Richmond Mutual Bancorporation, Inc. 10-Q

ITEM 1.FINANCIAL STATEMENTS Richmond Mutual Bancorporation, Inc. Condensed Consolidated Balance Sheets March 31, 2024 December 31, 2023 (Unaudited) Assets Cash and due from banks $ 8,441,313 $ 8,578,489 Interest-earning demand deposits 11,848,901 11,661,636 Cash and cash equivalents 20,290,214 20,240,125 Investment securities - available for sale 276,347,393 282,688,326 Investment securities - held to maturity 4,658,475 4,949,530 Loans held for sale 85,000 793,500 Loans and leases, net of allowance for credit losses of $ 15,825,126 and $ 15,663,153 , respectively 1,123,194,329 1,090,073,198 Premises and equipment, net 13,212,493 13,311,892 Federal Home Loan Bank stock 13,907,100 12,647,100 Interest receivable 5,988,336 5,843,705 Mortgage-servicing rights 1,945,994 1,945,367 Cash surrender value of life insurance 3,787,292 3,764,929 Other assets 24,254,717 24,766,129 Total assets $ 1,487,671,343 $ 1,461,023,801 Liabilities Noninterest-bearing deposits $ 108,805,348 $ 114,376,777 Interest-bearing deposits 960,837,124 926,763,134 Total deposits 1,069,642,472 1,041,139,911 Federal Home Loan Bank advances 273,000,000 271,000,000 Advances by borrowers for taxes and insurance 701,791 588,371 Interest payable 3,864,170 4,396,952 Other liabilities 8,072,193 9,038,991 Total liabilities 1,355,280,626 1,326,164,225 Commitments and Contingent Liabilities — — Stockholders' Equity Common stock, $ 0.01 par value Authorized - 90,000,000 shares Issued and outstanding - 11,115,887 shares and 11,208,500 shares at March 31, 2024 and December 31, 2023, respectively 111,159 112,085 Additional paid-in capital 100,613,827 101,347,566 Retained earnings 88,834,364 87,902,747 Unearned employee stock ownership plan (ESOP) ( 11,273,897 ) ( 11,457,726 ) Accumulated other comprehensive loss ( 45,894,736 ) ( 43,045,096 ) Total stockholders' equity 132,390,717 134,859,576 Total liabilities and stockholders' equity $ 1,487,671,343 $ 1,461,023,801 See Notes to Condensed Consolidated Statements. 1 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Income (Unaudited) Three Months Ended March 31, 2024 2023 Interest Income Loans and leases $ 17,250,722 $ 13,193,173 Investment securities 2,120,223 1,934,072 Other 139,248 65,553 Total interest income 19,510,193 15,192,798 Interest Expense Deposits 7,065,764 4,026,675 Borrowings 2,611,648 1,295,313 Total interest expense 9,677,412 5,321,988 Net Interest Income 9,832,781 9,870,810 Provision for credit losses 183,134 170,106 Net Interest Income After Provision for Credit Losses 9,649,647 9,700,704 Non-interest Income Service charges on deposit accounts 272,931 280,995 Card fee income 290,186 287,258 Loan and lease servicing fees, including mortgage servicing right impairment 127,242 120,072 Net gains on loan and lease sales 119,317 155,563 Other income 319,259 252,836 Total non-interest income 1,128,935 1,096,724 Non-interest Expenses Salaries and employee benefits 4,573,707 4,242,028 Net occupancy expenses 344,354 350,822 Equipment expenses 236,216 331,323 Data processing fees 906,791 836,513 Deposit insurance expense 403,000 168,000 Printing and office supplies 34,676 36,271 Legal and professional fees 432,553 310,976 Advertising expense 88,723 88,191 Bank service charges 60,706 48,619 Real estate owned expense 1,326 — Other expenses 975,454 948,445 Total non-interest expenses 8,057,506 7,361,188 Income Before Income Tax Expense 2,721,076 3,436,240 Provision for income taxes 352,160 532,194 Net Income $ 2,368,916 $ 2,904,046 Earnings Per Share Basic $ 0.23 $ 0.27 Diluted $ 0.23 $ 0.27 See Notes to Condensed Consolidated Statements. 2 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) Three Months Ended March 31, 2024 2023 Net Income $ 2,368,916 $ 2,904,046 Other Comprehensive (Loss) Income Unrealized (loss) gain on available for sale securities, net of tax benefit (expense) of $ 757,499 , and $( 1,640,117 ), respectively ( 2,849,640 ) 6,169,964 Comprehensive (Loss) Income $ ( 480,724 ) $ 9,074,010 See Notes to Condensed Consolidated Statements. 3 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) Three Months Ended March 31, 2024 Common Stock Additional Paid-in Capital Retained Earnings Unearned ESOP Shares Accumulated Other Comprehensive Loss Total Shares Outstanding Amount Balances, December 31, 2023 11,208,500 $ 112,085 $ 101,347,566 $ 87,902,747 $ ( 11,457,726 ) $ ( 43,045,096 ) $ 134,859,576 Net income — — — 2,368,916 — — 2,368,916 Other comprehensive loss — — — — — ( 2,849,640 ) ( 2,849,640 ) ESOP shares earned — — ( 29,661 ) — 183,829 — 154,168 Stock based compensation — — 367,484 — — — 367,484 Common stock dividends ($ 0.14 per share) — — — ( 1,437,299 ) — — ( 1,437,299 ) Repurchase of common stock ( 92,613 ) ( 926 ) ( 1,071,562 ) — — — ( 1,072,488 ) Balances, March 31, 2024 11,115,887 $ 111,159 $ 100,613,827 $ 88,834,364 $ ( 11,273,897 ) $ ( 45,894,736 ) $ 132,390,717 Three Months Ended March 31, 2023 Common Stock Additional Paid-in Capital Retained Earnings Unearned ESOP Shares Accumulated Other Comprehensive Loss Total Shares Outstanding Amount Balances, December 31, 2022 11,784,246 $ 117,842 $ 106,088,897 $ 88,122,052 $ ( 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 — — — 2,904,046 — — 2,904,046 Other comprehensive income — — — — — 6,169,964 6,169,964 ESOP shares earned — — ( 13,318 ) — 183,829 — 170,511 Stock based compensation — — 379,408 — — — 379,408 Common stock dividends ($ 0.14 per share) — — — ( 1,519,855 ) — — ( 1,519,855 ) Repurchase of common stock ( 98,553 ) ( 985 ) ( 1,149,948 ) — — — ( 1,150,933 ) Balances, March 31, 2023 11,685,693 $ 116,857 $ 105,305,039 $ 85,721,075 $ ( 12,009,214 ) $ ( 43,581,211 ) $ 135,552,546 See Notes to Condensed Consolidated Statements. 4 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2024 2023 Operating Activities Net income $ 2,368,916 $ 2,904,046 Items not requiring (providing) cash Provision for credit losses 183,134 170,106 Depreciation and amortization 214,846 261,665 Deferred income tax 36,457 ( 88,482 ) Stock based compensation 367,484 379,408 Investment securities amortization, net 265,798 296,954 Net gains on loan and lease sales ( 119,317 ) ( 155,563 ) Gain on sale of real estate owned ( 1,558 ) ( 1,921 ) Gain on sale of premises and equipment — ( 1,800 ) Accretion of loan origination fees ( 160,947 ) ( 283,473 ) Amortization of mortgage-servicing rights 43,135 39,558 ESOP shares expense 154,168 170,511 Increase in cash surrender value of life insurance ( 22,363 ) ( 21,994 ) Loans originated for sale ( 6,697,600 ) ( 6,067,122 ) Proceeds on loans sold 5,989,100 5,593,422 Net change in Interest receivable ( 144,631 ) 27,242 Other assets 1,185,192 757,505 Other liabilities ( 966,798 ) ( 1,569,371 ) Interest payable ( 532,782 ) 1,177,300 Net cash provided by operating activities 2,162,234 3,587,991 Investing Activities Purchases of securities available for sale ( 1,935,953 ) ( 7,097,933 ) Proceeds from maturities and paydowns of securities available for sale 4,404,697 7,766,832 Proceeds from maturities and paydowns of securities held to maturity 290,306 918,473 Net change in loans ( 31,650,763 ) ( 29,281,218 ) Proceeds from sales of real estate owned 48,821 59,386 Purchases of premises and equipment ( 115,447 ) ( 86,375 ) Proceeds from sale of premises and equipment — 1,800 Purchase of FHLB stock ( 1,260,000 ) ( 134,900 ) Net cash used in investing activities ( 30,218,339 ) ( 27,853,935 ) Financing Activities Net change in Demand and savings deposits ( 5,097,505 ) ( 23,878,107 ) Certificates of deposit 33,600,066 48,651,800 Advances by borrowers for taxes and insurance 113,420 130,648 Proceeds from FHLB advances 58,000,000 179,500,000 Repayment of FHLB advances ( 56,000,000 ) ( 176,000,000 ) Repurchase of common stock ( 1,072,488 ) ( 1,150,933 ) Dividends paid ( 1,437,299 ) ( 1,519,855 ) Net cash provided by financing activities 28,106,194 25,733,553 Net Change in Cash and Cash Equivalents 50,089 1,467,609 Cash and Cash Equivalents, Beginning of Period 20,240,125 15,922,093 Cash and Cash Equivalents, End of Period $ 20,290,214 $ 17,389,702 Additional Cash Flows and Supplementary Information Interest paid $ 10,210,194 $ 4,144,688 Transfers from loans to other real estate owned — 366,508 See Notes to Condensed Consolidated Statements. 5 Richmond Mutual Bancorporation, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Amounts) Note 1: Basis of Presentation The accompanying financial information is unaudited and has been prepared from the consolidated financial statements of Richmond Mutual Bancorporation, Inc., and its wholly owned direct and indirect subsidiaries, First Bank Richmond, First Insurance Management, Inc., FB Richmond Holdings, Inc. and FB Richmond Properties, Inc. References in this document to Richmond Mutual Bancorporation refer to Richmond Mutual Bancorporation, Inc. References to “we,” “us,” and “our” or the “Company” refers to Richmond Mutual Bancorporation and its wholly-owned direct and indirect subsidiaries, First Bank Richmond, First Insurance Management, Inc., FB Richmond Holdings, Inc., and FB Richmond Properties, Inc. unless the context otherwise requires. First Bank Richmond is an Indiana state-chartered commercial bank headquartered in Richmond, Indiana and the wholly owned banking subsidiary of Richmond Mutual Bancorporation. First Bank Richmond provides full banking services through its seven full- and one limited-service offices located in Cambridge City (1), Centerville (1), Richmond (5) and Shelbyville (1), Indiana, its five full-service offices located in Piqua (2), Sidney (2) and Troy (1), Ohio, and its loan production office in Columbus, Ohio. Administrative, trust and wealth management services are conducted through First Bank Richmond's Corporate Office/Financial Center located in Richmond, Indiana. As an Indiana-chartered commercial bank, First Bank Richmond is subject to regulation by the Indiana Department of Financial Institutions ("IDFI") and the Federal Deposit Insurance Corporation ("FDIC"). First Insurance Management, Inc., a wholly-owned subsidiary of the Company which was formed and began operations in June 2022, is a Nevada-based captive insurance company that insures against certain risks unique to the operations of the Company and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace. First Insurance Management, Inc. is subject to the regulations of the State of Nevada and undergoes periodic examinations by the Nevada Division of Insurance. FB Richmond Holdings, Inc., a wholly-owned subsidiary of First Bank Richmond which was formed and began operations in April 2020, is a Nevada corporation that holds and manages substantially all of First Bank Richmond's investment portfolio. FB Richmond Holdings, Inc. has one active subsidiary, FB Richmond Properties, Inc., a Delaware corporation which holds loans on behalf of the Bank. The accompanying unaudited condensed consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include information or note disclosures necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. Accordingly, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 ("2023 Form 10-K") filed with the Securities and Exchange Commission (“SEC”) on March 29, 2024 (SEC File No. 001-38956). However, in the opinion of management, all adjustments which are necessary for a fair presentation of the consolidated financial statements have been included. Those adjustments consist only of normal recurring adjustments. The results of operations for the period are not necessarily indicative of the results to be expected for the full year. Use of Estimates in Preparation of Financial Statements Financial statements prepared in accordance with generally accepted accounting principles in the United States ("GAAP") require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates. Loans For all loan classes, the accrual of interest is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. For all loan classes, the entire balance of the loan is considered past due if the minimum payment contractually required to be paid is not received by the 6 contractual due date. For all loan classes, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. The Company charges off residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance, which provides for the charge-down of 1-4 family first and junior lien mortgages to the net realizable value, less costs to sell when the loan is 120 days past due, charge-off of unsecured open-end loans when the loan is 90 days past due, and charge down to the net realizable value when other secured loans are 90 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off. For all classes, all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status. On occasion, the Company will provide modifications to loans and leases to borrowers experiencing financial difficulty, by providing payment delays, term extensions, or interest-rate reductions. In some cases, combinations of modifications may be made to the same loan or lease. If determined that the value of the modified loan or lease is less than the recorded investment in the loan, a charge-off is recognized to the allowance for credit losses on loans and leases. Note 2: Accounting Pronouncements The Jumpstart Our Business Startups Act (the "JOBS Act"), which was enacted in April 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year qualifies as an “emerging growth company.” The Company qualifies as and has elected to be an emerging growth company under the JOBS Act. An emerging growth company may elect to comply with new or amended accounting pronouncements in the same manner as a private company, but must make such election when the company is first required to file a registration statement. Such an election is irrevocable during the period a company is an emerging growth company. The Company has elected to comply with new or amended accounting pronouncements in the same manner as a private company. In 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. In March 2023, the FASB issued ASU No. 2023-02, Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method . This ASU allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. ASU No. 2023-02 is effective for all public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. The Company adopted this guidance on January 1, 2024. Adoption of ASU 2023-02 did not have a material impact on the Company's consolidated financial statements. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . This ASU established new income tax disclosure requirements and modified existing requirements. The ASU requires additional information be disclosed for specified categories, and reconciling items that meet a certain threshold, within the rate reconciliation on an annual basis. Additionally, this ASU requires information be disclosed on the amount of income taxes paid (net of refunds), disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds) disaggregated by jurisdiction based on a quantitative threshold. ASU No. 2023-09 is effective for all public business entities for 7 annual periods beginning after December 15, 2024. The ASU is effective for the Company beginning January 1, 2025. The Company does not expect the adoption of ASU No. 2023-09 to have a material impact on its consolidated financial statements. Note 3: Investment Securities The amortized cost and approximate fair values, together with gross unrealized gains and losses, of investment securities are as follows: March 31, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale U.S. treasury securities $ 4,944 $ — $ 28 $ 4,916 SBA Pools 5,007 — 577 4,430 Federal agencies 15,000 — 1,977 13,023 State and municipal obligations 167,705 2 30,236 137,471 Mortgage-backed securities - government-sponsored enterprises (GSE) residential 130,285 24 22,666 107,643 Corporate obligations 11,500 — 2,636 8,864 334,441 26 58,120 276,347 Held to maturity State and municipal obligations 4,658 12 78 4,592 4,658 12 78 4,592 Total investment securities $ 339,099 $ 38 $ 58,198 $ 280,939 December 31, 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 8 The amortized cost and fair value of investment securities at March 31, 2024, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Available for Sale Held to Maturity Amortized Cost Fair Value Amortized Cost Fair Value Within one year $ 6,493 $ 6,443 $ 1,500 $ 1,483 One to five years 25,952 23,894 1,675 1,641 Five to ten years 36,807 32,651 773 785 After ten years 134,904 105,716 710 683 204,156 168,704 4,658 4,592 Mortgage-backed securities –GSE residential 130,285 107,643 — — Totals $ 334,441 $ 276,347 $ 4,658 $ 4,592 Investment securities with a carrying value of $ 157,728,000 and $ 162,430,000 were pledged at March 31, 2024 and December 31, 2023, respectively, to secure certain deposits and for other purposes as permitted or required by law. There were no sales of securities available for sale for the three months ended March 31, 2024 and 2023. Certain investments in debt securities, as reflected in the table below, are reported in the condensed consolidated financial statements and notes at an amount less than their historical cost. Total fair value of these investments at March 31, 2024 and December 31, 2023 was $ 278,077,000 and $ 279,852,000 , respectively, which is approximately 99 % and 97 % of the Company’s aggregated available for sale and held to maturity investment portfolio at those dates, respectively. These declines primarily resulted from changes in market interest rates since their purchase. The Company does not consider available for sale securities with unrealized losses to be experiencing credit losses at March 31, 2024. Management considers it more likely than not that the Company will not be required to sell these investments before recovery of the amortized cost basis, which may be the maturity dates of the securities. Held to maturity securities are financial assets measured at amortized cost. Held to maturity securities are required to have an established allowance for credit losses that represents the portion of the amortized cost basis of a financial asset that is not expected to be collectable. The Company estimates expected credit losses on a collective basis by security type, with consideration given to historical information, credit ratings, and the statistical probability of future losses. The Company monitors the credit quality of investment securities held to maturity through the use of credit ratings quarterly. As of March 31, 2024, there was no allowance for credit losses recognized on the Company's securities held to maturity portfolio. The following table summarizes the amortized cost of held to maturity securities by credit quality indicator as of March 31, 2024: State and municipal obligations AA+ $ 1,151 AA- 585 A+ 710 BBB+ 40 Not rated 2,172 $ 4,658 The Company has elected to exclude accrued interest receivable from the calculation of the allowance for credit losses. 9 The following tables show the Company’s investment securities by gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2024 and December 31, 2023: Description of Securities March 31, 2024 Less Than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Available for sale U.S. Treasury Securities $ 2,429 $ 13 $ 2,487 $ 15 $ 4,916 $ 28 SBA Pools 289 — 4,008 577 4,297 577 Federal agencies — — 13,023 1,977 13,023 1,977 State and municipal obligations 3,295 17 133,931 30,219 137,226 30,236 Mortgage-backed securities - GSE residential 1,817 13 104,377 22,653 106,194 22,666 Corporate obligations — — 8,864 2,636 8,864 2,636 Total available for sale 7,830 43 266,690 58,077 274,520 58,120 Held to maturity State and municipal obligations 858 8 2,699 70 3,557 78 Total $ 8,688 $ 51 $ 269,389 $ 58,147 $ 278,077 $ 58,198 Description of Securities December 31, 2023 Less Than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Available for sale U.S. Treasury securities $ 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 Federal Agency Obligations. The unrealized losses on the Company’s investments in direct obligations of U.S. federal agencies were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. The Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity. SBA Pools and Mortgage-Backed Securities - GSE Residential. The unrealized losses on the Company’s investment in mortgage-backed securities and SBA pools were caused by interest rate changes and illiquidity. The Company expects to recover the amortized cost basis over the term of the securities. The decline in fair value is attributable to changes in interest rates and not credit quality. The Company does not intend to sell the securities and it is not more likely than not the Company will be required to sell the securities 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 securities do not 10 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 securities and it is not more likely than not the Company will be required to sell the securities 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. Note 4: Loans, Leases and Allowance The following table shows the composition of the loan and lease portfolio at March 31, 2024 and December 31, 2023: March 31, 2024 December 31, 2023 Commercial mortgage $ 338,434 $ 341,633 Commercial and industrial 123,661 115,428 Construction and development 165,063 157,805 Multi-family 153,719 138,757 Residential mortgage 171,050 162,123 Home equity lines of credit 12,146 10,904 Direct financing leases 152,468 156,598 Consumer 23,004 23,264 1,139,545 1,106,512 Less Allowance for credit losses on loans and leases 15,825 15,663 Deferred loan fees 526 776 $ 1,123,194 $ 1,090,073 The Company rates all loans and leases by credit quality using the following designations: Grade 1 – Exceptional Exceptional loans and leases are top-quality loans to individuals whose financial credentials are well known to the Company. These loans and leases have excellent sources of repayment, are well documented and/or virtually free of risk (i.e., CD secured loans). Grade 2 – Quality Loans and Leases These loans and leases have excellent sources of repayment with no identifiable risk of collection, and they conform in all respects to Company policy and IDFI and FDIC regulations. Documentation exceptions are minimal or are in the process of being corrected and are not of a type that could subsequently expose the Company to risk of loss. Grade 3 – Acceptable Loans This category is for “average” quality loans and leases. These loans and leases have adequate sources of repayment with little identifiable risk of collection and they conform to Company policy and IDFI/FDIC regulations. Grade 4 – Acceptable but Monitored Loans and leases in this category may have a greater than average risk due to financial weakness or uncertainty but do not appear to require classification as special mention or substandard loans. Loans and leases rated “4” need to be monitored on a regular basis to ascertain that the reasons for placing them in this category do not advance or worsen. Grade 5 – Special Mention 11 Loans and leases in this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or in the Company’s credit position at some future date. Special Mention loans and leases are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. This special mention rating is designed to identify a specific level of risk and concern about an asset’s quality. Although a special mention loan or lease has a higher probability of default than a pass rated loan or lease, its default is not imminent. Grade 6 – Substandard Loans and leases in this category are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans and leases so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Substandard loans and leases have a high probability of payment default, or they have other well-defined weaknesses. Such loans and leases have a distinct potential for loss; however, an individual loan’s or lease’s potential for loss does not have to be distinct for the loan or lease to be rated substandard. The following are examples of situations that might cause a loan or lease to be graded a “6”: • Cash flow deficiencies (losses) jeopardize future loan or lease payments. • Sale of non-collateral assets has become a primary source of loan or lease repayment. • The relationship has deteriorated to the point that sale of collateral is now the Company’s primary source of repayment, unless this was the original source of loan or lease repayment. • The borrower is bankrupt or for any other reason future repayment is dependent on court action. Grade 7 – Doubtful A loan or lease classified as doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly questionable and improbable. A doubtful loan or lease has a high probability of total or substantial loss. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. Because of high probability of loss, nonaccrual accounting treatment will be required for doubtful loans and leases. Grade 8 – Loss Loans and leases classified loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan or lease has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan or lease even though partial recovery may be effected in the future. No material changes have been made to the risk characteristics discussed above contained in the Company's 2023 Form 10-K. 12 The following tables present the credit risk profile of the Company’s loan and lease portfolio based on rating category, payment activity, and origination year as of March 31, 2024 and rating category as of December 31, 2023: 2024 2023 2022 2021 2020 Prior Revolving loans amortized cost basis Total As of March 31, 2024: Commercial mortgage Pass $ 4,094 $ 32,554 $ 83,880 $ 68,696 $ 32,560 $ 95,083 $ 15,987 $ 332,854 Special Mention — — — — 4,814 — — 4,814 Substandard — — — 246 — 520 — 766 Total Commercial mortgage 4,094 32,554 83,880 68,942 37,374 95,603 15,987 338,434 Current period gross charge-offs — — — — — — — — Commercial and industrial Pass 10,338 35,863 12,420 12,790 4,085 11,815 31,613 118,924 Substandard — — 355 — — 112 4,270 4,737 Total Commercial and industrial 10,338 35,863 12,775 12,790 4,085 11,927 35,883 123,661 Current period gross charge-offs — — — — — — — — Construction and development Pass 13,993 29,118 78,358 35,146 3,045 503 — 160,163 Substandard — — — — — 4,900 — 4,900 Total Construction and development 13,993 29,118 78,358 35,146 3,045 5,403 — 165,063 Current period gross charge-offs — — — — — — — — Multi-family Pass 205 3,733 50,088 35,305 6,336 25,479 26,846 147,992 Special Mention — — — 1,538 — — 4,189 5,727 Total Multi-family 205 3,733 50,088 36,843 6,336 25,479 31,035 153,719 Current period gross charge-offs — — — — — — — — Residential mortgage Pass 6,162 34,488 31,043 34,687 17,396 43,664 2,207 169,647 Substandard — — — 226 — 1,177 — 1,403 Total Residential mortgage 6,162 34,488 31,043 34,913 17,396 44,841 2,207 171,050 Current period gross charge-offs — — — — — 10 — 10 Home equity Pass 22 — — — — — 12,124 12,146 Total Home equity lines of credit 22 — — — — — 12,124 12,146 Current period gross charge-offs — — — — — — — — Direct financing leases Pass 13,286 70,193 37,682 20,429 8,169 2,115 — 151,874 Substandard 12 261 206 42 36 — — 557 Doubtful — 36 — — — 1 — 37 Total Direct financing leases 13,298 70,490 37,888 20,471 8,205 2,116 — 152,468 Current period gross charge-offs — 157 125 70 5 — — 357 Consumer Pass 2,396 8,639 7,378 3,328 681 522 — 22,944 Substandard — 22 37 — — 1 — 60 Total Consumer 2,396 8,661 7,415 3,328 681 523 — 23,004 Current period gross charge-offs 9 36 17 10 — — — 72 Total Loans and Leases $ 50,508 $ 214,907 $ 301,447 $ 212,433 $ 77,122 $ 185,892 $ 97,236 $ 1,139,545 Total current period gross charge-offs $ 9 $ 193 $ 142 $ 80 $ 5 $ 10 $ — $ 439 13 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 For the three months ended March 31, 2024 and December 31, 2023, the Company did not have any revolving loans convert to term loans. 14 The following tables present the Company’s loan and lease portfolio aging analysis of the recorded investment in loans and leases as of March 31, 2024 and December 31, 2023: March 31, 2024 Delinquent Loans and Leases Current Total Portfolio Loans and Leases Total Loans and Leases > 90 Days Accruing 30-59 Days Past Due 60-89 Days Past Due 90 Days and Over Total Past Due Commercial mortgage $ 179 $ — $ — $ 179 $ 338,255 $ 338,434 $ — Commercial and industrial — — 15 15 123,646 123,661 15 Construction and development — — 4,900 4,900 160,163 165,063 — Multi-family 446 — — 446 153,273 153,719 — Residential mortgage 805 562 1,402 2,769 168,281 171,050 1,302 Home equity 734 — — 734 11,412 12,146 — Direct financing leases 612 104 477 1,193 151,275 152,468 477 Consumer 277 207 60 544 22,460 23,004 60 Totals $ 3,053 $ 873 $ 6,854 $ 10,780 $ 1,128,765 $ 1,139,545 $ 1,854 December 31, 2023 Delinquent Loans and Leases Current Total Portfolio Loans and Leases Total Loans and Leases > 90 Days Accruing 30-59 Days Past Due 60-89 Days Past Due 90 Days and Over Total Past Due Commercial mortgage $ — $ — $ — $ — $ 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 463 — 25 488 10,416 10,904 25 Direct financing 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 15 The following table presents information on the Company’s nonaccrual loans and leases at March 31, 2024, and at December 31, 2023: March 31, 2024 December 31, 2023 Nonaccrual loans and leases Nonaccrual loans and leases without an allowance for credit losses Nonaccrual loans and leases Nonaccrual loans and leases without an allowance for credit losses Commercial and industrial $ 39 $ — $ 1,241 $ 1,202 Construction and development 4,900 — 4,900 — Residential mortgage 100 100 101 101 Direct financing leases 37 37 82 82 Total nonaccrual loans and leases $ 5,076 $ 137 $ 6,324 $ 1,385 During the three months ended March 31, 2024 and December 31, 2023, the Company recognized $ 1,000 and $ 42,000 of interest income on nonaccrual loans and leases, respectively. The following tables present the Company's amortized cost basis of collateral dependent loans, and their respective collateral type, which are individually analyzed to determine expected credit losses as of March 31, 2024 and December 31, 2023: March 31, 2024 Commercial Real Estate Multi-family Housing Residential Real Estate Other Total Allowance on Collateral Dependent Loans Commercial mortgage $ 5,334 $ — $ — $ — $ 5,334 $ — Commercial and industrial — — — 4,271 4,271 — Construction and development 4,900 — — — 4,900 1,000 Multi-family — 1,538 — — 1,538 — Residential mortgage — — 151 — 151 — Total $ 10,234 $ 1,538 $ 151 $ 4,271 $ 16,194 $ 1,000 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 16 Loan Modification Disclosures under ASU 2022-02 In certain situations, the Company may modify the terms of a loan to a borrower experiencing financial difficulty. These modifications may include payment delays, term extensions, or interest-rate reductions. In some cases, combinations of modifications may be made to the same loan. If a determination is made that a modified loan has been deemed uncollectible, the loan (or portion of the loan) is charged-off, reducing the amortized cost basis of the loan and adjusting the allowance for credit losses. During the three months ended March 31, 2024 and 2023, the Company had no new modifications to borrowers experiencing financial difficulty. There were no modified loans and leases that had a payment default during the three months ended March 31, 2024 and 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty. Other Real Estate Owned At March 31, 2024 and December 31, 2023, the balance of real estate owned included $ 82,000 and $ 136,000 , respectively, of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property. At March 31, 2024 and December 31, 2023, the recorded investment in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process was $ 465,000 and $ 470,000 , respectively. Direct Financing Leases The following lists the components of the net investment in direct financing leases: March 31, 2024 December 31, 2023 Total minimum lease payments to be received $ 173,041 $ 177,952 Initial direct costs 9,883 9,702 182,924 187,654 Less: Unearned income ( 30,456 ) ( 31,056 ) Net investment in direct finance leases $ 152,468 $ 156,598 The following table summarizes the future minimum lease payments receivable subsequent to March 31, 2024: Remainder of 2024 $ 48,968 2025 53,253 2026 38,495 2027 22,658 2028 9,061 Thereafter 606 $ 173,041 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 17 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 ("CF") analysis method of estimating expected losses, which relies on key inputs and assumptions. Significant factors affecting the calculation are the segmenting of loans and leases based upon similar risk characteristics, applied loss rates based upon reasonable and supportable forecasts, and contractual term adjustments, including prepayment and curtailment adjustments. To ensure the allowance is maintained at an adequate level, a detailed analysis is performed on a quarterly basis, with an appropriate provision made to adjust the allowance. The Company has elected to exclude accrued interest receivable from the calculation of the allowance for credit losses, as it is the Company's policy to write off accrued interest in a timely manner as it is deemed uncollectible by reversing interest income. The Company categorizes its loan portfolios into eight segments, as discussed above, based on similar risk characteristics. Loans within each segment are collectively evaluated using either a CF methodology or remaining life methodology. 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. The following tables summarizes changes in the allowance for credit losses by segment for the three months ended March 31, 2024 and 2023: Balances, December 31, 2023 Provision (reversal) for credit losses Charge-offs Recoveries Balances, March 31, 2024 Commercial mortgage $ 4,655 $ ( 29 ) $ — $ — $ 4,626 Commercial and industrial 1,281 48 — 61 1,390 Construction and development 3,883 17 — — 3,900 Multi-family 1,789 117 — — 1,906 Residential mortgage 1,681 45 ( 10 ) 4 1,720 Home equity 102 11 — — 113 Direct financing leases 1,955 246 ( 357 ) 24 1,868 Consumer 317 31 ( 72 ) 26 302 Total $ 15,663 $ 486 $ ( 439 ) $ 115 $ 15,825 18 Balances, December 31, 2022 Impact of adopting ASC 326 Balances, January 1, 2023 Post-ASC 326 adoption Provision (reversal) for credit losses Charge-offs Recoveries Balances, March 31, 2023 Commercial mortgage $ 4,776 $ ( 395 ) $ 4,381 $ 337 $ — $ 10 $ 4,728 Commercial and industrial 1,291 360 1,651 ( 125 ) — 12 1,538 Construction and development 2,855 784 3,639 ( 164 ) — — 3,475 Multi-family 1,955 ( 99 ) 1,856 111 — — 1,967 Residential mortgage 76 1,439 1,515 71 — 10 1,596 Home equity 23 89 112 — — — 112 Direct financing leases 1,196 422 1,618 68 ( 85 ) 164 1,765 Consumer 241 64 305 42 ( 44 ) 11 314 Total $ 12,413 $ 2,664 $ 15,077 $ 340 $ ( 129 ) $ 207 $ 15,495 During the first quarter of 2024, the allowance for credit losses on loans and leases increased from $ 15.7 million at December 31, 2023, to $ 15.8 million at March 31, 2024. The increase was attributable to additional provisions totaling $ 486,000 during the first quarter of 2024, partially offset by net charge-offs of $ 324,000 . Multiple loan categories experienced loan growth, while a few declined slightly. • Commercial Mortgage – allowance decreased due to loan balances decreasing $ 3.2 million. • Commercial & Industrial – allowance increased due to loan balances increasing $ 8.2 million. • Construction & Development – allowance increased due to loan balances increasing $ 7.3 million. • Multi-Family – allowance increased due to balances increasing $ 15.0 million. • Residential Mortgage – allowance increased due to balances increasing $ 8.9 million. • Home Equity – allowance increased due to balances increasing $ 1.2 million. • Direct Financing Leases – allowance decreased due to balances decreasing $ 4.1 million. • Consumer – allowance decreased due to balances decreasing $ 260,000 . Although the Company has a diversified loan and lease portfolio, our commercial loan portfolio, consisting of commercial and multi-family real estate loans, commercial and industrial loans, and construction loans, represents 68.5 % and 68.1 % of our portfolio as of March 31, 2024 and December 31, 2023, respectively. The allowance for credit losses on loans and leases allocated to the commercial loan portfolio represents 74.7 % and 74.1 % of our total allowance at March 31, 2024 and December 31, 2023, respectively. Economic Outlook Due to the future-focused nature of the calculation for the allowance for credit losses, management must make significant assumptions. Estimating an appropriate allowance requires management to use relevant forward-looking information drawn from reasonable and supportable forecasts. Economic factors are a consequential part of these forecasts, and as such are evaluated periodically for developments that may impact the Company's allowance for credit losses and loan and lease portfolio. As of March 31, 2024, the primary economic factors affecting the Company's loan portfolio continue to be persistent inflation, higher interest rates, geopolitical risk, mild economic growth, and a weakened employment outlook. These key factors will continue to influence the Company's loan and lease portfolio for the near future. In addition, market liquidity continues to impact the economic environment and could potentially further tighten credit conditions. 19 The Company remains committed to three growth market regions: Columbus, Ohio, Dayton/Springfield, Ohio, and Indianapolis, Indiana. These market regions specialize in commercial real estate loans, and their respective forecasts are described below: • Columbus, Ohio – The market region anticipates stable job growth in 2024, with slight increases projected in certain sectors. Construction activity is showing signs of slowing, as speculative projects are not being pre-leased, prompting greater caution in initiating new developments. The majority of new construction projects are built-to-suit, indicating a softening demand as parties exercise prudence amid economic uncertainties. The region's unemployment rate has seen a slight uptick, aligning with the national average. • Dayton/Springfield, Ohio – The economic outlook for this region remains stable. With few new projects entering the market and a lack of ongoing construction, the real estate sector appears to be in a holding pattern. However, there is a noticeable trend towards a decrease in the region's vacancy rate, suggesting potential shifts in demand patterns or better utilization of existing properties. Concerns about recession are diminishing, and the economic outlook for 2024 indicates a slow but steady positive trajectory. The relationship between Wright Patterson Air Force Base (WPAFB) and the local market is deeply interconnected, influencing all aspects of the economy. The future economic prospects of the area are closely tied to WPAFB and the success of the military, federal government, and defense industry. WPAFB is currently unveiling extensive plans to revamp and streamline processes across the Air Force and related sectors. These initiatives have the potential to significantly impact the economic trajectory of the local market. • Indianapolis, Indiana – Based upon optimistic first quarter 2024 economic results, the market region is expecting continued economic growth in 2024. First quarter results were fueled primarily by an expanding labor market, retail sales growth, and increasing median household incomes. Future potential economic volatility may have a significant impact on the Company's loan and lease portfolio, specifically the allowance for credit losses. There are a myriad of potential outcomes, and the variances may be significant and unpredictable. As a result, the Company's future estimates may fluctuate for the remainder of 2024. 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 Condensed Consolidated Statements of Income. The following table details activity in the allowance for credit losses on unfunded commitments during the three months ended March 31, 2024 and 2023: Three Months Ended March 31, 2024 Three Months Ended March 31, 2023 Beginning balance $ 1,642 $ — Impact of adopting ASC 326 — 2,374 Provision (reversal) for credit losses ( 303 ) ( 170 ) Ending balance $ 1,339 $ 2,204 Note 5: Fair Value of Financial Instruments 20 Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets or liabilities Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3 Unobservable inputs supported by little or no market activity that are significant to the fair value of the assets or liabilities Recurring Measurements The following tables present the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2024 and December 31, 2023: Fair Value Measurements Using Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) March 31, 2024 Available for sale securities U.S. Treasury securities $ 4,916 $ 4,916 $ — $ — SBA Pools 4,430 — 4,430 — Federal agencies 13,023 — 13,023 — State and municipal obligations 137,471 — 137,471 — Mortgage-backed securities - GSE residential 107,643 — 107,643 — Corporate obligations 8,864 — 8,864 — $ 276,347 $ 4,916 $ 271,431 $ — 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 $ — 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 21 the valuation hierarchy. There have been no significant changes in the valuation techniques during the three months ended March 31, 2024. Available for Sale Securities Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy, which includes equity securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include agency securities, obligations of state and political subdivisions, and mortgage-backed securities. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Nonrecurring Measurements As of March 31, 2024 and December 31, 2023, there were no assets or liabilities measured at fair value on a nonrecurring basis. Fair Value of Financial Instruments The following tables present estimated fair values of the Company’s financial instruments at March 31, 2024 and December 31, 2023: Fair Value Measurements Using Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) March 31, 2024 Financial assets Cash and cash equivalents $ 20,290 $ 20,290 $ — $ — Available for sale securities 276,347 4,916 271,431 — Held to maturity securities 4,658 — 4,592 — Loans held for sale 85 — — 85 Loans and leases receivable, net 1,123,194 — — 1,017,604 FHLB stock 13,907 — 13,907 — Interest receivable 5,988 — 5,988 — Financial liabilities Deposits 1,069,642 — 1,067,407 — FHLB advances 273,000 — 269,929 — Interest payable 3,864 — 3,864 — 22 Fair Value Measurements Using Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 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 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 — Note 6: Earnings per Share Basic EPS is computed by dividing net income allocated to common stock by the weighted average number of common shares outstanding during the period which excludes the participating securities. Diluted EPS includes the dilutive effect of additional potential common shares from stock compensation awards, but excludes awards considered participating securities. ESOP shares are not considered outstanding for EPS until they are earned. The following table presents the computation of basic and diluted EPS for the periods indicated: Three Months Ended March 31, 2024 Three Months Ended March 31, 2023 Net income $ 2,369 $ 2,904 Shares outstanding for Basic EPS: Average shares outstanding 11,170,354 11,758,118 Less: average restricted stock award shares not vested 167,158 261,291 Less: average unearned ESOP Shares 842,993 897,098 Shares outstanding for Basic EPS 10,160,203 10,599,729 Additional Dilutive Shares 69,477 136,048 Shares outstanding for Diluted EPS 10,229,680 10,735,777 Basic Earnings Per Share $ 0.23 $ 0.27 Diluted Earnings Per Share $ 0.23 $ 0.27 23 Note 7: Benefit Plans 401(k) The Company has a retirement savings 401(k) plan, in which substantially all employees may participate. The Company matches employees' contributions at the rate of 50 percent for the first six percent of base salary contributed by participants. The Company’s expense for the plan was $ 68,000 and $ 37,000 for the three months ended March 31, 2024 and 2023, respectively. Employee Stock Ownership Plan As part of the reorganization and related stock offering, the Company established an Employee Stock Ownership Plan, or ESOP, covering substantially all employees. The ESOP acquired 1,082,130 shares of Company common stock at an average price of $ 13.59 per share on the open market with funds provided by a loan from the Company. Dividends on unallocated shares used to repay the loan for the Company are recorded as a reduction of the loan or accrued interest, as applicable. Dividends on allocated shares paid to participants are reported as compensation expense. Unearned ESOP shares which have not yet been allocated to ESOP participants are excluded from the computation of average shares outstanding for earnings per share calculation. Accordingly, 829,616 and 843,142 shares of common stock acquired by the ESOP were shown as a reduction of stockholders’ equity at March 31, 2024 and December 31, 2023, respectively. Shares are released to participants proportionately as the loan is repaid. ESOP expense for the three months ended March 31, 2024 and 2023 was $ 154,000 and $ 171,000 , respectively. March 31, 2024 December 31, 2023 Earned ESOP shares 252,514 238,988 Unearned ESOP shares 829,616 843,142 Total ESOP shares 1,082,130 1,082,130 Quoted per share price $ 11.12 $ 11.51 Fair value of earned shares (in thousands) $ 2,808 $ 2,751 Fair value of unearned shares (in thousands) $ 9,225 $ 9,705 Richmond Mutual Bancorporation, Inc. 2020 Equity Incentive Plan On September 15, 2020, the Company's stockholders approved the Richmond Mutual Bancorporation, Inc. 2020 Equity Incentive Plan ("2020 EIP") which provides for the grant to eligible participants of up to (i) 1,352,662 shares of Company common stock to be issued upon the exercise of stock options and stock appreciation rights and (ii) 541,065 shares of Company common stock to participants as restricted stock awards (which may be in the form of shares of common stock or share units giving the participant the right to receive shares of common stock at a specified future date). Restricted Stock Awards . On October 1, 2020, the Company awarded 449,086 shares of common stock under the 2020 EIP with a grant date fair value of $ 10.53 per share (total fair value of $ 4.7 million at issuance) to eligible participants. On April 1, 2021, the Company awarded an additional 4,000 shares of common stock under the 2020 EIP with a grant date fair value of $ 13.86 (total fair value of $ 55,000 at issuance) to eligible participants. These awards vest in five equal annual installments with the first vesting occurring on June 30, 2021. Forfeited shares may be awarded to other eligible recipients in future grants until the 2020 EIP terminates in September 2030. 24 The following table summarizes the restricted stock award activity in the 2020 EIP during the three months ended March 31, 2024. Three Months Ended March 31, 2024 Number of Restricted Shares Weighted Average Grant Date Fair Value Non-vested, beginning of period 167,158 $ 10.56 Granted — — Vested — — Forfeited — — Non-vested, March 31, 2024 167,158 10.56 Total compensation cost recognized in the income statement for restricted stock awards during the three months ended March 31, 2024 and 2023 was $ 219,000 and $ 227,000 , and the related tax benefit recognized was $ 46,000 and $ 48,000 , respectively. As of March 31, 2024, unrecognized compensation expense related to restricted stock awards was $ 1.1 million. Stock Option Plan. On October 1, 2020, the Company awarded options to purchase 1,095,657 of common stock under the 2020 EIP with an exercise price of $ 10.53 per share, the fair value of a share of the Company's common stock on the date of grant, to eligible participants. On April 1, 2021, the Company awarded options to purchase 8,000 shares of common stock under the 2020 EIP with an exercise price of $ 13.86 per share, the fair value of a share of the Company's common stock on the date of the grant, to eligible participants. These options awarded vest in five equal annual installments with the first vesting occurring on June 30, 2021. Forfeited options may be awarded to other eligible recipients in future grants until the 2020 EIP terminates in September 2030. The following table summarizes the stock option activity in the 2020 EIP during the three months ended March 31, 2024. Three Months Ended March 31, 2024 Number of Shares Weighted-Average Exercise Price Balance at beginning of period 1,050,961 $ 10.56 Granted — — Exercised — — Forfeited/expired — — Balance, March 31, 2024 1,050,961 10.56 Exercisable at end of period 641,969 $ 10.55 The fair value of options granted is estimated on the date of the grant using a Black Scholes model with the following assumptions: April 1, 2021 Dividend yields 1.90 % Volatility factors of expected market price of common stock 26.98 % Risk-free interest rates 1.16 % Expected life of options 6.1 years 25 A summary of the status of the Company stock option shares as of March 31, 2024 is presented below. Shares Weighted Average Grant Date Fair Value Non-vested, beginning of year 408,992 $ 2.91 Vested — — Granted — — Forfeited — — Non-vested, March 31, 2024 408,992 $ 2.91 Total compensation cost recognized in the income statement for option-based payment arrangements for the three months ended March 31, 2024 and 2023 was $ 148,000 and $ 153,000 , and the related tax benefit recognized was $ 16,000 and $ 17,000 , respectively. As of March 31, 2024, unrecognized compensation expense related to the stock option awards was $ 742,000 . Note 8: Qualified Affordable Housing Investments The Company has investments in certain limited partnerships that fund affordable housing projects, which provide the Company with low income housing tax credits ("LIHTC"). At both March 31, 2024 and December 31, 2023, the balance of these investments in LIHTC totaled $ 1.1 million. These balances are reflected in the other assets line of the Condensed Consolidated Balance Sheet. The assets are amortized as a component of the provision for income taxes. The following table summarizes the amortization expense and tax credits recognized for the Company's LIHTC investments for the three months ended March 31, 2024 and 2023. Three Months Ended March 31, 2024 2023 Amortization expense $ 44 $ 44 Tax credits recognized 47 47 Note 9: Subsequent Event Subsequent to March 31, 2024 through May 14, 2024, the Company purchased 50,428 shares of the Company's common stock pursuant to the existing stock repurchase program, leaving 724,995 shares available for future repurchase. 26