Richmond Mutual Bancorporation, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm Shareholders, Board of Directors, and Audit Committee Richmond Mutual Bancorporation, Inc. Richmond, Indiana Opinion on the Consolidated 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 These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ FORVIS, LLP FORVIS, LLP We have served as the Company’s auditor since at least 1982; however, an earlier year cannot be determined. Indianapolis, Indiana March 29, 2024 62 Richmond Mutual Bancorporation, Inc. Consolidated Balance Sheets December 31, 2023 and 2022 December 31, 2023 December 31, 2022 Assets Cash and due from banks $ 8,578,489 $ 7,782,348 Interest-bearing demand deposits 11,661,636 8,139,745 Cash and cash equivalents 20,240,125 15,922,093 Interest-bearing time deposits — 490,000 Investment securities - available for sale 282,688,326 284,899,665 Investment securities - held to maturity 4,949,530 6,672,233 Loans held for sale 793,500 473,700 Loans and leases, net of allowance for credit losses of $ 15,663,153 and $ 12,413,035 , respectively 1,090,073,198 961,690,677 Premises and equipment, net 13,311,892 13,668,496 Federal Home Loan Bank stock 12,647,100 9,947,300 Interest receivable 5,843,705 4,710,481 Mortgage-servicing rights 1,945,367 2,011,889 Cash surrender value of life insurance 3,764,929 3,674,499 Other assets 24,766,129 23,865,378 Total assets $ 1,461,023,801 $ 1,328,026,411 Liabilities Noninterest-bearing deposits $ 114,376,777 $ 106,414,812 Interest bearing deposits 926,763,134 898,845,958 Total deposits 1,041,139,911 1,005,260,770 Federal Home Loan Bank advances 271,000,000 180,000,000 Advances by borrowers for taxes and insurance 588,371 560,196 Interest payable 4,396,952 1,369,351 Other liabilities 9,038,991 8,451,521 Total liabilities 1,326,164,225 1,195,641,838 Commitments and Contingent Liabilities — — Stockholders' Equity Common stock, $ 0.01 par value Authorized - 90,000,000 shares Issued and outstanding - 11,208,500 shares and 11,784,246 shares at December 31, 2023 and 2022, respectively 112,085 117,842 Additional paid-in capital 101,347,566 106,088,897 Retained earnings 87,902,747 88,122,052 Unearned employee stock ownership plan (ESOP) ( 11,457,726 ) ( 12,193,043 ) Accumulated other comprehensive loss ( 43,045,096 ) ( 49,751,175 ) Total stockholders' equity 134,859,576 132,384,573 Total liabilities and stockholders' equity $ 1,461,023,801 $ 1,328,026,411 See Notes to Consolidated Financial Statements 63 Richmond Mutual Bancorporation, Inc. Consolidated Statements of Income Years Ended December 31, 2023 and 2022 2023 2022 Interest Income Loans and leases $ 58,793,495 $ 44,593,660 Investment securities 8,054,095 7,111,383 Other 562,323 152,958 Total interest income 67,409,913 51,858,001 Interest Expense Deposits 22,809,866 7,128,195 Borrowings 6,937,656 3,091,146 Total interest expense 29,747,522 10,219,341 Net Interest Income 37,662,391 41,638,660 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 Service charges on deposit accounts 1,115,079 1,049,777 Card fee income 1,258,718 1,209,528 Loan and lease servicing fees, including mortgage servicing right impairment 448,027 861,758 Net gains on loan and lease sales 517,883 639,274 Other income 1,271,072 1,106,436 Total non-interest income 4,610,779 4,866,773 Non-interest Expenses Salaries and employee benefits 17,438,599 18,478,020 Net occupancy expenses 1,333,625 1,425,018 Equipment expenses 1,127,770 1,268,812 Data processing fees 3,348,543 2,712,950 Deposit insurance expense 1,163,060 494,000 Printing and office supplies 163,339 194,462 Legal and professional fees 1,598,453 1,420,352 Advertising expense 385,471 459,478 Bank service charges 204,161 137,601 Real estate owned expense 58,759 30,067 Other expenses 3,916,699 3,535,767 Total non-interest expenses 30,738,479 30,156,527 Income Before Income Tax Expense 11,002,717 15,748,906 Provision for income taxes 1,515,881 2,783,467 Net Income $ 9,486,836 $ 12,965,439 Earnings Per Share Basic $ 0.91 $ 1.20 Diluted $ 0.91 $ 1.17 See Notes to Consolidated Financial Statements 64 Richmond Mutual Bancorporation, Inc. Consolidated Statements of Comprehensive Income (Loss) Years Ended December 31, 2023 and 2022 2023 2022 Net Income $ 9,486,836 $ 12,965,439 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 Income (Loss) $ 16,192,915 $ ( 35,573,725 ) See Notes to Consolidated Financial Statements 65 Richmond Mutual Bancorporation, Inc. Consolidated Statements of Stockholders’ Equity Years Ended December 31, 2023 and 2022 Common Stock Additional Paid-in Capital Retained Earnings Unearned ESOP Shares Accumulated Other Comprehensive Loss Total Shares Outstanding Amount Balances, December 31, 2021 12,400,195 $ 124,002 $ 114,339,810 $ 79,564,163 $ ( 12,928,359 ) $ ( 1,212,011 ) $ 179,887,605 Net income — — — 12,965,439 — — 12,965,439 Other comprehensive loss — — — — — ( 48,539,164 ) ( 48,539,164 ) ESOP shares earned — — 63,430 — 735,316 — 798,746 Stock based compensation — — 1,538,737 — — — 1,538,737 Common stock dividends ($ 0.40 per share) — — — ( 4,407,550 ) — — ( 4,407,550 ) Repurchase of common stock ( 615,949 ) ( 6,160 ) ( 9,853,080 ) — — — ( 9,859,240 ) 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 income — — — — — 6,706,079 6,706,079 ESOP shares earned — — ( 123,772 ) — 735,317 — 611,545 Stock based compensation — — 1,627,203 — — — 1,627,203 Common stock dividends ($ 0.56 per share) — — — ( 5,920,973 ) — — ( 5,920,973 ) Repurchase of common stock ( 575,746 ) ( 5,757 ) ( 6,244,762 ) — — — ( 6,250,519 ) Balances, December 31, 2023 11,208,500 $ 112,085 $ 101,347,566 $ 87,902,747 $ ( 11,457,726 ) $ ( 43,045,096 ) $ 134,859,576 See Notes to Consolidated Financial Statements 66 Richmond Mutual Bancorporation, Inc. Consolidated Statements of Cash Flows Years Ended December 31, 2023 and 2022 2023 2022 Operating Activities Net income $ 9,486,836 $ 12,965,439 Items not requiring (providing) cash Provision for credit losses 531,974 600,000 Depreciation and amortization 975,813 1,063,691 Deferred income tax 641,148 1,035,000 Stock based compensation 1,627,203 1,538,737 Investment securities amortization, net 1,136,167 1,546,615 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 ( 1,800 ) — Accretion of loan origination fees ( 945,579 ) ( 1,578,653 ) Amortization of mortgage-servicing rights 213,891 224,274 ESOP shares expense 611,545 798,746 Increase in cash surrender value of life insurance ( 90,430 ) ( 55,359 ) Loans originated for sale ( 19,829,819 ) ( 28,749,971 ) Proceeds on loans sold 20,149,619 28,666,171 Net change in Interest receivable ( 1,133,224 ) ( 517,654 ) Other assets ( 1,986,401 ) ( 2,117,372 ) Other liabilities ( 1,786,506 ) 2,257,577 Interest payable 3,027,601 1,111,319 Net cash provided by operating activities 12,114,197 18,160,168 Investing Activities Net change in interest-bearing time deposits 490,000 ( 490,000 ) Purchases of securities available for sale ( 11,242,380 ) ( 22,532,827 ) Proceeds from maturities and paydowns of securities available for sale 20,810,919 32,181,335 Proceeds from maturities and paydowns of securities held to maturity 1,718,044 2,357,168 Net change in loans ( 131,955,234 ) ( 127,384,295 ) Proceeds from sales of real estate owned 963,871 84,652 Purchases of premises and equipment ( 619,209 ) ( 385,099 ) 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 ) Financing Activities Net change in Demand and savings deposits ( 21,513,087 ) 11,892,698 Certificates of deposit 57,392,228 93,192,672 Advances by borrowers for taxes and insurance 28,175 29,166 Proceeds from FHLB advances 541,500,000 327,500,000 Repayment of FHLB advances ( 450,500,000 ) ( 327,500,000 ) Repurchase of common stock ( 6,250,519 ) ( 9,859,240 ) Dividends paid ( 5,920,973 ) ( 4,407,550 ) Net cash provided by financing activities 114,735,824 90,847,746 Net Change in Cash and Cash Equivalents 4,318,032 ( 7,116,052 ) Cash and Cash Equivalents, Beginning of Period 15,922,093 23,038,145 Cash and Cash Equivalents, End of Period $ 20,240,125 $ 15,922,093 Additional Cash Flows and Supplementary Information Interest paid $ 26,719,921 $ 9,108,022 Income tax paid 2,050,000 2,180,634 Transfers from loans to other real estate owned 1,053,040 115,965 Right of use assets obtained in exchange for new operating lease liabilities — 504,682 See Notes to Consolidated Financial Statements 67 Richmond Mutual Bancorporation, Inc. Notes to Consolidated Financial Statements December 31, 2023 and 2022 (Table Dollar Amounts in Thousands, Except Per Share Amounts) Note 1: Nature of Operations and Summary of Significant Accounting Policies On July 1, 2019, Richmond Mutual Bancorporation, Inc., a Delaware corporation (“RMB-Delaware”), completed its reorganization from a mutual holding company form of organization to a stock form of organization (“corporate reorganization”). RMB-Delaware, which owned 100% of First Bank Richmond (the “Bank” or “First Bank”), was succeeded by Richmond Mutual Bancorporation, Inc., a new Maryland corporation (the "Company”). As part of the corporate reorganization, First Mutual of Richmond, Inc.’s (the “MHC”) ownership interest in RMB-Delaware was sold in a public offering. Gross proceeds from the offering were $ 130.3 million. In conjunction with the corporate reorganization, the Company contributed 500,000 shares and $ 1.25 million of cash to a newly formed charitable foundation, First Bank Richmond, Inc. Community Foundation (the “Foundation”). Additionally, a “liquidation account” was established for the benefit of certain depositors of the Bank in an amount equal to the MHC’s ownership interest in the retained earnings of RMB-Delaware as of December 31, 2017 and March 31, 2019. First Bank is an Indiana state-chartered commercial bank headquartered in Richmond, Indiana. The bank was originally established in 1887 as an Indiana state-chartered mutual savings and loan association and in 1935 converted to a federal mutual savings and loan association, operating under the name First Federal Savings and Loan Association of Richmond. In 1993, the bank converted to a state-chartered mutual savings bank and changed its name to First Bank Richmond, S.B. In 1998, the bank, in connection with its non-stock mutual holding company reorganization, converted to a national bank charter operating as First Bank Richmond, National Association. In July 2007, Richmond Mutual Bancorporation-Delaware, the bank’s then current holding company, acquired Mutual Federal Savings Bank headquartered in Sidney, Ohio. Mutual Federal Savings Bank was operated independently as a separately chartered, wholly owned subsidiary of Richmond Mutual Bancorporation-Delaware until 2016 when it was combined with the bank through an internal merger transaction that consolidated both banks into a single, more efficient commercial bank charter. In 2017, the bank converted to an Indiana state-chartered commercial bank and changed its name to First Bank Richmond. The former Mutual Federal Savings Bank continues to operate in Ohio under the name Mutual Federal, a division of First Bank Richmond. First Bank generates commercial, mortgage and consumer loans and leases, and receives deposits from customers located primarily in Wayne and Shelby Counties in Indiana, and Shelby, Miami, and Franklin Counties in Ohio. First Bank’s loans and leases are generally secured by specific items of collateral including real property, consumer assets and business assets. When the word "loan" or "loans" is used in these financial statements it includes leases, unless the context indicates otherwise. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. 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. 68 Cash Equivalents - The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. Investment Securities - Debt securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity. Securities held to maturity are carried at amortized cost. Debt securities not classified as held to maturity or not classified as trading are classified as available for sale. Debt securities available for sale are carried at fair value with unrealized gains and losses reported separately in accumulated other comprehensive income (loss), net of tax. Equity securities are carried at fair value with changes in unrealized gains and losses recognized through net income. Trading account securities are held for resale in anticipation of short-term market movements and are valued at fair value. Gains and losses, both realized and unrealized, are included in other income. 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. Realized gains and losses are recorded as net security gains (losses). Gains and losses on sales of securities are determined on the specific-identification method. Purchased premiums and discounts on collateralized mortgage obligations (CMOs), real estate mortgage investment conduits (REMICs) and other mortgage related securities are amortized or accreted using the effective interest method. The period of amortization used is estimated based on anticipated principal prepayments. Differences between anticipated and actual prepayments result in adjustments which are charged or credited to income as an adjustment to yield. For classification purposes, REMICs are grouped with mortgage-backed securities. Leases - Lease financing consists of direct financing leases. Direct financing leases are carried at cost. Cost is defined as the total minimum lease payments receivable and the estimated residual value of the leased property, less the amount of unearned income. 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 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. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan. 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 69 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. 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 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. 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. 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 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 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 70 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. Premises and Equipment - Premises and equipment are carried at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method based principally on the estimated useful lives of the assets. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and losses on dispositions are included in current operations. Federal Home Loan Bank (FHLB) stock - FHLB stock is a required investment for institutions that are members of the FHLB system. The required investment in the common stock is based on a predetermined formula, carried at cost and evaluated for impairment. Foreclosed Assets Held for Sale - Assets acquired through or in lieu of loan foreclosure are held for sale and are initially recorded at fair value, less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net income or expense from foreclosed assets. Mortgage Servicing Rights - Mortgage servicing rights on originated loans that have been sold are initially recorded at fair value. Capitalized mortgage servicing rights, which include purchased servicing rights, are amortized in proportion to and over the period of estimated servicing revenues. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. Fair values are estimated using discounted cash flows based on a current market interest rate. For purposes of measuring impairment, the rights are stratified based on the predominant risk characteristics of the underlying loans. The predominant 71 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. Low Income Housing Tax Credits (LIHTC) - The Company has invested in LIHTC through funds that assist corporations in investing in limited partnerships and limited liability companies that own, develop and operate low-income residential rental properties for purposes of qualifying for the LIHTC. These investments are accounted for under the proportional amortization method which recognizes the amortization of the investment in proportion to the tax credit and other tax benefits received. Long-lived Asset Impairment - The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value. No asset impairment was recognized during the years ended December 31, 2023 and 2022. Revenue Recognition - ASC 606, “Revenue from Contracts with Customers," provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance enumerates five steps that entities should follow in achieving this core principle. Revenue generated from financial instruments, including loans and investment securities, are not included in the scope of ASC 606. Revenue-gathering activities that are within the scope of ASC 606 and that are presented as non-interest income in the Company’s consolidated statements of income include: – Service charges on deposit accounts – these include general service fees charged for deposit account maintenance and activity and transaction-based fees charged for certain services, such as debit card, wire transfer and overdraft activities. Revenue is recognized when the performance obligation is completed, which is generally after a transaction is completed or monthly for account maintenance services. – Card fee income – this includes debit card fees charged based on the volume and number of debit card transactions. Revenue is recognized when the performance obligation is completed, which is generally after a transaction is completed or monthly for account maintenance services. Income Tax - Income tax in the consolidated statements of operations includes deferred income tax provisions or benefits for all significant temporary differences in recognizing income and expenses for financial reporting and income tax purposes. The Company files consolidated income tax returns with its parent and subsidiary. Uncertain Tax Positions - The Company has adopted the provisions of ASC 740, Income Taxes , concerning the accounting and disclosures for uncertain tax positions, previously deferred by ASC 740-10-65. As part of the implementation of this standard, management evaluated its current tax positions and determined the adoption of this standard had no material impact on the consolidated financial statements of the Company. Share Based Compensation - At December 31, 2023, the Company had share-based compensation plans, which are described more fully in Note 14. All share-based payments are to be recognized as expense, based upon their fair values, in the financial statements over the vesting period of the awards. 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. 72 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 73 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. 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 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 No. 2016-13 and allows companies to irrevocably elect, upon adoption of ASU No. 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 74 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. 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: Restriction on Cash and Due From Banks At December 31, 2023, the Company’s cash accounts exceeded federally insured limits by approximately $ 73,852 . The Company’s cash balances with the Federal Reserve Bank and the Federal Home Loan Bank, which are not federally insured, totaled approximately $ 8,219,000 at December 31, 2023. The Federal Reserve Board announced on March 15, 2020 the reduction of the reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated the restriction on the Company's cash and cash equivalents for December 31, 2023. 75 Note 4: Investment Securities The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities are as follows: 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale U.S. treasury securities $ 2,996 $ — $ 20 $ 2,976 SBA Pools 5,337 — 565 4,772 Federal agencies 15,000 — 1,847 13,153 State and municipal obligations 169,118 16 27,688 141,446 Mortgage-backed securities - government-sponsored enterprises (GSE) residential 133,223 62 21,804 111,481 Corporate obligations 11,500 — 2,640 8,860 337,174 78 54,564 282,688 Held to maturity State and municipal obligations 4,950 13 42 4,921 4,950 13 42 4,921 Total investment securities $ 342,124 $ 91 $ 54,606 $ 287,609 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 76 The amortized cost and fair value of securities at December 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 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 136,597 109,638 710 701 203,951 171,207 4,950 4,921 Mortgage-backed securities –GSE residential 133,223 111,481 — — Totals $ 337,174 $ 282,688 $ 4,950 $ 4,921 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. 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. 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. 77 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 AA+ $ 1,262 AA- 585 A+ 815 BBB+ 81 Not rated 2,207 $ 4,950 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: 2023 Less Than 12 Months 12 Months or More Total Description of Securities Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Available-for-sale U.S. treasury securities $ 489 $ 4 $ 2,487 $ 16 $ 2,976 $ 20 SBA Pools 329 — 4,410 565 4,739 565 Federal agencies — — 13,153 1,847 13,153 1,847 State and municipal obligations 1,565 21 137,119 27,667 138,684 27,688 Mortgage-backed securities – GSE residential 3,458 139 104,581 21,665 108,039 21,804 Corporate obligations — — 8,860 2,640 8,860 2,640 Total available-for-sale 5,841 164 270,610 54,400 276,451 54,564 Held-to-maturity State and municipal obligations 849 3 2,552 39 3,401 42 Total $ 6,690 $ 167 $ 273,162 $ 54,439 $ 279,852 $ 54,606 78 2022 Less Than 12 Months 12 Months or More Total Description of Securities 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 $ 126,168 $ 17,001 $ 162,678 $ 46,092 $ 288,846 $ 63,093 Federal Agency Obligations and U.S. Treasury Securities The unrealized losses on the Company’s investments in direct obligations of U.S. federal agencies and treasury securities 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 SBA pools and mortgage-backed securities were caused by interest rate changes and illiquidity. The Company expects to recover the amortized cost basis over the term of the securities. The decline in market value is attributable to changes in interest rates and not credit quality. 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. 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 bases 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. The Company expects the fair value of the securities as described above to recover as the securities approach their maturity or reset date. 79 Note 5: Loans, Leases and Allowance Categories of loans and leases at December 31, 2023 and 2022 include: 2023 2022 Commercial mortgage $ 341,633 $ 298,087 Commercial and industrial 115,428 100,420 Construction and development 157,805 139,923 Multi-family 138,757 124,914 Residential mortgage 162,123 146,129 Home equity lines of credit 10,904 11,010 Leases 156,598 133,469 Consumer 23,264 21,048 1,106,512 975,000 Less Allowance for credit losses 15,663 12,413 Deferred loan fees 776 896 $ 1,090,073 $ 961,691 First Bank rates all loans and leases by credit quality using the following designations: Grade 1 - Exceptional Exceptional loans are top-quality loans to individuals whose financial credentials are well known to the Company. These loans have excellent sources of repayment, are well documented and/or virtually free of risk (i.e., CD secured loans). Grade 2 - Quality Loans These loans 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 ("DFI") 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. These loans have adequate sources of repayment with little identifiable risk of collection and they conform to Company policy and DFI/FDIC regulations. Grade 4 - Acceptable but Monitored Loans 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 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 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 in the Company’s credit position at some future date. 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 80 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. Grade 6 - Substandard Loans 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 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 have a high probability of payment default, or they have other well-defined weaknesses. Such loans have a distinct potential for loss; however, an individual loan’s potential for loss does not have to be distinct for the loan to be rated substandard. The following are examples of situations that might cause a loan to be graded a “6”: • Cash flow deficiencies (losses) jeopardize future loan payments; • 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; • The borrower is bankrupt or for any other reason future repayment is dependent on court action. Grade 7 - Doubtful A loan 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 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. Grade 8 - Loss Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets are not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan even though partial recovery may be affected in the future. The risk characteristics of each loan portfolio segment are as follows: Commercial and Industrial Commercial and industrial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may include a personal guarantee. Short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. 81 Commercial Mortgage including Construction and Development Loans in this segment include commercial loans, commercial construction loans, and multi-family loans. This segment also includes loans secured by 1-4 family residences which were made for investment purposes. Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The characteristics of properties securing the Company’s commercial real estate portfolio are diverse, but with geographic location almost entirely in the Company’s market area. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In general, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate versus nonowner-occupied loans. Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews and financial analysis of the developers and property owners. Construction loans are generally based on estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing. Residential, 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. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer personal loans are secured by consumer personal assets, such as automobiles or recreational vehicles. Some consumer personal loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers. Leases Lease financing consists of direct financing leases and are used by commercial customers to finance capital purchases of equipment. The credit decisions for these transactions are based upon an assessment of the overall financial capacity of the applicant. A determination is made as to the applicant’s financial condition and ability to repay in accordance with the proposed terms as well as an overall assessment of the risks involved. 82 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 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 — — — — — — — — Multi-family 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 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 — — — — — — — — Home equity 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 Consumer 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 83 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 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 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 The following tables present the Company’s loan portfolio aging analysis of the recorded investment in loans as of December 31, 2023 and 2022: 2023 Delinquent Loans Total Portfolio Loans Total Loans >90 Days Accruing 30-59 Days Past Due 60-89 Days Past Due 90 Days and Over Total Past Due Current Commercial mortgage $ — $ — $ — $ — $ 341,633 $ 341,633 $ — Commercial and industrial 136 — — 136 115,292 115,428 — Construction and development — 75 4,900 4,975 152,830 157,805 — Multi-family — — — — 138,757 138,757 — Residential mortgage 688 306 1,379 2,373 159,750 162,123 1,278 Home equity lines of credit 463 — 25 488 10,416 10,904 25 Leases 452 236 296 984 155,614 156,598 296 Consumer 292 148 76 516 22,748 23,264 76 Totals $ 2,031 $ 765 $ 6,676 $ 9,472 $ 1,097,040 $ 1,106,512 $ 1,675 2022 Delinquent Loans Total Portfolio Loans Total Loans >90 Days Accruing 30-59 Days Past Due 60-89 Days Past Due 90 Days and Over Total Past Due Current 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 lines of credit — — 30 30 10,980 11,010 30 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 84 The following table presents information on the Company's nonaccrual loans and leases at December 31, 2023 and 2022: December 31, 2023 December 31, 2022 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 85 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: 2023 2022 Total minimum lease payments to be received $ 177,952 $ 147,520 Initial direct costs 9,702 8,058 187,654 155,578 Less: 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 2025 50,294 2026 35,498 2027 20,305 2028 7,080 Thereafter 357 $ 177,952 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. 86 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 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 87 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. 88 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 Commercial and industrial 1,639 ( 478 ) — 130 1,291 Construction and development 2,286 569 — — 2,855 Multi-family 1,875 80 — — 1,955 Residential mortgage 263 ( 200 ) ( 19 ) 32 76 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 89 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 Average Investment in Impaired Loans and Leases Interest Income Recognized Impaired loans without a specific valuation allowance Commercial mortgage $ — $ 59 $ — $ 49 $ 12 Commercial and industrial 366 567 — 366 — Residential mortgage 113 241 — 116 4 $ 479 $ 867 $ — $ 531 $ 16 Impaired loans with a specific valuation allowance Commercial and industrial $ 595 $ 643 $ 281 $ 607 $ 18 Construction and development 4,900 4,900 750 4,900 — $ 5,495 $ 5,543 $ 1,031 $ 5,507 $ 18 Total impaired loans Commercial mortgage $ — $ 59 $ — $ 49 $ 12 Commercial and industrial 961 1,210 281 973 18 Construction and development 4,900 4,900 750 4,900 — Residential mortgage 113 241 — 116 4 Total impaired loans $ 5,974 $ 6,410 $ 1,031 $ 6,038 $ 34 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 90 Note 6: Premises and Equipment 2023 2022 Cost Land $ 3,061 $ 3,061 Buildings 15,681 15,616 Furniture and equipment 7,666 7,592 Computer software 1,197 1,264 Construction in progress 594 470 Total cost 28,199 28,003 Accumulated depreciation and amortization ( 14,887 ) ( 14,335 ) Net $ 13,312 $ 13,668 Note 7: Leases The Company enters into leases for certain retail branches, land, and office space. Operating leases are included in other assets and the lease liability is included in other liabilities in our balance sheets. The Company does not have any finance leases. 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. The Company uses its incremental borrowing rate at commencement date in determining the present value of lease payments when the rate implicit in a lease is not known. The Company's incremental borrowing rate is based on the FHLB amortizing advance rate, adjusted for the lease term and other factors. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The Company's leases are generally for periods of five to 15 years with various renewal options. The exercise of such lease renewal options is not included in the present value of lease obligations unless it is reasonably certain that the option will be exercised. The Company has lease agreements which contain both lease and non-lease components such as common area maintenance charges, real estate taxes, and insurance. Non-lease components are not included in the measurement of the lease liability and are recognized in expense when incurred. The Company has elected not to recognize short-term leases, with original lease terms of twelve months or less, on the Company's balance sheet. Certain of the Company's lease arrangements include rental payments adjusted periodically for inflation. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. 91 Supplemental balance sheet information related to leases is presented in the table below as of December 31, 2023 and 2022: 2023 2022 Operating lease assets $ 450 $ 505 Total lease ROU assets $ 450 $ 505 Operating lease liabilities $ 457 $ 507 Total lease liabilities $ 457 $ 507 Weighted average remaining lease term (years) Operating leases 7.2 8.2 Weighted average discount rate Operating leases 3.37 % 3.37 % The table below presents the components of lease expense for the years ended December 31, 2023 and 2022: 2023 2022 Lease cost: Operating lease cost $ 90 $ 83 Total lease cost: $ 90 $ 83 Supplemental cash flow information related to leases is presented in the tables below. Maturity of lease liabilities 2024 $ 68 2025 69 2026 72 2027 72 2028 73 2029 and after 165 Total lease payments $ 519 Less: Present value discount 62 Present value of lease liabilities $ 457 Note 8: Loan Servicing Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of mortgage loans serviced for others totaled $ 222,217,000 and $ 226,634,000 at December 31, 2023 and 2022, respectively. The aggregate fair value of capitalized servicing rights at December 31, 2023 and 2022 totaled approximately $ 1,945,000 and $ 2,012,000 , respectively. Comparable market values and a valuation model that calculates the 92 present value of future cash flows were used to estimate fair value. For purposes of measuring impairment, risk characteristics including product type, investor type and interest rates, were used to stratify the originated mortgage-servicing rights. 2023 2022 Servicing Rights Balances, beginning of period $ 2,012 $ 2,027 Servicing rights capitalized 147 209 Amortization of servicing rights ( 214 ) ( 224 ) Balances, end of period 1,945 2,012 Valuation allowances Balances, beginning of period — 380 Additions — 111 Reductions — ( 491 ) Balances, end of period — — Servicing Rights, net $ 1,945 $ 2,012 Note 9: Deposits 2023 2022 Demand deposits $ 405,338 $ 414,870 Savings deposits 117,659 129,640 Brokered certificates 268,838 257,889 Certificates and other time deposits greater than $250,000 55,710 43,757 Other certificates and time deposits 193,595 159,105 $ 1,041,140 $ 1,005,261 Certificates maturing in years ending December 31: 2024 $ 349,591 2025 131,024 2026 26,567 2027 3,915 2028 5,563 Thereafter 1,483 $ 518,143 93 Note 10: Federal Home Loan Bank Advances First Bank has Federal Home Loan Bank advances, with interest rates ranging from 0.61 % to 5.56 %. The maturities of FHLB advances at December 31, 2023 are as follows: FHLB Advances 2024 $ 109,000 2025 63,000 2026 28,000 2027 — 2028 31,000 Thereafter 40,000 $ 271,000 First mortgage loans and investment securities totaling $ 521,564,000 and $ 332,818,000 were pledged as collateral for FHLB advances at December 31, 2023 and 2022, respectively. Certain advances are subject to restrictions or penalties in the event of prepayment. FHLB advances totaling $ 55,000,000 are subject to an option by the FHLB to put the entire advance to a periodic adjustable rate on the lock-out date. The adjustable rate would be for the remaining term at a predetermined rate based on SOFR. If the FHLB exercises its option to convert the advance to an adjustable rate, the advance will be prepayable at the Company’s option, at par and without a penalty. The Bank has an available line of credit with the FHLB totaling $ 10,000,000 . 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 %. There were no amounts outstanding on the line at December 31, 2023 or 2022. 94 Note 11: Income Tax 2023 2022 Income tax expense (benefit) Currently payable Federal $ 877 $ 1,987 State ( 2 ) ( 51 ) Deferred Federal 538 633 State 103 214 Total income tax expense $ 1,516 $ 2,783 Reconciliation of federal statutory to actual tax expense Federal statutory income tax at 21% $ 2,311 $ 3,307 Tax-exempt interest ( 694 ) ( 730 ) Effect of state income taxes 80 128 ESOP ( 26 ) 167 Cash surrender value - life insurance ( 19 ) ( 18 ) Low income housing tax credit ( 30 ) ( 12 ) Small insurance captive premiums ( 218 ) ( 131 ) Stock compensation 51 — Other 61 72 Actual tax expense $ 1,516 $ 2,783 95 A cumulative deferred tax asset is included in other assets. The components of the asset are as follows: 2023 2022 Assets Allowance for credit losses $ 4,039 $ 3,031 Net operating loss carryforward 184 106 Nonaccrual interest 39 74 Investment basis 4 4 Deferred compensation 492 488 Stock compensation 333 265 Unrealized loss on securities available for sale 11,442 13,223 Charitable contributions 549 632 Other 493 776 Total assets 17,575 18,599 Liabilities FHLB stock dividend 166 164 Fixed assets 138 322 State taxes — 152 Mortgage-servicing rights 454 491 Prepaid assets 529 112 Other 105 3 Total liabilities 1,392 1,244 Net deferred tax asset $ 16,183 $ 17,355 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. Therefore, no valuation reserve was recorded at December 31, 2023 and 2022. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning the evaluation of both positive and negative evidence, the forecasts of future income, applicable tax planning strategies and assessments of current and future economic and business conditions. Positive evidence includes current positive earnings trends and the probability that taxable income will be generated in future periods, while negative evidence includes any cumulative losses in the current year and prior two years and general business and economic trends. Failure to achieve sufficient projected taxable income might affect the ultimate realization of the net deferred tax assets. Note 12: Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss, included in stockholders' equity, are as follows: 96 2023 2022 Net unrealized loss on available-for-sale securities $ ( 54,486 ) $ ( 62,976 ) Tax benefit 11,441 13,225 Net-of-tax amount $ ( 43,045 ) $ ( 49,751 ) Note 13: Commitments and Contingent Liabilities In the normal course of business, there are outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying consolidated financial statements. First Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. First Bank uses the same credit policies in making such commitments as it does for instruments that are included in the consolidated statements of financial condition. Financial instruments whose contract amounts represent credit risk as of December 31, 2023 and 2022, were as follows: 2023 2022 Commitments to extend credit $ 190,274 $ 278,946 Standby letters of credit $ 2,410 $ 1,696 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The subsidiary evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the subsidiary upon extension of credit, is based on management's credit evaluation. Collateral held varies, but may include residential real estate, income-producing commercial properties, or other assets of the borrower. Standby letters of credit are conditional commitments issued by the subsidiary to guarantee the performance of the customer to a third party. Note 14: 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 6 percent of base salary contributed by participants. The Company’s expense for the plan was $ 237,000 and $ 227,000 for the years ended December 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 ("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. The Company is obligated at the option of each beneficiary to repurchase shares of the ESOP upon the beneficiary’s termination or after retirement. 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. 97 Dividends on allocated shares paid to participants are reported as compensation expense. Unearned ESOP shares, which are not vested, are excluded from the computation of average shares outstanding for earnings per share calculation. Accordingly, $ 11,458,000 and $ 12,193,000 of common stock acquired by the ESOP was shown as a reduction of stockholders’ equity at December 31, 2023 and December 31, 2022, respectively. Shares are released to participants proportionately as the loan is repaid. ESOP expense for the years ended December 31, 2023 and 2022 was $ 612,000 and $ 799,000 , respectively. December 31, 2023 December 31, 2022 Earned ESOP shares 238,988 184,882 Unearned ESOP shares 843,142 897,248 Total ESOP shares 1,082,130 1,082,130 Quoted per share price $ 11.51 $ 13.01 Fair value of earned shares (in thousands) $ 2,751 $ 2,405 Fair value of unearned shares (in thousands) $ 9,705 $ 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. The following table summarizes the restricted stock awards activity in the 2020 EIP for the year ended December 31, 2023. Year Ended December 31, 2023 Number of Restricted Shares Weighted Average Grant Date Fair Value Non-vested, beginning of year 261,291 $ 10.56 Granted — — Vested ( 94,133 ) 10.56 Forfeited — — Non-vested, end of year 167,158 $ 10.56 98 Total compensation cost recognized in the income statement for restricted stock awards during 2023 and 2022 was $ 974,000 and $ 920,000 , respectively, and the related tax benefit recognized was $ 205,000 and $ 193,000 , respectively. As of December 31, 2023, unrecognized compensation expense related to restricted stock awards was $ 1.3 million. Stock Option Plan. On October 1, 2020, the Company awarded options to purchase 1,095,657 shares of common stock under the 2020 EIP with an exercise price $ 10.53 per share, the fair value of a share of the Company's common stock on the date of the 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 the Company's common stock on the date of the grant, to eligible participants. The 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. A net-settle stock option exercise may occur by the option holder by withholding the exercise price from the number of shares that would otherwise be delivered upon a cash exercise of the option. The withheld shares are canceled and no longer available for future grant. The following table summarizes the stock option activity in the 2020 EIP during the year ended December 31, 2023. 2023 Number of Shares Weighted-Average Exercise Price Balance at beginning of year 1,050,961 $ 10.56 Granted — — Exercised — — Forfeited/expired — — Balance at end of year 1,050,961 10.56 Exercisable at end of year 641,969 $ 10.55 The fair value of options granted is estimated on the date of 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 99 A summary of the status of the Company stock option shares as of December 31, 2023 is presented below. Shares Weighted Average Grant Date Fair Value Non-vested, beginning of year 637,841 $ 2.91 Vested ( 228,849 ) 2.91 Granted — — Forfeited — — Non-vested, end of year 408,992 $ 2.91 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, 2023, unrecognized compensation expense related to the stock option awards was $ 890,000 . Note 15: Earnings Per Share Basic earnings per share ("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 (in thousands, except for share and per share data): For the Year Ended For the Year Ended December 31, 2023 December 31, 2022 Net income $ 9,487 $ 12,965 Shares outstanding for Basic EPS: Average shares outstanding 11,487,615 12,001,527 Less: average restricted stock award shares not vested 214,813 304,246 Less: average unearned ESOP Shares 876,680 930,787 Shares outstanding for Basic EPS 10,396,122 10,766,494 Additional Dilutive Shares 54,489 291,684 Shares outstanding for Diluted EPS 10,450,611 11,058,178 Basic EPS $ 0.91 $ 1.20 Diluted EPS $ 0.91 $ 1.17 100 Note 16: Dividend and Capital Restrictions 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 period. The Bank’s payment of dividends is also subject to the restrictions of the capital conservation buffer as discussed in Note 17. Note 17: Regulatory Capital First Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, First Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under U.S. GAAP, regulatory reporting requirements and regulatory capital standards. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, First Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements. Quantitative measures established by regulatory capital standards to ensure capital adequacy require First Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined) to risk-weighted assets (as defined), common equity Tier I capital (as defined) to total risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2023, that First Bank meets all capital adequacy requirements to which it is subject. As of December 31, 2023, the most recent notification from the regulators categorized First Bank as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, First Bank must maintain minimum total risk-based capital, Tier I risk-based capital, common equity Tier I risk-based capital and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed First Bank’s category. 101 First Bank’s actual and required capital amounts and ratios are as follows: Actual Minimum for Capital Adequacy Purposes Minimum to be Categorized as "Well-Capitalized" Under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio As of December 31, 2023 Total capital (to risk-weighted assets) $ 174,938 14.1 % $ 99,247 8.0 % $ 124,059 10.0 % Tier I capital (to risk-weighted assets) 159,409 12.8 74,435 6.0 99,247 8.0 Common Equity Tier I capital (to risk-weighted assets) 159,409 12.8 55,826 4.5 80,638 6.5 Tier I leverage capital (to average assets) 159,409 10.6 59,931 4.0 74,914 5.0 As of December 31, 2022 Total capital (to risk-weighted assets) $ 164,804 14.3 % $ 92,134 8.0 % $ 115,168 10.0 % Tier I capital (to risk-weighted assets) 152,391 13.2 69,101 6.0 92,134 8.0 Common Equity Tier I capital (to risk-weighted assets) 152,391 13.2 51,826 4.5 74,859 6.5 Tier I leverage capital (to average assets) 152,391 11.2 54,421 4.0 68,026 5.0 The above minimum capital requirements exclude the capital conservation buffer required to avoid limitations on capital distributions, including share repurchases, dividend payments and certain discretionary bonus payments to executive officers. The capital conservation buffer was 2.50 % of total risk weighted assets at both December 31, 2023 and December 31, 2022. The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital. Note 18: Related Party Transactions The Company has entered into transactions with certain directors, executive officers and its affiliates or associates (related parties). Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates, as those prevailing at the same time for comparable transactions with other customers. The aggregate amount of loans to such related parties at December 31, 2023 and 2022 was approximately $ 8,624,000 and $ 7,988,000 , respectively. Annual activity consisted of the following: 2023 2022 Balance, beginning of the year $ 7,988 $ 9,080 New loans 1,161 — Change in composition — — Repayments ( 525 ) ( 1,092 ) Balance, end of the year $ 8,624 $ 7,988 Deposits from related parties held by the Company at December 31, 2023 and 2022 totaled $ 2,702,000 and $ 5,317,000 , respectively. 102 Note 19: Fair Values 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 and are significant to the fair value of the assets or liabilities Recurring Measurements The following tables present the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2023 and 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) December 31, 2023 Available-for-sale securities U.S. Treasury securities $ 2,976 $ 2,976 $ — $ — SBA Pools 4,772 — 4,772 — Federal agencies 13,153 — 13,153 — State and municipal obligations 141,446 — 141,446 — Mortgage-backed securities - GSE residential 111,481 — 111,481 — Corporate obligations 8,860 — 8,860 — $ 282,688 $ 2,976 $ 279,712 $ — 103 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 year ended December 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, mortgage-backed securities, and SBA pools. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Nonrecurring Measurements The following table presents the fair value measurement of assets 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. As of December 31, 2023, there were no assets or liabilities measured at fair value on a nonrecurring basis. 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 Collateral dependent loans $ 314 $ — $ — $ 314 Mortgage-servicing rights 2,012 — — 2,012 104 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 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. 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 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. 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 Inputs Range Collateral-dependent loans $ 314 Appraisal Marketability discount 0 % - 42 % Mortgage-servicing rights $ 2,012 Discounted cash flow Discount rate 10 % 105 Fair Value of Financial Instruments The following tables present estimated fair values of the Company’s financial instruments at December 31, 2023 and 2022. 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, 2023 Financial assets Cash and cash equivalents $ 20,240 $ 20,240 $ — $ — Available-for-sale securities 282,688 2,976 279,712 — Held-to-maturity securities 4,950 — 4,921 — Loans held for sale 794 — — 794 Loans and leases receivable, net 1,090,073 — — 985,976 Federal Reserve and FHLB stock 12,647 — 12,647 — Interest receivable 5,844 — 5,844 — Financial liabilities Deposits 1,041,140 — 1,038,178 — FHLB advances 271,000 — 266,885 — Interest payable 4,397 — 4,397 — 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 — — 474 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 — 106 While these estimates of fair value are based on management’s judgment of the most appropriate factors, there is no assurance that were the Company to have disposed of such items at December 31, 2023 and 2022, the estimated fair values would necessarily have been achieved at that date, since market values may differ depending on various circumstances. The estimated fair values at December 31, 2023 and 2022 should not necessarily be considered to apply at subsequent dates. The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value. Cash and Cash Equivalents, Interest-Earning Time Deposits and Federal Reserve and Federal Home Loan Bank Stock – The carrying amount approximates fair value. Held-to-Maturity Securities – Fair value is based on quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Loans and Leases – The fair value of loans and leases is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest approximates its fair value. Deposits – Deposits include demand deposits, savings accounts, NOW accounts and money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities. Interest Receivable and Interest Payable – The carrying amount approximates fair value. Federal Home Loan Bank Advances – Rates currently available to the Company for borrowings with similar terms and remaining maturities are used to estimate the fair value of existing debt. 107 Note 20: Condensed Financial Information (Parent Company Only) Presented below is condensed financial information as to financial position, results of operations and cash flows of the Company: Condensed Balance Sheets 2023 2022 Assets Cash and cash equivalents $ 13,225 $ 26,229 Investment in subsidiaries 118,399 102,926 Other assets 5,617 5,625 Total assets $ 137,241 $ 134,780 Other Liabilities $ 2,381 $ 2,396 Stockholders' Equity 134,860 132,384 Total liabilities and stockholders' equity $ 137,241 $ 134,780 Condensed Statements of Income and Comprehensive Income (Loss) 2023 2022 Income: Dividends from bank subsidiary $ — $ 20,000 Other income 638 439 Total income 638 20,439 Other expenses 3,120 3,264 (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): Bank subsidiary 10,344 ( 5,472 ) Captive subsidiary 1,101 630 Net (loss) income $ 9,487 $ 12,965 Comprehensive income (loss) $ 16,193 $ ( 35,574 ) 108 Condensed Statements of Cash Flows 2023 2022 Operating Activities Net income $ 9,487 $ 12,965 Adjustments to reconcile net income to net cash from operating activities: Dividends in excess of net income (equity in undistributed net income of subsidiaries) ( 11,446 ) 4,842 ESOP expense 612 799 Stock based compensation 1,627 1,539 Changes in other assets and other liabilities ( 1,113 ) ( 944 ) Net cash (used in) provided by operating activities ( 833 ) 19,201 Investing Activities Capitalization of subsidiary — ( 250 ) Net cash used in investing activities — ( 250 ) Financing Activities Dividends paid ( 5,920 ) ( 4,408 ) Repurchase of common stock ( 6,251 ) ( 9,859 ) Proceeds from stock option exercises — — Net cash used in financing activities ( 12,171 ) ( 14,267 ) Net Change in Cash and Cash Equivalents ( 13,004 ) 4,684 Cash and Cash Equivalents, Beginning of Period 26,229 21,545 Cash and Cash Equivalents, End of Period $ 13,225 $ 26,229 Note 21: Significant Estimates and Concentrations Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses are reflected in the footnote regarding loans. Current vulnerabilities due to certain concentrations of credit risk are discussed in the footnote on commitments and credit risk. Other significant estimates and concentrations not discussed in those footnotes include: General Litigation – The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company. Note 22: Subsequent Events Subsequent events have been evaluated through March 29, 2024, which is the date the consolidated financial statements were issued. 109 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None.