ 75,957,135 $ ( 13,296,017 ) $ 1,662,818 $ 182,569,310 See Notes to Condensed Consolidated Statements. 5 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2022 2021 Operating Activities Net income $ 6,502,934 $ 5,343,833 Items not requiring (providing) cash Provision for loan losses 400,000 930,000 Depreciation and amortization 531,617 576,086 Deferred income tax ( 77,652 ) ( 211,032 ) Stock based compensation 763,058 1,035,383 Investment securities amortization, net 848,253 1,373,219 Investment securities gains — ( 37,912 ) Net gains on loan and lease sales ( 464,764 ) ( 1,534,228 ) Loss on sale of real estate owned 847 1,278 Accretion of loan origination fees ( 889,143 ) ( 1,506,839 ) Amortization of mortgage-servicing rights 121,951 217,561 ESOP shares expense 433,725 373,514 Increase in cash surrender value of life insurance ( 43,419 ) ( 46,311 ) Loans originated for sale ( 20,326,065 ) ( 47,955,898 ) Proceeds on loans sold 20,888,815 46,572,158 Net change in Interest receivable 62,188 352,007 Other assets 832,105 ( 3,375,994 ) Other liabilities 385,338 ( 4,580,426 ) Interest payable 9,766 ( 21,507 ) Net cash provided by (used in) operating activities 9,979,554 ( 2,495,108 ) Investing Activities Purchases of securities available for sale ( 14,949,095 ) ( 127,336,767 ) Proceeds from maturities and paydowns of securities available for sale 20,866,136 34,166,612 Proceeds from sales of securities available for sale — 3,980,632 Proceeds from maturities and paydowns of securities held to maturity 891,488 2,365,016 Net change in loans ( 59,439,801 ) ( 46,449,663 ) Proceeds from sales of real estate owned 84,652 30,270 Purchases of premises and equipment ( 194,127 ) ( 124,936 ) Proceeds from sale of FHLB stock 211,500 — Net cash used in investing activities ( 52,529,247 ) ( 133,368,836 ) Financing Activities Net change in Demand and savings deposits 35,671,492 62,024,795 Certificates of deposit 9,485,940 37,999,785 Advances by borrowers for taxes and insurance ( 15,971 ) 8,555 Proceeds from FHLB advances 115,000,000 80,000,000 Repayment of FHLB advances ( 115,000,000 ) ( 61,000,000 ) Repurchase of common stock ( 8,973,544 ) ( 7,173,530 ) Dividends paid ( 2,237,233 ) ( 7,676,811 ) Net cash provided by financing activities 33,930,684 104,182,794 Net Change in Cash and Cash Equivalents ( 8,619,009 ) ( 31,681,150 ) Cash and Cash Equivalents, Beginning of Period 23,038,145 48,768,457 Cash and Cash Equivalents, End of Period $ 14,419,136 $ 17,087,307 Additional Cash Flows and Supplementary Information Interest paid $ 3,777,901 $ 3,824,730 Transfers from loans to other real estate owned 85,500 — See Notes to Condensed Consolidated Statements. 6 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, First Insurance Management, Inc., 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, First Insurance Management, Inc., FB Richmond Holdings, Inc. and FB Richmond Properties, Inc., unless the context otherwise requires. First Bank Richmond is an Indiana state-chartered commercial bank headquartered in Richmond, Indiana and the wholly owned banking subsidiary of Richmond Mutual Bancorporation. First Bank Richmond provides full banking services through its seven full- and one limited-service offices located in Cambridge City (1), Centerville (1), Richmond (5) and Shelbyville (1), Indiana, its five full-service offices located in Piqua (2), Sidney (2) and Troy (1), Ohio, and its loan production office in Columbus, Ohio. Administrative, trust and wealth management services are conducted through First Bank Richmond's Corporate Office/Financial Center located in Richmond, Indiana. As an Indiana-chartered commercial bank, First Bank Richmond is subject to regulation by the IDFI and the FDIC. First Insurance Management, Inc., a wholly-owned subsidiary of the Company which was formed and began operations in June 2022, is a Nevada-based captive insurance company that insures against certain risks unique to the operations of the Company and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace. First Insurance Management, Inc. is subject to the regulations of the State of Nevada and undergoes periodic examinations by the Nevada Division of Insurance. FB Richmond Holdings, Inc., a wholly-owned subsidiary of First Bank Richmond which was formed and began operations in April 2020, is a Nevada corporation that holds and manages substantially all of First Bank Richmond's investment portfolio. FB Richmond Holdings, Inc. has one active subsidiary, FB Richmond Properties, Inc., a Delaware corporation which holds loans on behalf of the Bank. 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 7 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 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 June 30, 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 $ 38.2 million in PPP loans during 2021, of which $ 3.7 million were outstanding at June 30, 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 8 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. 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 9 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: June 30, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale U.S. treasury securities $ 395 $ — $ — $ 395 SBA Pools 7,636 4 456 7,184 Federal agencies 15,000 — 1,683 13,317 State and municipal obligations 169,853 17 30,669 139,201 Mortgage-backed securities - government-sponsored enterprises (GSE) residential 147,915 — 16,173 131,742 Corporate obligations 11,500 8 715 10,793 352,299 29 49,696 302,632 Held to maturity State and municipal obligations 8,144 29 31 8,142 8,144 29 31 8,142 Total investment securities $ 360,443 $ 58 $ 49,727 $ 310,774 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 10 The amortized cost and fair value of securities at June 30, 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 $ 1,670 $ 1,675 $ 1,195 $ 1,197 One to five years 11,449 11,030 4,860 4,853 Five to ten years 42,236 39,470 1,199 1,202 After ten years 149,029 118,715 890 890 204,384 170,890 8,144 8,142 Mortgage-backed securities –GSE residential 147,915 131,742 — — Totals $ 352,299 $ 302,632 $ 8,144 $ 8,142 Securities with a carrying value of $ 125,890,000 and $ 136,463,000 were pledged at June 30, 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 and six months ended June 30, 2022. Proceeds from sales of securities available for sale for both the three and six months ended June 30, 2021 were $ 3,981,000 . Gross gains were recognized on the sale of securities available-for-sale for the three and six months ended June 30, 2021 of $ 38,000 . There were no gross losses recognized on the sale of securities available for sale for the three and six months ended June 30, 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 June 30, 2022 and December 31, 2021 was $ 297,776,000 and $ 223,842,000 , respectively, which is approximately 96 % 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 June 30, 2022 and December 31, 2021: 11 Description of Securities June 30, 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 $ 2,236 $ 162 $ 4,249 $ 294 $ 6,485 $ 456 Federal agencies 8,913 1,087 4,404 596 13,317 1,683 State and municipal obligations 114,361 23,783 21,451 6,886 135,812 30,669 Mortgage-backed securities - GSE residential 101,424 10,974 29,962 5,199 131,386 16,173 Corporate obligations 8,035 715 — — 8,035 715 Total available-for-sale 234,969 36,721 60,066 12,975 295,035 49,696 Held-to-maturity State and municipal obligations 2,741 31 — — 2,741 31 Total temporarily impaired securities $ 237,710 $ 36,752 $ 60,066 $ 12,975 $ 297,776 $ 49,727 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 June 30, 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 June 30, 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 12 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 June 30, 2022. Note 4: Loans, Leases and Allowance The following table shows the composition of the loan and lease portfolio at June 30, 2022 and December 31, 2021: June 30, 2022 December 31, 2021 Commercial mortgage $ 278,490 $ 261,202 Commercial and industrial 106,427 99,682 Construction and development 104,832 93,678 Multi-family 121,424 107,421 Residential mortgage 135,486 134,155 Home equity 9,347 7,146 Direct financing leases 130,859 126,762 Consumer 18,229 15,905 905,094 845,951 Less Allowance for loan and lease losses 12,381 12,108 Deferred loan fees 836 997 $ 891,877 $ 832,846 The following tables present the activity in the allowance for loan and lease losses for the three and six months ended June 30, 2022 and 2021: Balance, beginning of period Provision (credit) for losses Charge-offs Recoveries Balance, end of period Three Months Ended June 30, 2022: Commercial mortgage $ 4,730 $ 40 $ — $ 34 $ 4,804 Commercial and industrial 1,557 ( 75 ) — 22 1,504 Construction and development 2,434 ( 11 ) — — 2,423 Multi-family 2,032 14 — — 2,046 Residential mortgage 263 ( 80 ) — 13 196 Home equity 35 ( 1 ) — — 34 Leases 1,064 256 ( 189 ) 8 1,139 Consumer 202 57 ( 30 ) 6 235 Total $ 12,317 $ 200 $ ( 219 ) $ 83 $ 12,381 Six Months Ended June 30, 2022: Commercial mortgage $ 4,742 $ 21 $ — $ 41 $ 4,804 Commercial and industrial 1,639 ( 172 ) — 37 1,504 Construction and development 2,286 137 — — 2,423 Multi-family 1,875 171 — — 2,046 Residential mortgage 263 ( 86 ) — 19 196 Home equity 29 5 — — 34 Leases 1,079 241 ( 199 ) 18 1,139 Consumer 195 83 ( 54 ) 11 235 Total $ 12,108 $ 400 $ ( 253 ) $ 126 $ 12,381 13 Balance, beginning of period Provision (credit) for losses Charge-offs Recoveries Balance, end of period Three Months Ended June 30, 2021: Commercial mortgage $ 4,426 $ 160 $ — $ 6 $ 4,592 Commercial and industrial 2,238 ( 316 ) ( 3 ) 31 1,950 Construction and development 1,728 206 — — 1,934 Multi-family 1,042 311 — — 1,353 Residential mortgage 328 ( 10 ) — 51 369 Home equity 19 4 — — 23 Leases 1,029 70 ( 171 ) 85 1,013 Consumer 149 105 ( 64 ) 7 197 Total $ 10,959 $ 530 $ ( 238 ) $ 180 $ 11,431 Six Months Ended June 30, 2021: Commercial mortgage $ 4,628 $ ( 48 ) $ — $ 12 $ 4,592 Commercial and industrial 2,270 ( 366 ) ( 3 ) 49 1,950 Construction and development 1,068 866 — — 1,934 Multi-family 1,039 314 — — 1,353 Residential mortgage 324 ( 12 ) — 57 369 Home equity 18 5 — — 23 Leases 1,054 145 ( 365 ) 179 1,013 Consumer 185 26 ( 75 ) 61 197 Total $ 10,586 $ 930 $ ( 443 ) $ 358 $ 11,431 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 June 30, 2022 and December 31, 2021: Allowance for loan and lease losses: Loans and leases: Individually evaluated for impairment Collectively evaluated for impairment Balance Individually evaluated for impairment Collectively evaluated for impairment Balance As of June 30, 2022: Commercial mortgage $ — $ 4,804 $ 4,804 $ — $ 278,490 $ 278,490 Commercial and industrial 297 1,207 1,504 972 105,455 106,427 Construction and development 750 1,673 2,423 4,900 99,932 104,832 Multi-family — 2,046 2,046 — 121,424 121,424 Residential mortgage — 196 196 116 135,370 135,486 Home equity — 34 34 — 9,347 9,347 Leases — 1,139 1,139 — 130,859 130,859 Consumer — 235 235 — 18,229 18,229 Total $ 1,047 $ 11,334 $ 12,381 $ 5,988 $ 899,106 $ 905,094 14 Allowance for loan and lease losses: Loans and leases: Individually evaluated for impairment Collectively evaluated for impairment Balance Individually evaluated for impairment Collectively evaluated for impairment Balance 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. 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. 15 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. 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 June 30, 2022 and December 31, 2021: Pass Special Mention Substandard Doubtful Loss Total As of June 30, 2022: Commercial mortgage $ 274,372 $ 4,118 $ — $ — $ — $ 278,490 Commercial and industrial 98,167 6,928 1,332 — — 106,427 Construction and development 99,932 — 4,900 — — 104,832 Multi-family 121,424 — — — — 121,424 Residential mortgage 133,623 — 1,863 — — 135,486 Home equity 9,282 — 65 — — 9,347 Leases 130,581 193 49 36 — 130,859 Consumer 18,123 — 106 — — 18,229 Total $ 885,504 $ 11,239 $ 8,315 $ 36 $ — $ 905,094 16 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 The following tables present the Company’s loan and lease portfolio aging analysis of the recorded investment in loans and leases as of June 30, 2022 and December 31, 2021: June 30, 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 $ 28 $ — $ — $ 28 $ 278,462 $ 278,490 $ — Commercial and industrial — 67 367 434 105,993 106,427 — Construction and development 785 — 4,900 5,685 99,147 104,832 — Multi-family — — — — 121,424 121,424 — Residential mortgage 537 460 1,980 2,977 132,509 135,486 1,865 Home equity 38 — 31 69 9,278 9,347 31 Leases 101 16 49 166 130,693 130,859 49 Consumer 107 18 106 231 17,998 18,229 106 Totals $ 1,596 $ 561 $ 7,433 $ 9,590 $ 895,504 $ 905,094 $ 2,051 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 17 The following tables present the Company’s impaired loans and specific valuation allowance at June 30, 2022 and December 31, 2021: June 30, 2022 Recorded Balance Unpaid Principal Balance Specific Allowance Impaired loans without a specific valuation allowance Commercial and industrial $ 367 $ 566 $ — Residential mortgage 116 242 — $ 483 $ 808 $ — Impaired loans with a specific valuation allowance Commercial and industrial $ 605 $ 647 $ 297 Construction and development 4,900 4,900 750 $ 5,505 $ 5,547 $ 1,047 Total impaired loans Commercial and industrial $ 972 $ 1,213 $ 297 Construction and development 4,900 4,900 750 Residential mortgage 116 242 — Total impaired loans $ 5,988 $ 6,355 $ 1,047 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 and six months ended June 30, 2022 and 2021: 18 Average Investment in Impaired Loans and Leases Interest Income Recognized Three Months Ended June 30, 2022: Total impaired loans Commercial mortgage $ 58 $ — Commercial and industrial 975 5 Construction and development 4,900 — Residential mortgage 116 1 Total impaired loans and leases $ 6,049 $ 6 Average Investment in Impaired Loans and Leases Interest Income Recognized Six Months Ended June 30, 2022: Total impaired loans Commercial mortgage $ 81 $ 12 Commercial and industrial 982 12 Construction and development 4,900 — Residential mortgage 117 2 Total impaired loans and leases $ 6,080 $ 26 Average Investment in Impaired Loans and Leases Interest Income Recognized Three Months Ended June 30, 2021: Total impaired loans Commercial mortgage $ 138 $ 10 Commercial and industrial 1,041 1 Construction and development 4,900 — Residential mortgage 178 1 Total impaired loans and leases $ 6,257 $ 12 Average Investment in Impaired Loans and Leases Interest Income Recognized Six Months Ended June 30, 2021: Total impaired loans Commercial mortgage $ 118 $ 10 Commercial and industrial 1,066 11 Construction and development 3,267 — Residential mortgage 179 3 Total impaired loans and leases $ 4,630 $ 24 The following table presents the Company’s nonaccrual loans and leases at June 30, 2022 and December 31, 2021: 19 June 30, 2022 December 31, 2021 Commercial mortgage $ — $ 128 Commercial and industrial 972 995 Construction 4,900 4,900 Residential mortgage 116 119 Leases 36 42 $ 6,024 $ 6,184 During the three and six months ended June 30, 2022 and 2021, there were no newly classified TDRs. For the three and six months ended June 30, 2022 and 2021, the Company recorded no charge-offs related to TDRs. As of June 30, 2022 and December 31, 2021, TDRs had a related allowance of $ 47,000 and $ 49,000 , respectively. During the three and six months ended June 30, 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. In March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic. As of June 30, 2022, the Company had no loan and lease modifications outstanding related to the COVID-19 pandemic in accordance with the CARES Act. At June 30, 2022 and December 31, 2021, the balance of real estate owned included $ 0 and $ 27,000 , respectively, of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property. At June 30, 2022 and December 31, 2021, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process was $ 1.1 million and $ 885,000 , respectively. The following lists the components of the net investment in direct financing leases: June 30, 2022 December 31, 2021 Total minimum lease payments to be received $ 143,895 $ 140,214 Initial direct costs 7,920 7,035 151,815 147,249 Less: Unearned income ( 20,956 ) ( 20,487 ) Net investment in direct finance leases $ 130,859 $ 126,762 There were no leases serviced by the Company for the benefit of others at June 30, 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 June 30, 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 June 30, 2022: 20 Remainder of 2022 $ 28,267 2023 47,122 2024 34,815 2025 21,321 2026 10,461 Thereafter 1,909 $ 143,895 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 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 June 30, 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) June 30, 2022 Available-for-sale securities U.S. Treasury securities $ 395 $ — $ 395 $ — SBA Pools 7,184 — 7,184 — Federal agencies 13,317 — 13,317 — State and municipal obligations 139,201 — 139,201 — Mortgage-backed securities - GSE residential 131,742 — 131,742 — Corporate obligations 10,793 — 10,793 — $ 302,632 $ — $ 302,632 $ — 21 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 six months ended June 30, 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 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 June 30, 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) June 30, 2022 Impaired loans, collateral dependent $ 308 $ — $ — $ 308 Mortgage-servicing rights 1,641 — — 1,641 December 31, 2021 Impaired loans, collateral dependent $ 4,587 $ — $ — $ 4,587 Mortgage-servicing rights 1,647 — — 1,647 22 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 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 June 30, 2022 and December 31, 2021: Fair Value at June 30, 2022 Valuation Technique Unobservable Inputs Range Collateral-dependent impaired loans $ 308 Appraisal Marketability discount 0 - 43 % Mortgage-servicing rights $ 1,641 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 June 30, 2022 and December 31, 2021: 23 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) June 30, 2022 Financial assets Cash and cash equivalents $ 14,419 $ 14,419 $ — $ — Available-for-sale securities 302,632 — 302,632 — Held-to-maturity securities 8,144 — 8,142 — Loans held for sale 1,120 — — 1,063 Loans and leases receivable, net 891,877 — — 866,754 Federal Reserve and FHLB stock 9,781 — 9,781 — Interest receivable 4,131 — 4,131 — Financial liabilities Deposits 945,333 — 941,055 — FHLB advances 180,000 — 180,171 — Interest payable 268 — 268 — 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: 24 Three Months Ended June 30, 2022 Three Months Ended June 30, 2021 Net income $ 3,485 $ 2,781 Shares outstanding for Basic EPS: Average shares outstanding 12,048,477 12,896,773 Less: average restricted stock award shares not vested 347,438 434,544 Less: average unearned ESOP Shares 937,679 991,785 Shares outstanding for Basic EPS 10,763,360 11,470,444 Additional Dilutive Shares 361,612 259,833 Shares outstanding for Diluted EPS 11,124,972 11,730,277 Basic Earnings Per Share $ 0.32 $ 0.24 Diluted Earnings Per Share $ 0.31 $ 0.24 Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 Net income $ 6,503 $ 5,344 Shares outstanding for Basic EPS: Average shares outstanding 12,196,976 13,009,766 Less: average restricted stock award shares not vested 347,914 433,031 Less: average unearned ESOP Shares 944,405 998,511 Shares outstanding for Basic EPS 10,904,657 11,578,224 Additional Dilutive Shares 395,650 212,869 Shares outstanding for Diluted EPS 11,300,307 11,791,093 Basic Earnings Per Share $ 0.60 $ 0.46 Diluted Earnings Per Share $ 0.58 $ 0.45 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 $ 55,000 , $ 108,000 , $ 64,000 , and $ 116,000 for the three and six months ended June 30, 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, $ 12,560,701 and $ 12,928,359 of common stock acquired by the ESOP was shown as a 25 reduction of stockholders’ equity at June 30, 2022 and December 31, 2021, respectively. Shares are released to participants proportionately as the loan is repaid. ESOP expense for the three and six months ended June 30, 2022 and 2021 was $ 208,000 , $ 191,000 , $ 434,000 , and $ 374,000 , respectively. June 30, 2022 December 31, 2021 Earned ESOP shares 157,829 130,775 Unearned ESOP shares 924,301 951,355 Total ESOP shares 1,082,130 1,082,130 Quoted per share price $ 13.98 $ 16.05 Fair value of earned shares $ 2,206 $ 2,099 Fair value of unearned shares $ 12,922 $ 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. The following table summarizes the restricted stock awards activity in the 2020 EIP during the six months ended June 30, 2022. Six Months Ended June 30, 2022 Number of Restricted Shares Weighted Average Grant Date Fair Value Non-vested, beginning of period 348,395 $ 10.56 Granted — — Vested ( 87,104 ) 10.56 Forfeited — — Non-vested, June 30, 2022 261,291 10.56 Total compensation cost recognized in the income statement for restricted stock awards during the three and six months ended June 30, 2022 was $ 229,000 and $ 456,000 , respectively, and the related tax benefit recognized was $ 48,000 and $ 96,000 , respectively. As of June 30, 2022, unrecognized compensation expense related to restricted stock awards was $ 2.8 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 26 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 six months ended June 30, 2022. Six Months Ended June 30, 2022 Number of Shares Weighted-Average Exercise Price Balance at beginning of period 1,050,961 $ 10.56 Granted — — Exercised — — Forfeited/expired — — Balance, June 30, 2022 1,050,961 10.56 Exercisable at end of period 413,120 $ 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 June 30, 2022 is presented below. Shares Weighted Average Grant Date Fair Value Non-vested, beginning of year 850,458 $ 2.91 Vested ( 212,617 ) — Granted — — Forfeited — — Non-vested, June 30, 2022 637,841 $ 2.91 Total compensation cost recognized in the income statement for option-based payment arrangements for the three and six months ended June 30, 2022 was $ 154,000 and $ 307,000 , respectively, and the related tax benefit recognized was $ 17,000 and $ 34,000 , respectively. As of June 30, 2022, unrecognized compensation expense related to the stock option awards was $ 1.9 million. Note 8: Subsequent Event Subsequent to June 30, 2022 through August 12, 2022, the Company purchased 32,054 shares of the Company's common stock pursuant to its existing stock repurchase programs, leaving 1,154,209 shares available for future repurchase. 27