Richmond Mutual Bancorporation, Inc. 10-Q

ITEM 1.FINANCIAL STATEMENTS Richmond Mutual Bancorporation, Inc. Condensed Consolidated Balance Sheets March 31, 2023 December 31, 2022 (Unaudited) Assets Cash and due from banks $ 9,681,490 $ 7,782,348 Interest-bearing demand deposits 7,708,212 8,139,745 Cash and cash equivalents 17,389,702 15,922,093 Interest-bearing time deposits 490,000 490,000 Investment securities - available for sale 291,745,454 284,899,665 Investment securities - held to maturity 5,752,200 6,672,233 Loans held for sale — 473,700 Loans and leases, net of allowance for credit losses of $ 15,495,419 and $ 12,413,035 , respectively 989,116,525 961,690,677 Premises and equipment, net 13,493,206 13,668,496 Federal Home Loan Bank stock 10,082,200 9,947,300 Interest receivable 4,683,239 4,710,481 Mortgage-servicing rights 2,013,331 2,011,889 Cash surrender value of life insurance 3,696,493 3,674,499 Other assets 23,712,010 24,459,108 Total assets $ 1,362,174,360 $ 1,328,620,141 Liabilities Noninterest-bearing deposits 96,827,452 106,414,812 Interest-bearing deposits 933,207,011 898,845,958 Total deposits 1,030,034,463 1,005,260,770 Federal Home Loan Bank advances 183,500,000 180,000,000 Advances by borrowers for taxes and insurance 690,844 560,196 Interest payable 2,546,651 1,369,351 Other liabilities 9,256,126 8,451,521 Total liabilities 1,226,028,084 1,195,641,838 Commitments and Contingent Liabilities — — Stockholders' Equity Common stock, $ 0.01 par value Authorized - 90,000,000 shares Issued and outstanding - 11,685,693 shares and 11,784,246 shares at March 31, 2023 and December 31, 2022, respectively 116,857 117,842 Additional paid-in capital 105,305,039 106,088,897 Retained earnings 86,314,805 88,715,782 Unearned employee stock ownership plan (ESOP) ( 12,009,214 ) ( 12,193,043 ) Accumulated other comprehensive loss ( 43,581,211 ) ( 49,751,175 ) Total stockholders' equity 136,146,276 132,978,303 Total liabilities and stockholders' equity $ 1,362,174,360 $ 1,328,620,141 See Notes to Condensed Consolidated Statements. 1 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Income (Unaudited) Three Months Ended March 31, 2023 2022 Interest Income Loans and leases $ 13,193,173 $ 10,265,959 Investment securities 1,934,072 1,668,651 Other 65,553 7,478 Total interest income 15,192,798 11,942,088 Interest Expense Deposits 4,026,675 1,248,651 Borrowings 1,295,313 639,823 Total interest expense 5,321,988 1,888,474 Net Interest Income 9,870,810 10,053,614 Provision for credit losses 170,106 200,000 Net Interest Income After Provision for Credit Losses 9,700,704 9,853,614 Noninterest Income Service charges on deposit accounts 280,995 234,545 Card fee income 287,258 277,770 Loan and lease servicing fees 120,072 27,868 Net gains on loan and lease sales 155,563 242,986 Gain on sale of other assets 1,921 — Other income 250,915 332,193 Total noninterest income 1,096,724 1,115,362 Noninterest Expenses Salaries and employee benefits 4,242,028 4,451,297 Net occupancy expenses 350,822 363,533 Equipment expenses 331,323 310,555 Data processing fees 836,513 658,915 Deposit insurance expense 168,000 81,000 Printing and office supplies 36,271 40,284 Legal and professional fees 310,976 347,500 Advertising expense 88,191 92,192 Bank service charges 48,619 29,801 Real estate owned expense — 2,501 Other expenses 948,445 956,241 Total noninterest expenses 7,361,188 7,333,819 Income Before Income Tax Expense 3,436,240 3,635,157 Provision for income taxes 532,194 617,565 Net Income $ 2,904,046 $ 3,017,592 Earnings Per Share Basic $ 0.27 $ 0.27 Diluted $ 0.27 $ 0.26 See Notes to Condensed Consolidated Statements. 2 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three Months Ended March 31, 2023 2022 Net Income $ 2,904,046 $ 3,017,592 Other Comprehensive (Income) Loss Unrealized gain (loss) on available-for-sale securities, net of tax of $( 1,640,117 ), and $ 6,412,910 , respectively. 6,169,964 ( 24,124,756 ) 6,169,964 ( 24,124,756 ) Comprehensive Income (Loss) $ 9,074,010 $ ( 21,107,164 ) 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, 2022 11,784,246 $ 117,842 $ 106,088,897 $ 88,715,782 $ ( 12,193,043 ) $ ( 49,751,175 ) $ 132,978,303 Net income — — — 2,904,046 — — 2,904,046 Other comprehensive income — — — — — 6,169,964 6,169,964 ESOP shares earned — — ( 13,318 ) — 183,829 — 170,511 Impact of ASU 2016-13 adoption — — — ( 3,785,168 ) — — ( 3,785,168 ) Stock based compensation — — 379,408 — — — 379,408 Common stock dividends ($ 0.14 per share) — — — ( 1,519,855 ) — — ( 1,519,855 ) Repurchase of common stock ( 98,553 ) ( 985 ) ( 1,149,948 ) — — — ( 1,150,933 ) Balances, March 31, 2023 11,685,693 $ 116,857 $ 105,305,039 $ 86,314,805 $ ( 12,009,214 ) $ ( 43,581,211 ) $ 136,146,276 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 See Notes to Condensed Consolidated Statements. 4 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2023 2022 Operating Activities Net income $ 2,904,046 $ 3,017,592 Items not requiring (providing) cash Provision for credit losses 170,106 200,000 Depreciation and amortization 261,665 265,213 Deferred income tax ( 88,482 ) ( 72,711 ) Stock based compensation 379,408 379,421 Investment securities amortization, net 296,954 451,165 Net gains on loan and lease sales ( 155,563 ) ( 242,986 ) Gain on sale of real estate owned ( 1,921 ) — Gain on sale of premises and equipment ( 1,800 ) — Accretion of loan origination fees ( 283,473 ) ( 460,332 ) Amortization of mortgage-servicing rights 39,558 40,748 ESOP shares expense 170,511 226,121 Increase in cash surrender value of life insurance ( 21,994 ) ( 21,659 ) Loans originated for sale ( 6,067,122 ) ( 10,784,144 ) Proceeds on loans sold 5,593,422 10,809,644 Net change in Interest receivable 27,242 111,013 Other assets 757,505 ( 274,611 ) Other liabilities ( 1,569,371 ) 204,264 Interest payable 1,177,300 31,808 Net cash provided by operating activities 3,587,991 3,880,546 Investing Activities Purchases of securities available for sale ( 7,097,933 ) ( 12,357,092 ) Proceeds from maturities and paydowns of securities available for sale 7,766,832 12,061,563 Proceeds from maturities and paydowns of securities held to maturity 918,473 891,488 Net change in loans ( 29,281,218 ) ( 16,824,787 ) Proceeds from sales of real estate owned 59,386 — Purchases of premises and equipment ( 86,375 ) ( 63,778 ) Proceeds from sale of premises and equipment 1,800 — (Purchase) Proceeds from sale of FHLB stock ( 134,900 ) 211,500 Net cash used in investing activities ( 27,853,935 ) ( 16,081,106 ) Financing Activities Net change in Demand and savings deposits ( 23,878,107 ) 23,120,244 Certificates of deposit 48,651,800 ( 13,800,382 ) Advances by borrowers for taxes and insurance 130,648 55,517 Proceeds from FHLB advances 179,500,000 15,000,000 Repayment of FHLB advances ( 176,000,000 ) ( 13,000,000 ) Repurchase of common stock ( 1,150,933 ) ( 1,499,008 ) Dividends paid ( 1,519,855 ) ( 1,137,990 ) Net cash provided by financing activities 25,733,553 8,738,381 Net Change in Cash and Cash Equivalents 1,467,609 ( 3,462,179 ) Cash and Cash Equivalents, Beginning of Period 15,922,093 23,038,145 Cash and Cash Equivalents, End of Period $ 17,389,702 $ 19,575,966 Additional Cash Flows and Supplementary Information Interest paid $ 4,144,688 $ 1,856,666 Transfers from loans to other real estate owned 366,508 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, First Insurance Management, Inc., FB Richmond Holdings, Inc. and FB Richmond Properties, 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, 2022 filed with the Securities and Exchange Commission (“SEC”) on March 31, 2023 (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. Use of Estimates in Preparation of Financial Statements Financial statements prepared in accordance with generally accepted accounting principles in the United States ("GAAP") require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates. 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. 6 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. On occasion, the Company will provide modifications to loans and leases to borrowers experiencing financial difficulty, by providing payment delays, term extensions, or interest-rate reductions. In some cases, combinations of modifications may be made to the same loan or lease. If determined that the value of the modified loan or lease is less than the recorded investment in the loan, a charge-off is recognized to the allowance for credit losses on loans and leases. Note 2: Accounting Pronouncements The Jumpstart Our Business Startups Act (the "JOBS Act"), which was enacted in April 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year qualifies as an “emerging growth company.” The Company qualifies as and has elected to be an emerging growth company under the JOBS Act. An emerging growth company may elect to comply with new or amended accounting pronouncements in the same manner as a private company, but must make such election when the company is first required to file a registration statement. Such an election is irrevocable during the period a company is an emerging growth company. The Company has elected to comply with new or amended accounting pronouncements in the same manner as a private company. In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments-Credit Losses (Topic 326) . The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief . 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 became effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company adopted ASU No. 2016-13 on January 1, 2023. As a result of the change in methodology from the incurred loss methodology to the current expected credit loss methodology ("CECL"), the Company recorded a one-time cumulative-effect adjustment of $ 2.0 million from retained earnings, net of tax, into the allowance for credit losses on loans and leases. The allowance increased $ 2.7 million, or 21.5 %, on January 1, 2023 from December 31, 2022 as a result of adoption. 7 Additionally, as a part of CECL adoption, the Company established an allowance for credit losses on off-balance sheet commitments by recording a one-time adjustment of $ 1.8 million from retained earnings, net of tax, into the allowance for credit losses on off-balance sheet commitments. As of January 1, 2023, this allowance totaled $ 2.4 million, as compared to no allowance at December 31, 2022. This allowance is reported in other liabilities on the Condensed Consolidated Balance Sheets. 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 became 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 the London Interbank Offer Rate ("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. In December of 2022, the FASB issued ASU No. 2022-06 which extended the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The guidance ensures the relief in Topic 848 covers the period of time during which a significant number of modifications may take place and the ASU defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Company does not expect the adoption of ASU No. 2020-04 to have a material impact on its 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: March 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale U.S. treasury securities $ 3,490 $ — $ 24 $ 3,466 SBA Pools 6,282 1 564 5,719 Federal agencies 15,000 — 2,049 12,951 State and municipal obligations 170,379 18 29,135 141,262 Mortgage-backed securities - government-sponsored enterprises (GSE) residential 140,260 — 21,491 118,769 Corporate obligations 11,500 — 1,922 9,578 346,911 19 55,185 291,745 Held to maturity State and municipal obligations 5,752 19 51 5,720 5,752 19 51 5,720 Total investment securities $ 352,663 $ 38 $ 55,236 $ 297,465 8 December 31, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale U.S. treasury securities $ 3,487 $ — $ 27 $ 3,460 SBA Pools 6,768 1 634 6,135 Federal agencies 15,000 — 2,352 12,648 State and municipal obligations 171,495 4 34,457 137,042 Mortgage-backed securities - government-sponsored enterprises (GSE) residential 139,626 — 23,644 115,982 Corporate obligations 11,500 — 1,867 9,633 347,876 5 62,981 284,900 Held to maturity State and municipal obligations 6,672 17 112 6,577 6,672 17 112 6,577 Total investment securities $ 354,548 $ 22 $ 63,093 $ 291,477 The amortized cost and fair value of securities at March 31, 2023, 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 $ 2,819 $ 2,805 $ 485 $ 485 One to five years 16,507 15,552 3,462 3,436 Five to ten years 42,168 38,412 915 926 After ten years 145,157 116,207 890 873 206,651 172,976 5,752 5,720 Mortgage-backed securities –GSE residential 140,260 118,769 — — Totals $ 346,911 $ 291,745 $ 5,752 $ 5,720 Securities with a carrying value of $ 142,062,000 and $ 134,302,000 were pledged at March 31, 2023 and December 31, 2022, 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, 2023 and 2022. 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, 2023 and December 31, 2022 was $ 294,926,000 and $ 288,846,000 , respectively, which is approximately 99 % and 99 % 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. The Company does not consider available-for-sale securities with unrealized losses to be experiencing credit losses at March 31, 2023, and therefore recognized no resulting allowance for credit losses. Management considers it more likely than not that the Company will not be required to sell these investments before recovery of the amortized cost basis, which may be the maturity dates of the securities. 9 Held to maturity securities are financial assets measured at amortized cost. With the adoption of CECL, held to maturity securities are required to have an established allowance for credit losses that represents the portion of the amortized cost basis of a financial asset that is not expected to be collectable. The Company estimates expected credit losses on a collective basis by security type, with consideration given to historical information, credit ratings, and the statistical probability of future losses. The Company monitors the credit quality of investment securities held to maturity through the use of credit ratings quarterly. As of March 31, 2023, there was no allowance for credit losses recognized on the Company's held to maturity investment portfolio. The following table summarizes the amortized cost of held to maturity investment securities by credit quality indicator, as of March 31, 2023: State and municipal obligations AA+ $ 1,177 AA 690 AA- 584 A+ 854 BBB+ 122 Not rated 2,325 $ 5,752 The Company has elected to exclude accrued interest receivable from the calculation of the allowance for credit losses. 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, 2023 and December 31, 2022: Description of Securities March 31, 2023 Less Than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Available-for-sale U.S. Treasury Securities $ 3,466 $ 24 $ — $ — $ 3,466 $ 24 SBA Pools — — 5,187 564 5,187 564 Federal agencies — — 12,951 2,049 12,951 2,049 State and municipal obligations 8,650 338 129,460 28,797 138,110 29,135 Mortgage-backed securities - GSE residential 5,481 118 116,594 21,373 122,075 21,491 Corporate obligations 2,410 340 7,168 1,582 9,578 1,922 Total available-for-sale 20,007 820 271,360 54,365 291,367 55,185 Held-to-maturity State and municipal obligations 3,101 37 458 14 3,559 51 Total impaired securities $ 23,108 $ 857 $ 271,818 $ 54,379 $ 294,926 $ 55,236 10 Description of Securities December 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 U.S. Treasury securities $ 3,460 $ 27 $ — $ — $ 3,460 $ 27 SBA Pools 1,237 145 4,234 489 5,471 634 Federal agencies — — 12,648 2,352 12,648 2,352 State and municipal obligations 76,986 11,825 59,257 22,632 136,243 34,457 Mortgage-backed securities - GSE residential 32,446 3,440 83,537 20,204 115,983 23,644 Corporate obligations 7,044 1,456 2,589 411 9,633 1,867 Total available-for-sale 121,173 16,893 162,265 46,088 283,438 62,981 Held-to-maturity State and municipal obligations 4,995 108 413 4 5,408 112 Total impaired securities $ 126,168 $ 17,001 $ 162,678 $ 46,092 $ 288,846 $ 63,093 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. 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. 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. The Company expects to recover the amortized cost basis over the term of the securities. The decline in fair value is attributable to changes in interest rates and not credit quality, and the Company does not intend to sell the investments. 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. State, Municipal, and Corporate Obligations. The unrealized losses on the Company’s investments in securities of state, municipal, and corporate obligations 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. 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 matur ity. The Company expects the fair value of the securities as described above to recover as the securities approach their maturity or reset date. 11 Note 4: Loans, Leases and Allowance The following table shows the composition of the loan and lease portfolio at March 31, 2023 and December 31, 2022: March 31, 2023 December 31, 2022 Commercial mortgage $ 321,314 $ 298,087 Commercial and industrial 97,880 100,420 Construction and development 125,521 139,923 Multi-family 132,407 124,914 Residential mortgage 152,376 146,129 Home equity lines of credit 10,923 11,010 Direct financing leases 143,281 133,469 Consumer 21,604 21,048 1,005,306 975,000 Less Allowance for credit losses on loans and leases 15,495 12,413 Deferred loan fees 694 896 $ 989,117 $ 961,691 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. 12 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. No material changes have been made to the risk characteristics discussed above contained in the Company's 2022 Form 10-K. 13 The following tables present the credit risk profile of the Company’s loan and lease portfolio based on rating category, payment activity, and origination year as of March 31, 2023 and rating category as of December 31, 2022: 2023 2022 2021 2020 2019 Prior Revolving loans amortized cost basis Total As of March 31, 2023: Commercial mortgage Pass $ 9,702 $ 74,237 $ 74,185 $ 30,209 $ 47,339 $ 70,727 $ 13,473 $ 319,872 Special Mention — — — — — 892 — 892 Substandard — — — — — 550 — 550 Total Commercial mortgage 9,702 74,237 74,185 30,209 47,339 72,169 13,473 321,314 Current period gross charge-offs — — — — — — — — Commercial and industrial Pass 9,681 14,760 20,937 6,186 1,976 12,421 24,892 90,853 Special Mention — 29 125 — — 1,689 525 2,368 Substandard — — — 589 — 215 3,855 4,659 Total Commercial and industrial 9,681 14,789 21,062 6,775 1,976 14,325 29,272 97,880 Current period gross charge-offs — — — — — — — — Construction and development Pass 7,171 44,858 25,365 11,453 564 976 30,234 120,621 Substandard — — — — 4,900 — — 4,900 Total Construction and development 7,171 44,858 25,365 11,453 5,464 976 30,234 125,521 Current period gross charge-offs — — — — — — — — Multi-family Pass 2,052 37,528 34,853 6,761 7,485 18,841 24,887 132,407 Total Multi-family 2,052 37,528 34,853 6,761 7,485 18,841 24,887 132,407 Current period gross charge-offs — — — — — — — — Residential mortgage Pass 9,885 35,313 38,193 17,458 9,300 40,436 — 150,585 Substandard — — — — 150 1,641 — 1,791 Total Residential mortgage 9,885 35,313 38,193 17,458 9,450 42,077 — 152,376 Current period gross charge-offs — — — — — — — — Home equity Pass 12 — 295 — — — 10,588 10,895 Substandard — — — — — — 28 28 Total Home equity lines of credit 12 — 295 — — — 10,616 10,923 Current period gross charge-offs — — — — — — — — Direct financing leases Pass 24,622 54,890 36,552 17,619 7,199 2,237 — 143,119 Substandard — — 139 17 — — — 156 Doubtful — — — — 6 — — 6 Total Direct financing leases 24,622 54,890 36,691 17,636 7,205 2,237 — 143,281 Current period gross charge-offs — — 80 5 — — — 85 Consumer Pass 2,853 10,972 5,265 1,256 763 468 — 21,577 Substandard — 5 13 — 8 1 — 27 Total Consumer 2,853 10,977 5,278 1,256 771 469 — 21,604 Current period gross charge-offs 7 19 17 — 1 — — 44 Total Loans and Leases $ 65,978 $ 272,592 $ 235,922 $ 91,548 $ 79,690 $ 151,094 $ 108,482 $ 1,005,306 Total current period gross charge-offs $ 7 $ 19 $ 97 $ 5 $ 1 $ — $ — $ 129 14 For the three months ended March 31, 2023, the Company did not have any revolving loans convert to term loans. Pass Special Mention Substandard Doubtful Loss Total As of December 31, 2022: Commercial mortgage $ 296,253 $ 1,277 $ 557 $ — $ — $ 298,087 Commercial and industrial 92,620 2,605 5,195 — — 100,420 Construction and development 135,023 — 4,900 — — 139,923 Multi-family 124,914 — — — — 124,914 Residential mortgage 144,190 — 1,939 — — 146,129 Home equity 10,958 — 52 — — 11,010 Direct financing leases 133,254 152 34 29 — 133,469 Consumer 21,015 — 33 — — 21,048 Total $ 958,227 $ 4,034 $ 12,710 $ 29 $ — $ 975,000 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, 2023 and December 31, 2022: March 31, 2023 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 $ 25 $ — $ — $ 25 $ 321,289 $ 321,314 $ — Commercial and industrial 5 147 3,120 3,272 94,608 97,880 1,284 Construction and development — — 4,900 4,900 120,621 125,521 — Multi-family — — — — 132,407 132,407 — Residential mortgage 148 37 1,791 1,976 150,400 152,376 1,679 Home equity 200 — 9 209 10,714 10,923 9 Direct financing leases 488 93 7 588 142,693 143,281 7 Consumer 116 104 27 247 21,357 21,604 27 Totals $ 982 $ 381 $ 9,854 $ 11,217 $ 994,089 $ 1,005,306 $ 3,006 December 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 $ 26 $ — $ — $ 26 $ 298,061 $ 298,087 $ — Commercial and industrial — — 2,202 2,202 98,218 100,420 1,285 Construction and development — — 4,900 4,900 135,023 139,923 — Multi-family — — — — 124,914 124,914 — Residential mortgage 272 129 1,938 2,339 143,790 146,129 1,825 Home equity — — 30 30 10,980 11,010 30 Direct financing leases 204 25 — 229 133,240 133,469 — Consumer 171 59 33 263 20,785 21,048 33 Totals $ 673 $ 213 $ 9,103 $ 9,989 $ 965,011 $ 975,000 $ 3,173 15 The following table presents information on the Company’s nonaccrual loans and leases at and for the three months ended March 31, 2023, and at December 31, 2022: March 31, 2023 December 31, 2022 Nonaccrual loans and leases Nonaccrual loans and leases without an allowance for credit losses Interest income recognized on nonaccrual loans and leases Nonaccrual loans and leases Commercial and industrial $ 594 $ — $ 1 $ 961 Construction 4,900 — — 4,900 Residential mortgage 112 112 — 113 Direct financing leases 6 6 — 29 Total nonaccrual loans and leases $ 5,612 $ 118 $ 1 $ 6,003 The following table presents the Company's amortized cost basis of collateral dependent loans, which are individually analyzed to determine expected credit losses: March 31, 2023 Amortized Cost Basis Allowance on Collateral Dependent Loans Commercial and industrial $ 594 $ 293 Construction 4,900 750 Residential mortgage 112 — Direct financing leases — — Total $ 5,606 $ 1,043 Loan Modification Disclosures under ASU 2022-02 In certain situations, the Company may modify the terms of a loan to a borrower experiencing financial difficulty. These modifications may include payment delays, term extensions, or interest-rate reductions. In some cases, combinations of modifications may be made to the same loan. If a determination is made that a modified loan has been deemed uncollectible, the loan (or portion of the loan) is charged-off, reducing the amortized cost basis of the loan and adjusting the allowance for credit losses. During the three months ended March 31, 2023, the Company had no new modifications to borrowers experiencing financial difficulty. There were no modified loans and leases that had a payment default during the three months ended March 31, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty. Troubled Debt Restructuring (TDR) Disclosures Prior to the Adoption of ASU 2022-02 During the three months ended March 31, 2022, there were no newly classified TDRs. For the three months ended March 31, 2022, the Company recorded no charge-offs related to TDRs. As of December 31, 2022, TDRs had a related allowance of $ 0 . 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. Other Real Estate Owned At March 31, 2023 and December 31, 2022, the balance of real estate owned included $ 367,000 and $ 57,000 , respectively, of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property. At March 31, 2023 and December 31, 2022, the recorded investment in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process was $ 431,000 and $ 1,071,000 , respectively. 16 Direct Financing Leases The following lists the components of the net investment in direct financing leases: March 31, 2023 December 31, 2022 Total minimum lease payments to be received $ 159,788 $ 147,520 Initial direct costs 8,937 8,058 168,725 155,578 Less: Unearned income ( 25,444 ) ( 22,109 ) Net investment in direct finance leases $ 143,281 $ 133,469 There were no leases serviced by the Company for the benefit of others at March 31, 2023 and December 31, 2022. 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, 2023 and December 31, 2022, 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, 2023: Remainder of 2023 $ 43,905 2024 48,708 2025 34,833 2026 21,351 2027 9,512 Thereafter 1,479 $ 159,788 Allowance for Credit Losses on Loans and Leases The allowance for credit losses on loans and leases is established for current expected credit losses on the Company's loan and lease portfolios in accordance with ASC Topic 326. This requires significant judgement to estimate credit losses measured on a collective pool basis when similar risk characteristics exist, and for loans evaluated individually. The company estimates expected future losses for the loan's entire contractual term, taking into account expected payments when appropriate. The allowance is an estimation based on management's evaluation of expected losses related to the Company's financial assets measured at amortized cost. It considers relevant available information from internal and external sources relating to the historical loss experience, current conditions and reasonable and supportable forecasts for the Company's outstanding loan and lease balances. The Company utilizes a cash flow analysis method of estimating expected losses, which relies on key inputs and assumptions. Significant factors affecting the calculation are the segmenting of loans based upon similar risk characteristics, applied loss rates based upon reasonable and supportable forecasts, and contractual term adjustments, including prepayment and curtailment adjustments. To ensure the allowance is maintained at an adequate level, a detailed analysis is performed on a quarterly basis, with an appropriate provision made to adjust the allowance. The Company has elected to exclude accrued interest receivable from the calculation of the allowance for credit losses, as it is the Company's policy to write off accrued interest in a timely manner as it is deemed uncollectible by reversing interest income. The Company categorizes its loan portfolios into eight segments based on similar risk characteristics. Loans within each segment are collectively evaluated using either a loss-rate methodology or remaining life methodology. 17 The following table summarizes changes in the allowance for credit losses by segment for the three months ended March 31, 2023: Balances, December 31, 2022 Impact of adopting ASC 326 Balances, January 1, 2023 Post-ASC 326 adoption Provision (reversal) for credit losses Charge-offs Recoveries Balances, March 31, 2023 Commercial mortgage $ 4,776 $ ( 395 ) $ 4,381 $ 337 $ — $ 10 $ 4,728 Commercial and industrial 1,291 360 1,651 ( 125 ) — 12 1,538 Construction and development 2,855 784 3,639 ( 164 ) — — 3,475 Multi-family 1,955 ( 99 ) 1,856 111 — — 1,967 Residential mortgage 76 1,439 1,515 71 — 10 1,596 Home equity 23 89 112 — — — 112 Direct financing leases 1,196 422 1,618 68 ( 85 ) 164 1,765 Consumer 241 64 305 42 ( 44 ) 11 314 Total $ 12,413 $ 2,664 $ 15,077 $ 340 $ ( 129 ) $ 207 $ 15,495 Subsequent to the adoption of ASC 326 on January 1, 2023, the allowance for credit losses increased during the three months ended March 31, 2023. The increase was driven by loan growth in multiple categories, including commercial mortgage, direct financing leases, and multi-family loans. The commercial mortgage portfolio increased due to commercial construction loans being completed and termed out to permanent financing. Correspondingly, as more commercial construction loans were completed, the total balance in this segment decreased. The balance in commercial and industrial loans increased slightly, but the decrease in the historical loss rate contributed to an overall decrease in the allowance within this segment. The remaining portfolio segments increased the allowance driven by loan growth within each category. • Commercial Mortgage – allowance increased due to loan balances increasing $ 16.6 million. • Commercial & Industrial – allowance decreased due to the historical loss rate decreasing 0.1285 % in this segment even though loan balances increased $ 3.7 million. • Construction & Development – allowance decreased due to loan balances decreasing $ 13.7 million. • Multi-Family – allowance increased due to balances increasing $ 7.5 million. • Residential Mortgage – allowance increased due to balances increasing $ 6.0 million. • Home Equity – no change to the allowance. • Leases – allowance increased due to balances increasing $ 9.8 million. • Consumer – allowance increased slightly due to balances increasing $ 649,000 . Economic Outlook Due to the future-focused nature of the calculation for the allowance for credit losses, management must make significant assumptions. Estimating an appropriate allowance requires management to use relevant forward-looking information drawn from reasonable and supportable forecasts. Economic factors are a consequential part of these forecasts, and as such are evaluated periodically for developments that may impact the Company's allowance for credit losses and loan and lease portfolio. As of March 31, 2023, the most significant economic factors affecting the Company's loan portfolio are persistent inflation, higher interest rates, a weakened economic growth and unemployment outlook, and increased geopolitical risk. These key factors are impacting and will continue to adversely impact the Company’s loan portfolio. Also, recent market liquidity events have added additional unpredictability into the economic environment and the potential for tighter credit conditions could impact economic conditions in the future. 18 For several years, the Company has targeted loan opportunities in three growth market regions, Columbus, Ohio, Dayton/Springfield, Ohio, and Indianapolis, Indiana. These market regions specialize in commercial real estate loans, and their respective forecasts are described below: • Columbus, Ohio – The market region is forecasting estimated job growth to be considerably lower in 2023. However, the forecasted unemployment rate is slightly below the national unemployment rate estimate as of February 2023. • Dayton/Springfield, Ohio – The economic outlook for this region is positive, though concerns are present about a potential recession occurring in the last half of 2023. The region has one of the lowest unemployment rates in the state, just above the Columbus market region. • Indianapolis, Indiana – The market region is forecasting a material economic growth rate decrease in 2023. The forecast estimates have been lowered primarily due to inflation and rising interest rates, which have dampened demand and are impacting economic growth. The Company’s assumption of future economic slowdown could potentially have an adverse impact on the loan and lease portfolio and the allowance for credit losses in the near future; however, there are numerous potential outcomes, and the variances could be significant and volatile. As a result, the Company’s future estimates may vary for the remainder of 2023. Allowance for Loan Losses under prior GAAP ("Incurred Loss Method") Prior to the adoption of ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) on January 1, 2023, the Company maintained an allowance for loan and lease losses in accordance with the Incurred Loss Method. The following table summarizes changes in the allowance for loan and lease losses under the Incurred Loss Method by segment for the three months ended March 31, 2022: Balance, beginning of period Provision (reversal) 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 19 The following table presents 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 under the incurred loss method as of December 31, 2022: 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, 2022: Commercial mortgage $ — $ 4,776 $ 4,776 $ — $ 298,087 $ 298,087 Commercial and industrial 281 1,010 1,291 961 99,459 100,420 Construction and development 750 2,105 2,855 4,900 135,023 139,923 Multi-family — 1,955 1,955 — 124,914 124,914 Residential mortgage — 76 76 113 146,016 146,129 Home equity — 23 23 — 11,010 11,010 Leases — 1,196 1,196 — 133,469 133,469 Consumer — 241 241 — 21,048 21,048 Total $ 1,031 $ 11,382 $ 12,413 $ 5,974 $ 969,026 $ 975,000 The following table presents the Company’s impaired loans and specific valuation allowance at December 31, 2022 under the Incurred Loss Method: December 31, 2022 Recorded Balance Unpaid Principal Balance Specific Allowance Impaired loans without a specific valuation allowance Commercial mortgage $ — $ 59 $ — Commercial and industrial 366 567 — Residential mortgage 113 241 — $ 479 $ 867 $ — Impaired loans with a specific valuation allowance Commercial and industrial $ 595 $ 643 $ 281 Construction and development 4,900 4,900 750 $ 5,495 $ 5,543 $ 1,031 Total impaired loans Commercial mortgage $ — $ 59 $ — Commercial and industrial 961 1,210 281 Construction and development 4,900 4,900 750 Residential mortgage 113 241 — Total impaired loans $ 5,974 $ 6,410 $ 1,031 20 The following table presents the Company’s average investment in impaired loans and leases, and interest income recognized for the three months ended March 31, 2022 under the incurred loss method: 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 Allowance for Credit Losses on Off-Balance Sheet Commitments The allowance for credit losses on off-balance sheet commitments is included in other liabilities on the Condensed Consolidated Balance Sheets. The estimate of expected losses on off-balance sheet commitments is calculated based on the loss rate for the loan segment which the loan commitments would be classified if funded, adjusted for the estimate of funding probability. Additional provisions applied to the allowance are recognized in the provision for credit losses on the Condensed Consolidated Statements of Income. The following table details activity in the allowance for credit losses on off-balance sheet commitments during the three months ended March 31, 2023: Three Months Ended March 31, 2023 Balance, December 31, 2022 $ — Impact of adopting ASC 326 2,374 Provision for credit losses ( 170 ) Balance, March 31, 2023 $ 2,204 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 21 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, 2023 and December 31, 2022: 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, 2023 Available-for-sale securities U.S. Treasury securities $ 3,466 $ 3,466 $ — $ — SBA Pools 5,719 — 5,719 — Federal agencies 12,951 — 12,951 — State and municipal obligations 141,262 — 141,262 — Mortgage-backed securities - GSE residential 118,769 — 118,769 — Corporate obligations 9,578 — 9,578 — $ 291,745 $ 3,466 $ 288,279 $ — 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, 2022 Available-for-sale securities U.S. Treasury securities $ 3,460 $ 3,460 $ — $ — SBA Pools 6,135 — 6,135 — Federal agencies 12,648 — 12,648 — State and municipal obligations 137,042 — 137,042 — Mortgage-backed securities - GSE residential 115,982 — 115,982 — Corporate obligations 9,633 — 9,633 — $ 284,900 $ 3,460 $ 281,440 $ — 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, 2023. 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. 22 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 March 31, 2023 and December 31, 2022: 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, 2023 Collateral-dependent loans $ 300 $ — $ — $ 300 December 31, 2022 Impaired loans, collateral-dependent $ 314 $ — $ — $ 314 Mortgage-servicing rights 2,012 — — 2,012 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 Loans, Net of Allowance for Credit Losses The estimated fair value of collateral-dependent loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent 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. 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 March 31, 2023 and December 31, 2022: 23 Fair Value at March 31, 2023 Valuation Technique Unobservable Inputs Range Collateral-dependent loans $ 300 Appraisal Marketability discount 0 - 44 % Fair Value at December 31, 2022 Valuation Technique Unobservable Inputs Range Impaired loans, collateral-dependent $ 314 Appraisal Marketability discount 0 - 42 % Mortgage-servicing rights $ 2,012 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, 2023 and December 31, 2022: 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, 2023 Financial assets Cash and cash equivalents $ 17,390 $ 17,390 $ — $ — Interest-earning time deposits 490 — 489 — Available-for-sale securities 291,745 3,466 288,279 — Held-to-maturity securities 5,752 — 5,720 — Loans and leases receivable, net 989,117 — — 904,924 Federal Reserve and FHLB stock 10,082 — 10,082 — Interest receivable 4,683 — 4,683 — Financial liabilities Deposits 1,030,034 — 1,022,931 — FHLB advances 183,500 — 178,492 — Interest payable 2,547 — 2,547 — 24 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, 2022 Financial assets Cash and cash equivalents $ 15,922 $ 15,922 $ — $ — Interest-earning time deposits 490 — 490 — Available-for-sale securities 284,900 3,460 281,440 — Held-to-maturity securities 6,672 — 6,577 — Loans held for sale 474 — — 433 Loans and leases receivable, net 961,691 — — 883,169 Federal Reserve and FHLB stock 9,947 — 9,947 — Interest receivable 4,710 — 4,710 — Financial liabilities Deposits 1,005,261 — 996,375 — FHLB advances 180,000 — 174,426 — Interest payable 1,369 — 1,369 — 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, 2023 Three Months Ended March 31, 2022 Net income $ 2,904 $ 3,018 Shares outstanding for Basic EPS: Average shares outstanding 11,758,118 12,347,125 Less: average restricted stock award shares not vested 261,291 348,395 Less: average unearned ESOP Shares 897,098 951,205 Shares outstanding for Basic EPS 10,599,729 11,047,525 Additional Dilutive Shares 136,048 426,940 Shares outstanding for Diluted EPS 10,735,777 11,474,465 Basic Earnings Per Share $ 0.27 $ 0.27 Diluted Earnings Per Share $ 0.27 $ 0.26 25 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 $ 37,000 and $ 53,000 for the three months ended March 31, 2023 and 2022, 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, $ 12,009,214 and $ 12,193,043 of common stock acquired by the ESOP was shown as a reduction of stockholders’ equity at March 31, 2023 and December 31, 2022, respectively. Shares are released to participants proportionately as the loan is repaid. ESOP expense for the three months ended March 31, 2023 and 2022 was $ 171,000 and $ 226,000 , respectively. March 31, 2023 December 31, 2022 Earned ESOP shares 198,409 184,882 Unearned ESOP shares 883,721 897,248 Total ESOP shares 1,082,130 1,082,130 Quoted per share price $ 10.37 $ 13.01 Fair value of earned shares (in thousands) $ 2,058 $ 2,405 Fair value of unearned shares (in thousands) $ 9,164 $ 11,673 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. 26 The following table summarizes the restricted stock awards activity in the 2020 EIP during the three months ended March 31, 2023. Three Months Ended March 31, 2023 Number of Restricted Shares Weighted Average Grant Date Fair Value Non-vested, beginning of period 261,291 $ 10.56 Granted — — Vested — — Forfeited — — Non-vested, March 31, 2023 261,291 10.56 Total compensation cost recognized in the income statement for restricted stock awards during the three months ended March 31, 2023 was $ 227,000 , and the related tax benefit recognized was $ 48,000 . As of March 31, 2023, unrecognized compensation expense related to restricted stock awards was $ 2.1 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, 2023. Three Months Ended March 31, 2023 Number of Shares Weighted-Average Exercise Price Balance at beginning of period 1,050,961 $ 10.56 Granted — — Exercised — — Forfeited/expired — — Balance, March 31, 2023 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 27 A summary of the status of the Company stock option shares as of March 31, 2023 is presented below. Shares Weighted Average Grant Date Fair Value Non-vested, beginning of year 637,841 $ 2.91 Vested — — Granted — — Forfeited — — Non-vested, March 31, 2023 637,841 $ 2.91 Total compensation cost recognized in the income statement for option-based payment arrangements for the three months ended March 31, 2023 was $ 153,000 , and the related tax benefit recognized was $ 17,000 . As of March 31, 2023, unrecognized compensation expense related to the stock option awards was $ 1.4 million. Note 8: Subsequent Event Subsequent to March 31, 2023 through May 15, 2023 the Company purchased 140,770 shares of the Company's common stock pursuant to the existing stock repurchase program, leaving 883,073 shares available for future repurchase. 28