What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-29 compared with 2023-03-31 · 374 added, 290 removed, 966 unchanged (41% of the section changed)

1 unchanged sentence

Report of Independent Registered Public Accounting Firm

To the Shareholders, Board of Directors and Audit Committee

Shareholders, Board of Directors, and Audit Committee

Richmond Mutual Bancorporation, Inc.

1 unchanged sentence

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Richmond Mutual Bancorporation (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income (loss), stockholders’ equity, and cash flows 1F for each of the years then ended, and the related notes (collectively referred to as the “financial statements”).

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

(Company) as of December 31, 2023 and 2022, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the years then ended, and the related notes collectively referred to as the “financial statements”.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 and 5 to the consolidated financial statements, the Company changed its method of accounting for accounting for credit losses due to the adoption of Accounting Standards Codification Topic 326, Financial Instruments .

Basis for Opinion

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

/s/ FORVIS, LLP (Formerly BKD, LLP)

/s/ FORVIS, LLP

We have served as the Company’s auditor since at least 1982;

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Loans held for sale 793,500 473,700

Loans and leases, net of allowance for losses of $ 12,413,035 and

Loans and leases, net of allowance for credit losses of $ 15,663,153 and

$ 12,413,035 , respectively

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Net Interest Income 37,662,391 41,638,660

Provision for losses on loans and leases 600,000 1,430,000

Net Interest Income After Provision for Losses on Loans and Leases 41,038,660 36,814,215

Provision for credit losses 531,974 600,000

Net Interest Income After Provision for Credit Losses 37,130,417 41,038,660

Non-interest Income

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Loan and lease servicing fees, including mortgage servicing right impairment 448,027 861,758

Net gains on securities (includes $ 0 and $ 55,799 , related to accumulated other comprehensive loss reclassifications)

Net gains on loan and lease sales 517,883 639,274

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Income Before Income Tax Expense 11,002,717 15,748,906

Provision for income taxes (includes $ 0 and $ 11,718 , related to income tax expense from reclassification of items)

2,783,467 2,435,500

Provision for income taxes 1,515,881 2,783,467

Net Income $ 9,486,836 $ 12,965,439

4 unchanged sentences

Richmond Mutual Bancorporation, Inc.

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Comprehensive Income (Loss)

Years Ended December 31, 2023 and 2022

Net Income $ 9,486,836 $ 12,965,439

Other Comprehensive Loss

Unrealized loss on available-for-sale securities, net of tax benefit of $ 12,902,816 and $ 1,296,294

( 48,539,164 ) ( 4,876,535 )

reclassification adjustment for realized gains included in net income, net of tax expense of $ 0 and $ 11,718

Other Comprehensive Income (Loss)

Unrealized gain (loss) on available-for-sale securities, net of tax (expense) benefit of $( 1,782,629 ) and $ 12,902,816

6,706,079 ( 48,539,164 )

Comprehensive (Loss) Income $ ( 35,573,725 ) $ 6,224,284

Comprehensive Income (Loss) $ 16,192,915 $ ( 35,573,725 )

See Notes to Consolidated Financial Statements

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Comprehensive

Income (Loss) Total

Outstanding Amount

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ESOP shares earned — — 63,430 — 735,316 — 798,746

Granting of restricted stock awards 4,000 40 ( 40 ) — — — —

Stock based compensation — — 1,538,737 — — — 1,538,737

Exercise of stock options 1 26,072 260 127,313 — — — 127,573

Common stock dividends ($ 0.40 per share)

2 unchanged sentences

Balances, December 31, 2022 11,784,246 $ 117,842 $ 106,088,897 $ 88,122,052 $ ( 12,193,043 ) $ ( 49,751,175 ) $ 132,384,573

Impact of ASU 2016-13 adoption — — — ( 3,785,168 ) — — ( 3,785,168 )

Balances, January 1, 2023 11,784,246 117,842 106,088,897 84,336,884 ( 12,193,043 ) ( 49,751,175 ) 128,599,405

Net income — — — 9,486,836 — — 9,486,836

Other comprehensive loss — — — — — ( 48,539,164 ) ( 48,539,164 )

Other comprehensive income — — — — — 6,706,079 6,706,079

ESOP shares earned — — ( 123,772 ) — 735,317 — 611,545

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See Notes to Consolidated Financial Statements

1 The amount shown represents the number of shares issued in net-settled option transactions where some shares are netted from a portion of the exercises.

Richmond Mutual Bancorporation, Inc.

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Items not requiring (providing) cash

Provision for loan losses 600,000 1,430,000

Provision for credit losses 531,974 600,000

Depreciation and amortization 975,813 1,063,691

2 unchanged sentences

Investment securities amortization, net 1,136,167 1,546,615

Investment securities gains — ( 55,799 )

Net gains on loan and lease sales ( 517,883 ) ( 639,274 )

Loss on sale of real estate owned 4,042 10,882

Gain on sale of premises and equipment

Accretion of loan origination fees ( 945,579 ) ( 1,578,653 )

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Other assets ( 1,986,401 ) ( 2,117,372 )

Multi-employer pension plan liability — ( 17,454,709 )

Other liabilities ( 1,786,506 ) 2,257,577

Interest payable 3,027,601 1,111,319

Net cash provided by (used in) operating activities 18,160,168 ( 9,646,061 )

Net cash provided by operating activities 12,114,197 18,160,168

Investing Activities

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Proceeds from maturities and paydowns of securities available for sale 20,810,919 32,181,335

Proceeds from sales of securities available for sale — 5,296,930

Proceeds from maturities and paydowns of securities held to maturity 1,718,044 2,357,168

2 unchanged sentences

Purchases of premises and equipment ( 619,209 ) ( 385,099 )

Change in FHLB stock 45,100 ( 942,800 )

Proceeds from sale of premises and equipment 1,800 —

Purchases of FHLB stock ( 2,699,800 ) ( 166,400 )

Proceeds from sale of FHLB stock — 211,500

Net cash used in investing activities ( 122,531,989 ) ( 116,123,966 )

7 unchanged sentences

Repurchase of common stock ( 6,250,519 ) ( 9,859,240 )

Proceeds from stock option exercises — 127,573

Dividends paid ( 5,920,973 ) ( 4,407,550 )

34 unchanged sentences

Actual results could differ from those estimates.

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

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

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

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Gains and losses, both realized and unrealized, are included in other income.

The Company accounts for recognition and presentation of other-than-temporary impairment in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Code ("ASC") 320-10.

When the Company does not intend to sell a debt security, and it is more likely than not, the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive loss.

For held-to-maturity debt securities, the amount of an other-than-temporary impairment recorded in other comprehensive loss for the noncredit portion of a previous other-than-temporary impairment is amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.

The Company accounts for recognition and presentation of impaired securities in accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Code ("ASC") 326.

When an impairment has occurred, it is determined whether or not the impairment is due to credit or non-credit related factors.

If it is determined that the impairment is credit-related, then it must also be determined if the Company has the intent to sell the security or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis.

If either of these factors are present, then the impairment will be recognized in earnings with a corresponding adjustment to the amortized cost basis of the security.

If the Company does not intend to sell the security and it is more likely than not that the sale of the security will not be required before recovery of its amortized cost basis, the present values of expected cash flows to be collected from the security will be compared against the amortized cost basis of the security.

If the amortized cost basis of the security is greater than the present cash flows expected, a credit loss would exist and it would determine the amount of allowance, if any, that would be deemed needed.

A needed allowance would result in an allowance recognized on the balance sheet with a corresponding adjustment to earnings.

Amortization of premiums and accretion of discounts are recorded as interest income from securities.

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Unearned income on direct financing leases is recognized as income over the term of the lease using a method that approximates the interest method.

Loans - Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

Loans - Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for credit losses on loans, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance.

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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, 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.

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

Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible.

The Company’s policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.

For all loan portfolio segments except residential and consumer loans, the Company promptly charges off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations.

For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

For collateral dependent loans, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

The Company charges off residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss.

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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.

Allowance for Loan and Lease Losses - The allowance for loan and lease losses is established as losses are estimated to have occurred through a provision for loan and lease losses charged to income.

Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Loans modified to borrowers experiencing financial difficulty recognize interest income on an accrual basis at the renegotiated rate or terms, provided the loan is in compliance with the modified terms.

If determined that 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.

Allowance for Credit Losses - The allowance for credit losses is established for current expected credit losses on the Company's loan and lease portfolios in accordance with ASC Topic 326.

Losses are estimated to have occurred through a provision for credit losses charged to income.

Credit losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions.

The allowance for credit losses is evaluated on a regular basis by management and is maintained at a level believed to be adequate to absorb credit losses within the Company's loan and lease portfolio.

In evaluating the allowance, management considers all relevant information available, from internal and external sources relating to historical experience, current conditions, and reasonable and supportable forecasts.

This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of allocated and general components.

The allocated component relates to loans that are classified as impaired.

For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.

The general component covers nonimpaired loans and is based on historical charge-off experience by segment.

The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior three years .

Management believes the three year historical loss experience methodology, on a weighted basis, is appropriate in the current economic environment.

Other adjustments (qualitative/environmental considerations) for each segment may be added to the allowance for each loan segment after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due based on the loan’s current payment status and the borrower’s financial condition including available sources of cash flows.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan-by-loan basis for nonhomogeneous type loans such as commercial, nonowner residential and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

For impaired loans where the Company utilizes the discounted cash flows to determine the level of impairment, the Company includes the entire change in the present value of cash flows as bad debt expense.

The fair values of collateral dependent impaired loans are based on independent appraisals of the collateral.

In general, the Company acquires an updated appraisal upon identification of impairment and annually thereafter for commercial, commercial real estate and multi-family loans.

If the most recent appraisal is over a year old, and a new appraisal is not performed, due to lack of comparable values or other reasons, the existing appraisal is utilized and discounted based on the age of the appraisal, condition of the subject property, and overall economic conditions.

After determining the collateral value as described, the fair value is calculated based on the determined collateral value, less selling expenses.

The potential for outdated appraisal values is considered in the determination of the allowance for loan losses through an analysis of various trends and conditions including the local economy, trends in charge-offs and delinquencies, etc.

and the related qualitative adjustments assigned by the Company.

Segments of loans with similar risk characteristics are collectively evaluated for impairment based on the segment’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans.

Accordingly, the Company does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

In the course of working with borrowers, the Company may choose to restructure the contractual terms of certain loans.

In this scenario, the Company attempts to work-out an alternative payment schedule with the borrower in order to optimize collectability of the loan.

Any loans that are modified are reviewed by the Company to identify if a troubled debt restructuring (“TDR”) has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider.

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

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

foreclosure proceedings are initiated.

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

It is the Company’s policy to have any restructured loans, which are on nonaccrual status prior to being restructured remain on nonaccrual status until six months of satisfactory borrower performance at which time management would consider its return to accrual status.

If a loan was accruing at the time of restructuring, the Company reviews the loan to determine if it is appropriate to continue the accrual of interest on the restructured loan.

With regard to determination of the amount of the allowance for credit losses, troubled debt restructured loans are considered to be impaired.

As a result, the determination of the amount of impaired loans for each portfolio segment within troubled debt restructurings is the same as detailed previously.

The allowance consists of collectively pooled and individually evaluated components.

"Collectively pooled" refers to loans and leases grouped based upon similar risk characteristics.

Quantitative methodologies and qualitative adjustments are applied to each pooled segment.

The Company has identified eight segments of loans and leases which are collectively pooled based on similar risk characteristics.

The allowance for credit losses on pooled loans is estimated based upon periodic review of the loan and lease portfolio.

The Company utilizes a cash flow ("CF") model to estimate the portion of quantitative allowance reserve for collectively pooled loans.

CF models allow for effective incorporation of reasonable and supportable forecasts in a consistent manner.

If inadequate information is available to perform CF modeling

for a collective pool, the Company uses the Remaining Life Method ("RLM") as a substitute.

The RLM uses periodic charge-off rates and applies those rates to the projected balances over the remaining life of the loan.

Accrued interest receivable is excluded from the calculation of the allowance for credit losses, as the Company's policy is to write off accrued interest promptly when deemed uncollectible by reversing interest income.

Key inputs into the CF model include loan-level information, such as the amortized cost basis of individual loans, prepayment and curtailment rates for the collective pool, and forecasted loss drivers.

The Company uses prepayment and curtailment rates based upon studies done using internal historical information, or benchmarked rates from external sources when the Company's own historical data is not sufficient.

When estimating for credit loss, the Company forecasts the first four quarters of the credit loss estimate and reverts to a long-run average of each considered factor.

The Company develops its reasonable and supportable forecasts using economic data, such as gross domestic product and unemployment rate.

For all collectively pooled segments, qualitative adjustments are applied to capture differences in current or expected qualitative risk characteristics.

In assessing estimated credit losses, management considers any changes in the following factors and how they relate to the Company's current lending environment:

(i) lending policies, procedures, and strategies, (ii) the nature and volume of the portfolio, (iii) international, national, regional, and local conditions, (iv) the experience, depth, and ability of lending management, (v) the volume and severity of past due loans, (vi) the quality of the loan review system, (vii) the underlying collateral, (viii) concentration risk, and (ix) the effect of other external factors.

Loans with different risk characteristics are individually evaluated for potential credit losses and assigned individual reserves.

These individually evaluated loans are removed from the pools and are not included in the collective evaluation.

Individually analyzed loans may be identified due to current information and events, such as non-accrual status, delinquency status or history, or other potential identifiers impacting the collectability of the loan.

Individual reserves are determined at the loan-level based on an analysis of the expected future cash flows, the fair value of the collateral less costs to sell, or observable market value.

Mortgage Loans Held for Sale – Mortgage loans originated and intended for sale in the secondary market are recorded at the lower of cost or fair value on an individual loan basis.

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For purposes of measuring impairment, the rights are stratified based on the predominant risk characteristics of the underlying loans.

The predominant characteristic currently used for stratification is type of loan.

The predominant

characteristic currently used for stratification is type of loan.

The amount of impairment recognized is the amount by which the capitalized mortgage servicing rights for a stratum exceed their fair value.

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The Company has recorded approximately $ 653,000 and $ 619,000 in compensation expense relating to vesting of stock options, which are recognized as they occur, for the year ended December 31, 2023 and 2022, respectively.

The Company has recorded approximately $ 974,000 and $ 920,000 in compensation expense relating to the vesting restricted stock awards for the years ended December 31, 2023 and 2022, respectively.

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

Adoption of New Accounting Standard s - In June 2016, the FASB issued Accounting Standards Update ("ASU") No.

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

This ASU introduced the current expected credit loss, or "CECL", methodology, which requires earlier recognition of credit losses based upon historical experience, current conditions, and reasonable and supportable forecasts.

The CECL methodology utilizes a life-of-loan credit loss estimation, with the objective of recognizing credit losses on financial assets as they are originated or acquired.

The transition to CECL from the previous Incurred Loss Methodology became effective for the Company on January 1, 2023.

On January 1, 2023, the Company adopted CECL by recording a one-time adjustment from retained earnings of $ 2.0 million, net of tax, into the allowance for credit losses on loans and leases.

Prior to this one-time adjustment, the allowance for loan and lease losses totaled $ 12.4 million at December 31, 2022.

At January 1, 2023, the allowance for credit losses totaled $ 15.1 million.

Additionally, as a part of CECL adoption, the Company established an allowance for credit losses on unfunded commitments.

This allowance, which is included in other liabilities on the Consolidated Balance Sheets, is estimated based upon the loss rate for the loan or lease segment in which the loan or lease commitments would be classified if funded.

The calculation is further adjusted by the estimation of funding probability.

The Company recorded a one-time adjustment from retained earnings of $ 1.8 million, net of tax, to establish the allowance for credit losses on unfunded commitments.

At January 1, 2023, this allowance totaled $ 2.4 million.

The following table summarizes the impact of the day-one adoption of CECL:

December 31, 2023 CECL Adoption Impact January 1, 2023

Allowance for Credit Losses:

Commercial mortgage $ 4,776 $ ( 395 ) $ 4,381

Commercial and industrial 1,291 360 1,651

Construction and development 2,855 784 3,639

Multi-family 1,955 ( 99 ) 1,856

Residential mortgage 76 1,439 1,515

Home equity 23 89 112

Direct financing leases 1,196 422 1,618

Consumer 241 64 305

Total Allowance for Credit Losses on Loans and Leases $ 12,413 $ 2,664 $ 15,077

Reserve for Unfunded Commitments — 2,374 2,374

Total Reserve for Credit Losses $ 12,413 $ 5,038 $ 17,451

Retained Earnings

Total Pre-tax Impact $ ( 5,038 )

Tax Effect 1,253

Decrease to Retained Earnings $ ( 3,785 )

The allowance for credit losses on loans and leases and the allowance for credit losses on unfunded commitments are evaluated on a regular basis and maintained at levels that management believes to be adequate to absorb potential credit losses.

Increases to the allowances are expensed through provisions for credit losses.

Loans and leases, or portions thereof, that are determined not to be collectable are charged

against the allowance for credit losses on loans and leases.

Subsequent recoveries, if any, are credited to this allowance.

The Company did not record an allowance for available-for-sale securities at January 1, 2023 as a part of its day-one CECL adjustments.

Management regularly assesses the available-for-sale portfolio for any potential credit-related impairments which may impact earnings.

With the adoption of CECL, held to maturity securities are required to have an established allowance for credit losses that represents a portion of the amortized cost basis of a financial asset that is not expected to be collectable.

The Company regularly monitors the credit quality of securities held to maturity through the use of credit ratings.

At the day-one adoption of CECL on January 1, 2023, the Company did not establish an allowance for credit losses on held to maturity securities, as the Company expects to collect the full amortized cost basis of its held to maturity securities portfolio.

Accounting Pronouncements

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

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

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

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

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

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

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

The Company has taken advantage of this provision to extend

certain payment modifications to loan customers in need.

As of December 31, 2021, the Company had no modified loans outstanding 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, with loans being eligible for forgiveness of some or all of the principal amount by the SBA if the borrower meets certain requirements.

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

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

The PPP expired on May 31, 2021.

As of December 31, 2022, PPP loans outstanding totaled $ 944,000 .

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

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.

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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.

As of the adoption and day one measurement date of January 1, 2023, the Company expects to record a one-time cumulative-effect adjustment to retained earnings, net of income taxes, on the consolidated balance sheet.

The allowance will increase between $ 2.3 million and $ 3.0 million from December 31, 2022.

CECL also requires the establishment of a reserve for potential losses from unfunded commitments that is recorded in other liabilities, separate from the allowance for credit losses, which will be approximately $ 1.8 million to

$ 2.5 million.

Also, as required by CECL, the Company reviewed the held-to-maturity debt securities portfolio and determined the expected losses were immaterial.

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 the adoption.

Additionally, as a part of the CECL adoption, the Company established an allowance for credit losses on unfunded commitments by recording a one-time adjustment of $ 1.8 million from retained earnings, net of tax, into the allowance for credit losses on unfunded 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 CECL amendments in ASU 2016-13.

In March 2020, the FASB issued ASU No.

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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.

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.

In October 2020, the FASB issued ASU No.

2020-08, Receivables – Nonrefundable Fees and Other Costs .

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.

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

The Company adopted ASU No.

2020-08 on January 1, 2021.

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 .

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

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

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

The amendments in ASU No.

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

The Company adopted ASU No.

2019-12 on January 1, 2021.

The adoption of ASU No.

2019-12 did not have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU No.

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

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

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

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

The Company adopted ASU No.

2018-13 on January 1, 2020.

The adoption of ASU No.

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

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842).

Under the new guidance, lessees will be required to recognize the following for all leases, with the exception of short-term leases, at the commencement date:

(1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

Under the new guidance, lessor accounting is largely unchanged.

For the Company, the amendments in this update became effective for annual periods and interim periods within those annual periods beginning after December 15, 2021.

Based on leases outstanding as of December 31, 2021, this standard did not have a material impact on the Company’s balance sheet or income statement.

In July 2018, the FASB issued ASU No.

2018-11, Leases (Topic 842), Targeted Improvements, which provide entities with an additional (and optional) transition method to adopt the new lease standard.

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

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

GAAP (Topic 842, Leases).

The amendments in ASU No.

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

Restriction on Cash and Due From Banks

18 unchanged sentences

Available for sale

treasury securities $ 3,487 $ — $ 27 $ 3,460

SBA Pools 6,768 1 634 6,135

3 unchanged sentences

Corporate obligations 11,500 — 1,867 9,633

Equity securities 13 — — 13

347,876 5 62,981 284,900

7 unchanged sentences

Value Amortized

Within one year $ 2,380 $ 2,373 $ 1,258 $ 1,250

One to five years 15,989 15,067 3,609 3,558

Five to ten years 43,524 39,024 915 922

One year or less $ 4,568 $ 4,539 $ 1,146 $ 1,140

After one to five years 25,013 23,197 2,321 2,295

After five to ten years 37,773 33,833 773 785

After ten years 136,597 109,638 710 701

3 unchanged sentences

Securities with a carrying value of $ 162,430,000 and $ 134,302,000 were pledged at December 31, 2023 and 2022, respectively, to secure certain deposits and for other purposes as permitted or required by law.

Proceeds from sales of securities available for sale during years ended December 31, 2022 and 2021 were $ 0 and $ 5,297,000 , respectively.

Gross gains of $ 0 and $ 56,000 resulting from sales of available-for-sale securities were realized for the years ended December 31, 2022 and 2021, respectively.

There were no gross losses realized from sales of available-for-sale securities for the years ended December 31, 2022, and 2021.

There were no sales of securities available for sale for the years ended December 31, 2023 and 2022.

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

Total fair value of these investments at December 31, 2023 and 2022 was $ 279,852,000 and $ 288,846,000 , which is approximately 97 % and 99 %, respectively, of the Company’s available-for-sale and held-to-maturity investment portfolio.

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

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.

These declines primarily resulted from changes in market interest rates since their purchase.

The Company does not consider available-for-sale securities with unrealized losses to be experiencing credit losses at December 31, 2023.

Management considers it more likely than not that the Company will not be required to sell these securities before recovery of the amortized cost basis, which may be the maturity date of the securities.

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 securities held to maturity using credit ratings quarterly.

As of December 31, 2023, there was no allowance for credit losses recognized on the Company's securities held to maturity portfolio.

The following table summarizes the amortized cost of held to maturity securities by credit quality indicator as of December 31, 2023:

State and municipal obligations

Not rated 2,207

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’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2023 and 2022:

15 unchanged sentences

State and municipal obligations 849 3 2,552 39 3,401 42

Total temporarily impaired securities $ 126,168 $ 17,001 $ 162,678 $ 46,092 $ 288,846 $ 63,093

Total $ 6,690 $ 167 $ 273,162 $ 54,439 $ 279,852 $ 54,606

Less Than 12 Months 12 Months or More Total

5 unchanged sentences

Available-for-sale

treasury securities $ 3,460 $ 27 $ — $ — $ 3,460 $ 27

SBA Pools 1,237 145 4,234 489 5,471 634

6 unchanged sentences

State and municipal obligations 4,995 108 413 4 5,408 112

Total temporarily impaired securities $ 206,296 $ 4,005 $ 17,546 $ 535 $ 223,842 $ 4,540

Total $ 126,168 $ 17,001 $ 162,678 $ 46,092 $ 288,846 $ 63,093

Federal Agency Obligations and U.S.

3 unchanged sentences

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 December 31, 2022.

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

1 unchanged sentence

The Company expects to recover the amortized cost basis over the term of the securities.

Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2022.

The decline in market value is attributable to changes in interest rates and not credit quality.

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 and illiquidity.

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 bases 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 December 31, 2022.

The Company expects the fair value of the securities as described above to recover as the securities approach their maturity or reset date.

Loans, Leases and Allowance

9 unchanged sentences

1,106,512 975,000

Allowance for loan and lease losses 12,413 12,108

Allowance for credit losses 15,663 12,413

Deferred loan fees 776 896

$ 1,090,073 $ 961,691

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 December 31, 2022 and 2021:

Mortgage Commercial and Industrial Construction and Development Multi-Family Residential Mortgage Home Equity Leases Consumer Total

Allowance for loan and lease losses:

Balance, January 1 $ 4,742 $ 1,639 $ 2,286 $ 1,875 $ 263 $ 29 $ 1,079 $ 195 $ 12,108

Provision (recovery) charged to expense ( 19 ) ( 478 ) 569 80 ( 200 ) ( 16 ) 488 176 600

Charge-offs — — — — ( 19 ) — ( 512 ) ( 150 ) ( 681 )

Recoveries 53 130 — — 32 10 141 20 386

Balance, December 31 $ 4,776 $ 1,291 $ 2,855 $ 1,955 $ 76 $ 23 $ 1,196 $ 241 $ 12,413

Individually evaluated for impairment $ — $ 281 $ 750 $ — $ — $ — $ — $ — $ 1,031

Collectively evaluated for impairment 4,776 1,010 2,105 1,955 76 23 1,196 241 11,382

Balance, December 31 $ 4,776 $ 1,291 $ 2,855 $ 1,955 $ 76 $ 23 $ 1,196 $ 241 $ 12,413

Loans and Leases:

Individually evaluated for impairment $ — $ 961 $ 4,900 $ — $ 113 $ — $ — $ — $ 5,974

Collectively evaluated for impairment 298,087 99,459 135,023 124,914 146,016 11,010 133,469 21,048 969,026

Ending balance:

December 31 $ 298,087 $ 100,420 $ 139,923 $ 124,914 $ 146,129 $ 11,010 $ 133,469 $ 21,048 $ 975,000

Mortgage Commercial and Industrial Construction and Development Multi-Family Residential Mortgage Home Equity Leases Consumer Total

Allowance for loan and lease losses:

Balance, January 1 $ 4,628 $ 2,271 $ 1,068 $ 1,039 $ 323 $ 18 $ 1,054 $ 185 $ 10,586

Provision (recovery) charged to expense 111 ( 736 ) 1,218 836 ( 333 ) 11 282 41 1,430

Charge-offs ( 26 ) ( 28 ) — — ( 102 ) — ( 474 ) ( 106 ) ( 736 )

Recoveries 29 132 — — 375 — 217 75 828

Balance, December 31 $ 4,742 $ 1,639 $ 2,286 $ 1,875 $ 263 $ 29 $ 1,079 $ 195 $ 12,108

Individually evaluated for impairment $ — $ 299 $ 750 $ — $ — $ — $ — $ — $ 1,049

Collectively evaluated for impairment 4,742 1,340 1,536 1,875 263 29 1,079 195 11,059

Balance, December 31 $ 4,742 $ 1,639 $ 2,286 $ 1,875 $ 263 $ 29 $ 1,079 $ 195 $ 12,108

Loans and Leases:

Individually evaluated for impairment $ 128 $ 995 $ 4,900 $ — $ 119 $ — $ — $ — $ 6,142

Collectively evaluated for impairment 261,074 98,687 88,778 107,421 134,036 7,146 126,762 15,905 839,809

Ending balance:

December 31 $ 261,202 $ 99,682 $ 93,678 $ 107,421 $ 134,155 $ 7,146 $ 126,762 $ 15,905 $ 845,951

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

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

Grade 1 - Exceptional

14 unchanged sentences

Special Mention loans 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.

This special mention rating is

designed to identify a specific level of risk and concern about an asset’s quality.

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

8 unchanged sentences

• Cash flow deficiencies (losses) jeopardize future loan payments;

• Sale of noncollateral assets has become a primary source of loan repayment;

• Sale of non-collateral assets has become a primary source of loan 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 repayment;

30 unchanged sentences

Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained.

These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to

interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Residential, Brokered and Consumer

Residential, brokered and consumer loans consist of three segments - residential mortgage loans, brokered mortgage loans and personal loans.

These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Residential, Home Equity, and Consumer

Residential, home equity, and consumer loans consist of three segments - residential mortgage loans, including brokered mortgage loans, home equity lines of credit, and personal loans.

For residential mortgage loans that are secured by 1-4 family residences and are generally owner-occupied, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded.

Brokered mortgages are purchased residential mortgage loans meeting the Company's criteria established for originating residential mortgage loans.

Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer personal loans are secured by consumer personal assets, such as automobiles or recreational vehicles.

6 unchanged sentences

A determination is made as to the applicant’s financial condition and ability to repay in accordance with the proposed terms as well as an overall assessment of the risks involved.

The following tables present the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of December 31, 2022 and 2021:

Pass Special Mention Substandard Doubtful Loss Total

December 31, 2022

The following table presents the credit risk profile of the Company’s loan portfolio based on rating category, payment activity, and origination year as of December 31, 2023:

2023 2022 2021 2020 2019 Prior Revolving loans amortized cost basis Total

As of December 31, 2023:

Commercial mortgage

Pass $ 31,795 $ 83,567 $ 69,863 $ 33,226 $ 45,746 $ 60,563 $ 11,495 $ 336,255

Special Mention — — — 4,850 — — — 4,850

Substandard — — — — — 528 — 528

Total Commercial mortgage 31,795 83,567 69,863 38,076 45,746 61,091 11,495 341,633

Current period gross charge-offs — — — — — — — —

Commercial and industrial

Pass 38,721 13,509 13,390 4,348 1,727 9,430 30,287 111,412

Substandard — — — 10 — 138 3,868 4,016

Total Commercial and industrial 38,721 13,509 13,390 4,358 1,727 9,568 34,155 115,428

Current period gross charge-offs — 58 — — — — — 58

Construction and development

Multi-family 124,914 — — — — 124,914

Pass 36,868 81,715 30,383 2,981 111 847 — 152,905

Substandard — — — — 4,900 — — 4,900

Total Construction and development 36,868 81,715 30,383 2,981 5,011 847 — 157,805

Current period gross charge-offs — — — — — — — —

Pass 4,443 39,271 37,422 6,383 7,291 18,400 25,547 138,757

Total Multi-family 4,443 39,271 37,422 6,383 7,291 18,400 25,547 138,757

Current period gross charge-offs — — — — — — — —

Residential mortgage

Home equity lines of credit 10,958 — 52 — — 11,010

Leases 133,254 152 34 29 — 133,469

Consumer 21,015 — 33 — — 21,048

Total $ 958,227 $ 4,034 $ 12,710 $ 29 $ — $ 975,000

Pass 31,352 31,447 35,174 17,651 8,812 36,118 216 160,770

Substandard — — — — 92 1,261 — 1,353

Total Residential mortgage 31,352 31,447 35,174 17,651 8,904 37,379 216 162,123

Current period gross charge-offs — — — — — — — —

Pass — — 282 — — — 10,597 10,879

Substandard — — — — — — 25 25

Total Home equity lines of credit — — 282 — — — 10,622 10,904

Current period gross charge-offs — — — — — — — —

Direct financing leases

Pass 76,018 41,838 24,675 10,264 2,895 462 — 156,152

Substandard 80 184 80 21 — — — 365

Doubtful 79 — — — 2 — — 81

Total Direct financing leases 76,177 42,022 24,755 10,285 2,897 462 — 156,598

Current period gross charge-offs 105 276 459 85 11 1 — 937

Pass 9,775 8,223 3,713 840 358 279 — 23,188

Substandard 35 17 15 — 9 — — 76

Total Consumer 9,810 8,240 3,728 840 367 279 — 23,264

Current period gross charge-offs 39 69 75 25 7 — — 215

Total Loans and Leases $ 229,166 $ 299,771 $ 214,997 $ 80,574 $ 71,943 $ 128,026 $ 82,035 $ 1,106,512

Total current period gross charge-offs $ 144 $ 403 $ 534 $ 110 $ 18 $ 1 $ — $ 1,210

The following table presents the credit risk profile of the Company’s loan portfolio based on rating category and payment activity as of December 31, 2022:

Pass Special Mention Substandard Doubtful Loss Total

9 unchanged sentences

Total $ 958,227 $ 4,034 $ 12,710 $ 29 $ — $ 975,000

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

No significant changes were made to either during the past year.

The following tables present the Company’s loan portfolio aging analysis of the recorded investment in loans as of December 31, 2023 and 2022:

25 unchanged sentences

Totals $ 673 $ 213 $ 9,103 $ 9,989 $ 965,011 $ 975,000 $ 3,173

The following tables present the Company’s impaired loans as of December 31, 2022 and 2021:

Balance Unpaid

Balance Specific

Allowance Average

Investment in

Loans Interest

Loans without a specific valuation allowance

The following table presents information on the Company's nonaccrual loans and leases at December 31, 2023 and 2022:

2023 December 31,

Nonaccrual loans and leases Nonaccrual loans and leases without an allowance for credit losses Nonaccrual loans and leases

Commercial and industrial $ 1,241 $ 1,202 $ 961

Construction and development

4,900 — 4,900

Residential mortgage 101 101 113

Direct financing leases 82 82 29

Total nonaccrual loans and leases $ 6,324 $ 1,385 $ 6,003

During the year ended December 31, 2023, the Company recognized $ 57,000 of interest income on nonaccrual loans and leases.

The following table presents the Company's amortized cost basis of collateral dependent loans, and their respective collateral type, which are individually analyzed to determine expected credit losses:

December 31, 2023

Commercial Real Estate Residential Real Estate Other Total Allowance on Collateral Dependent Loans

Commercial mortgage $ 5,377 $ — $ — $ 5,377 $ —

Commercial and industrial — — 3,868 3,868 —

Construction and development

4,900 — — 4,900 1,000

Residential mortgage — 152 — 152 —

Total $ 10,277 $ 152 $ 3,868 $ 14,297 $ 1,000

Loan Modification Disclosures under ASU 2022-02

In certain situations, the Company may modify the terms of a loan or lease 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 or lease.

If a determination is made that a modified loan or lease has been deemed uncollectible, the loan or lease (or portion of the loan or lease) is charged-off, reducing the amortized cost basis of the loan or lease and adjusting the allowance for credit losses.

At December 31, 2023, the Company had no modified loans or leases to borrowers experiencing financial difficulty that were modified during the year ended December 31, 2023.

There were no modified loans and leases that had a payment default during the year ended December 31, 2023 and that 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 year ended December 31, 2022, there were no newly classified TDRs.

For the year ended December 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 year ended December 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 December 31, 2023 and 2022, the balance of real estate owned included $ 136,000 and $ 57,000 , respectively, of foreclosed real estate properties recorded as a result of obtaining physical possession of the property.

At December 31, 2023 and 2022, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceeds were in process was $ 470,000 and $ 1,071,000 , respectively.

Direct Financing Leases

The following lists the components of the net investment in direct financing leases:

Total minimum lease payments to be received $ 177,952 $ 147,520

Initial direct costs 9,702 8,058

187,654 155,578

Loans with a specific valuation allowance

Unearned income ( 31,056 ) ( 22,109 )

Net investment in leases $ 156,598 $ 133,469

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

2024 $ 64,418

Thereafter 357

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 and leases 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, as discussed above, based on similar risk characteristics.

Loans within each segment are collectively evaluated using either a CF methodology or the RLM.

When estimating for credit loss, the Company forecasts the first four quarters of the credit loss estimate and reverts to a long-run average of each considered factor.

The Company developed its reasonable and supportable forecasts using economic data, such as gross domestic product and unemployment rate.

Qualitative adjustments are applied to each collectively segmented pool to appropriately capture differences in current or expected qualitative risk characteristics.

When evaluating the estimation for expected credit losses, the Company evaluates these qualitative adjustments for any changes in:

• lending policies, procedures, and strategies,

• the nature and volume of the loan and lease portfolio,

• international, national, regional, and local conditions,

• the experience, depth, and ability of lending management,

• the volume and severity of past due loans,

• the quality of the loan review system,

• the underlying collateral,

• concentration risk, and

• the effect of other external factors.

T he following tables summarize changes in the allowance for credit losses by segment for the year ended December 31, 2023:

Balances, December 31, 2022 Impact of adopting ASC 326 Balances, January 1, 2023 Post-ASC 326 adoption Provision for (reversal of) credit losses Charge-offs Recoveries Balances, December 31, 2023

Commercial mortgage $ 4,776 $ ( 395 ) $ 4,381 $ 261 $ — $ 13 $ 4,655

Commercial and industrial 1,291 360 1,651 ( 390 ) ( 58 ) 78 1,281

Construction and development 2,855 784 3,639 244 — — 3,883

$ 5,495 $ 5,543 $ 1,031 $ 5,507 $ 18

Total impaired loans

Multi-family 1,955 ( 99 ) 1,856 ( 67 ) — — 1,789

Residential mortgage 76 1,439 1,515 129 — 37 1,681

Home equity 23 89 112 ( 10 ) — — 102

Direct financing leases 1,196 422 1,618 925 ( 937 ) 349 1,955

Consumer 241 64 305 172 ( 215 ) 55 317

Total $ 12,413 $ 2,664 $ 15,077 $ 1,264 $ ( 1,210 ) $ 532 $ 15,663

Economic Outlook

Due to the future-focused nature of the calculation for the allowance on 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 financial institution's allowance for credit losses in the loan and lease portfolio.

As of December 31, 2023, the primary economic factors affecting the Company's loan and lease portfolio are persistent inflation, higher interest rates, a weakened economic growth and unemployment outlook, and continuing geopolitical risk.

These key factors will continue to adversely impact the Company's loan and lease portfolio into 2024.

In addition, market liquidity continues to impact the economic environment and could potentially further tighten credit conditions in the future.

The Company remains committed to three growth market regions:

Columbus, Ohio, Dayton/Springfield, Ohio, and Indianapolis, Indiana.

As high-growth areas, these market regions specialize in commercial real estate loans.

The respective forecasts for these markets are described below:

• Columbus, Ohio - The market region is forecasting estimated job growth to be stable with slight growth in certain sectors in 2024.

Although the forecasted unemployment rate for the region has slightly increased, the region still remains slightly below the national unemployment rate estimate.

• Dayton/Springfield, Ohio - The economic outlook for this market region remains positive, as the region is experiencing steady growth in multiple economic and housing sectors.

Although concerns about a recession are still present, the region's economic outlook for 2024 is mostly bullish.

Furthermore, the region continues to have one of the lowest unemployment rates in the state.

• Indianapolis, Indiana - The market region continues to forecast estimated job growth to be flat in 2024.

This is primarily due to inflation, elevated interest rates, and unemployment forecasts.

Certain economic sections may see slight growth.

The Company's assumption of a potential future economic slowdown could have an adverse impact on the loan and lease portfolio and specifically, the allowance for credit losses in the future.

However, there are various potential outcomes, and the variances could be significant and volatile.

As a result, the Company's future economic estimates may fluctuate in 2024.

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 year ended December 31, 2022:

Balance, beginning of period Provision (reversal) for losses Charge-offs Recoveries Balance, end of period

Year Ended Year Ended December 31, 2022:

Commercial mortgage $ 4,742 $ ( 19 ) $ — $ 53 $ 4,776

1 unchanged sentence

Construction and development 2,286 569 — — 2,855

Multi-family 1,875 80 — — 1,955

Residential mortgage 263 ( 200 ) ( 19 ) 32 76

Total impaired loans $ 5,974 $ 6,410 $ 1,031 $ 6,038 $ 34

Home equity 29 ( 16 ) — 10 23

Leases 1,079 488 ( 512 ) 141 1,196

Consumer 195 176 ( 150 ) 20 241

Total $ 12,108 $ 600 $ ( 681 ) $ 386 $ 12,413

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

Balance Unpaid

Balance Specific

Allowance Average

Investment in

Loans Interest

Loans without a specific valuation allowance

Allowance Average Investment in Impaired Loans and Leases Interest Income Recognized

Impaired loans without a specific valuation allowance

Commercial mortgage $ — $ 59 $ — $ 49 $ 12

2 unchanged sentences

$ 479 $ 867 $ — $ 531 $ 16

Loans with a specific valuation allowance

Impaired loans with a specific valuation allowance

Commercial and industrial $ 595 $ 643 $ 281 $ 607 $ 18

7 unchanged sentences

Total impaired loans $ 5,974 $ 6,410 $ 1,031 $ 6,038 $ 34

The following table presents the Company’s nonaccrual loans at December 31, 2022 and 2021:

Commercial mortgage $ — $ 128

Commercial and industrial 961 995

Construction and development 4,900 4,900

Residential mortgage 113 119

$ 6,003 $ 6,184

During 2022 and 2021, there were no newly classified TDRs.

At December 31, 2022 and 2021, the balance of real estate owned included $ 57,000 and $ 27,000 , respectively, of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property.

At December 31, 2022 and 2021, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceeds were in process was $ 1,071,000 and $ 885,000 , respectively.

The following lists the components of the net investment in leases:

Total minimum lease payments to be received $ 147,520 $ 140,214

Initial direct costs 8,058 7,035

155,578 147,249

Unearned income ( 22,109 ) ( 20,487 )

Net investment in leases $ 133,469 $ 126,762

First Bank did not service any leases for the benefit of others totaled at December 31, 2022 and 2021, respectively.

Historically, certain leases have also been sold with partial recourse.

First Bank estimates and

records its obligation based upon historical loss percentages.

At both December 31, 2022 and 2021, First Bank had no recourse obligations recorded or exposure on leases sold.

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

2023 $ 54,309

Thereafter 615

Allowance for Credit Losses on Unfunded Commitments

The allowance for credit losses on unfunded commitments is included in other liabilities on the Condensed Consolidated Balance Sheets.

The estimate of expected losses on unfunded commitments is calculated based on the loss rate for the loan or lease segment in which the loan or lease 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 Consolidated Statements of Income.

The following table details activity in the allowance for credit losses on unfunded commitments during the year ended December 31, 2023:

Year Ended December 31, 2023

Balance, December 31, 2022 $ —

Impact of adopting ASC 326 2,374

Reversal of provision for credit losses ( 732 )

Balance, December 31, 2023 $ 1,642

Premises and Equipment

10 unchanged sentences

The Company does not have any finance leases.

Right-of-use (ROU) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease.

Lease right-of-use (ROU) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

9 unchanged sentences

The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Supplemental balance sheet information related to leases is presented in the table below as of December 31, 2022:

Supplemental balance sheet information related to leases is presented in the table below as of December 31, 2023 and 2022:

Operating lease assets $ 450 $ 505

Total lease assets $ 505

Total lease ROU assets $ 450 $ 505

Operating lease liabilities $ 457 $ 507

4 unchanged sentences

Operating leases 3.37 % 3.37 %

The table below presents the components of lease expense for the year ended December 31, 2022:

The table below presents the components of lease expense for the years ended December 31, 2023 and 2022:

Operating lease cost $ 90 $ 83

46 unchanged sentences

The Bank has an available line of credit with the FHLB totaling $ 10,000,000 .

The line of credit expires April 2023;

however, it is renewed annually, and bears interest at a rate equal to the current variable advance rate.

The line of credit expires April 2024, renews annually and bears interest at a rate equal to the current variable advance rate.

At December 31, 2023, the current interest rate was 5.76 %.

11 unchanged sentences

Effect of state income taxes 80 128

ESOP ( 26 ) 167

Cash surrender value - life insurance ( 19 ) ( 18 )

1 unchanged sentence

Small insurance captive premiums ( 218 ) ( 131 )

Stock compensation 51 —

Actual tax expense $ 1,516 $ 2,783

1 unchanged sentence

The components of the asset are as follows:

Allowance for loan losses $ 3,031 $ 2,956

Allowance for credit losses $ 4,039 $ 3,031

Net operating loss carryforward 184 106

2 unchanged sentences

Deferred compensation 492 488

Stock compensation 333 265

Unrealized loss on securities available for sale 11,442 13,223

3 unchanged sentences

FHLB stock dividend 166 164

Fixed assets 138 322

State taxes — 152

Mortgage-servicing rights 454 491

Other 437 349

Prepaid assets 529 112

Total liabilities 1,392 1,244

Net deferred tax asset $ 16,183 $ 17,355

As of December 31, 2022, the Company had approximately $ 3,011,000 of federal charitable contribution carryforwards, which will begin to expire in 2024, and no federal or state net operating loss carryforwards.

Certain immaterial revisions have been made to the 2022 financial statements for a deferred tax asset related to the Company's reorganization transaction that occurred in 2019.

Accordingly, the balance of the Company's deferred tax asset, which is included in other assets on the consolidated balance sheet, was reduced by $ 593,730 for the period ended December 31, 2022 with a corresponding reduction in retained earnings.

These revisions did not have a significant impact on the financial statement line items impacted.

As of December 31, 2023, the Company had approximately $ 2,600,000 of federal charitable contribution carryforwards, which will begin to expire in 2024, and state net operating loss carryforwards of $ 3,975,000 , which will begin to expire in 2041.

At December 31, 2023 and 2022, the Company determined that it is more likely than not that the deferred tax assets will be realized, largely based on available tax planning strategies and its projections of future taxable income.

88 unchanged sentences

Total compensation cost recognized in the income statement for option-based payment arrangements during 2023 and 2022 was $ 653,000 and $ 619,000 , and the related tax benefit recognized was $ 76,000 and $ 69,000 , respectively.

As of December 31, 2022, unrecognized compensation expense related to the stock option awards was $ 1.5 million.

As of December 31, 2023, unrecognized compensation expense related to the stock option awards was $ 890,000 .

Earnings Per Share

17 unchanged sentences

The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval.

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

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

The Bank’s payment of dividends is also subject to the restrictions of the capital conservation buffer as discussed in Note 17.

68 unchanged sentences

Available-for-sale securities

Treasury securities $ 3,460 $ 3,460 $ — $ —

SBA Pools 6,135 — 6,135 —

3 unchanged sentences

Corporate obligations 9,633 — 9,633 —

Equity securities 13 13 — —

$ 284,900 $ 3,460 $ 281,440 $ —

8 unchanged sentences

Nonrecurring Measurements

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2022 and 2021:

As of December 31, 2023, there were no assets or liabilities measured at fair value on a nonrecurring basis.

Fair Value Measurements Using

3 unchanged sentences

December 31, 2022

Impaired loans, collateral dependent $ 314 $ — $ — $ 314

Mortgage-servicing rights 2,012 — — 2,012

December 31, 2021

Impaired loans, collateral dependent $ 4,587 $ — $ — $ 4,587

Collateral dependent loans $ 314 $ — $ — $ 314

Mortgage-servicing rights 2,012 — — 2,012

1 unchanged sentence

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 and Leases, Net of Allowance for Loan and Lease Losses

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.

Collateral-Dependent Loans and Leases, 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.

4 unchanged sentences

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

2 unchanged sentences

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 yearly basis by obtaining an independent valuation.

Mortgage-servicing rights are tested for impairment on a quarterly basis by obtaining 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 December 31, 2022 and 2021:

Fair Value at December 31, 2022 Valuation

Technique Unobservable

Collateral-dependent impaired loans $ 314 Appraisal Marketability discount 0 %- 42 %

Mortgage-servicing rights $ 2,012 Discounted cash flow Discount rate 10 %

As of December 31, 2023, there were no assets measured at fair value on a nonrecurring basis.

Fair Value at December 31, 2022 Valuation

Technique Unobservable

Collateral-dependent impaired loans $ 4,587 Appraisal Marketability discount 0 % - 39 %

Collateral-dependent loans $ 314 Appraisal Marketability discount 0 % - 42 %

Mortgage-servicing rights $ 2,012 Discounted cash flow Discount rate 10 %

7 unchanged sentences

Cash and cash equivalents $ 20,240 $ 20,240 $ — $ —

Interest-earning time deposits 490 — 490 —

Available-for-sale securities 282,688 2,976 279,712 —

14 unchanged sentences

Cash and cash equivalents $ 15,922 $ 15,922 $ — $ —

Interest-earning time deposits 490 — 490 —

Available-for-sale securities 284,900 3,460 281,440 —

32 unchanged sentences

Total liabilities and stockholders' equity $ 137,241 $ 134,780

Condensed Statements of Income and Comprehensive (Loss) Income

Condensed Statements of Income and Comprehensive Income (Loss)

Dividends from bank subsidiary $ — $ 20,000

2 unchanged sentences

Other expenses 3,120 3,264

Income before income tax benefit and undistributed subsidiary income (loss) 17,175 7,135

Income tax expense (benefit) ( 632 ) ( 639 )

(Loss) income before income tax benefit and undistributed subsidiary (loss) income

( 2,482 ) 17,175

Income tax benefit ( 524 ) ( 632 )

Equity in undistributed income of subsidiaries (dividends in excess of net income):

1 unchanged sentence

Captive subsidiary 1,101 630

Net income $ 12,965 $ 11,145

Comprehensive (loss) income $ ( 35,574 ) $ 6,224

Net (loss) income $ 9,487 $ 12,965

Comprehensive income (loss) $ 16,193 $ ( 35,574 )

Condensed Statements of Cash Flows

6 unchanged sentences

Changes in other assets and other liabilities ( 1,113 ) ( 944 )

Net cash provided by operating activities 19,201 9,872

Net cash (used in) provided by operating activities

( 833 ) 19,201

Investing Activities

9 unchanged sentences

Cash and Cash Equivalents, End of Period $ 13,225 $ 26,229

The prior year income statement and cash flow presented above were revised to conform with the presentation of current year financial statements.

As a result, the following changes were made to the 2021 statements:

• Dividends received from subsidiary are presented in total income.

• Equity in undistributed income of subsidiaries reflects the difference in subsidiary income and dividends received.

• No investing activities are reported in the Condensed Statement of Cash Flows.

The above changes had no effect on 2021 Net Income.

Significant Estimates and Concentrations

9 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data