Richmond Mutual Bancorporation, Inc. 10-Q

ITEM 1.FINANCIAL STATEMENTS Richmond Mutual Bancorporation, Inc. Condensed Consolidated Balance Sheets June 30, 2024 December 31, 2023 (Unaudited) Assets Cash and due from banks $ 8,317,307 $ 8,578,489 Interest-earning demand deposits 10,701,742 11,661,636 Cash and cash equivalents 19,019,049 20,240,125 Investment securities - available for sale 267,338,979 282,688,326 Investment securities - held to maturity 4,657,906 4,949,530 Loans held for sale 369,550 793,500 Loans and leases, net of allowance for credit losses of $ 15,881,973 and $ 15,663,153 , respectively 1,140,579,235 1,090,073,198 Premises and equipment, net 13,115,161 13,311,892 Federal Home Loan Bank stock 13,907,100 12,647,100 Interest receivable 6,112,545 5,843,705 Mortgage-servicing rights 1,935,947 1,945,367 Cash surrender value of life insurance 3,810,351 3,764,929 Other assets 24,294,985 24,766,129 Total assets $ 1,495,140,808 $ 1,461,023,801 Liabilities Noninterest-bearing deposits $ 102,795,765 $ 114,376,777 Interest-bearing deposits 997,288,827 926,763,134 Total deposits 1,100,084,592 1,041,139,911 Federal Home Loan Bank advances 252,000,000 271,000,000 Advances by borrowers for taxes and insurance 614,337 588,371 Interest payable 3,843,441 4,396,952 Other liabilities 7,488,184 9,038,991 Total liabilities 1,364,030,554 1,326,164,225 Commitments and Contingent Liabilities — — Stockholders' Equity Common stock, $ 0.01 par value Authorized - 90,000,000 shares Issued and outstanding - 11,018,824 shares and 11,208,500 shares at June 30, 2024 and December 31, 2023, respectively 110,188 112,085 Additional paid-in capital 99,813,232 101,347,566 Retained earnings 89,457,837 87,902,747 Unearned employee stock ownership plan (ESOP) ( 11,090,068 ) ( 11,457,726 ) Accumulated other comprehensive loss ( 47,180,935 ) ( 43,045,096 ) Total stockholders' equity 131,110,254 134,859,576 Total liabilities and stockholders' equity $ 1,495,140,808 $ 1,461,023,801 See Notes to Condensed Consolidated Statements. 1 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Income (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Interest Income Loans and leases $ 17,811,140 $ 14,098,236 $ 35,061,862 $ 27,291,409 Investment securities 2,056,431 1,990,329 4,176,654 3,924,401 Other 217,738 134,023 356,986 199,576 Total interest income 20,085,309 16,222,588 39,595,502 31,415,386 Interest Expense Deposits 8,001,214 5,543,895 15,066,978 9,570,570 Borrowings 2,508,202 1,345,441 5,119,850 2,640,754 Total interest expense 10,509,416 6,889,336 20,186,828 12,211,324 Net Interest Income 9,575,893 9,333,252 19,408,674 19,204,062 Provision for credit losses 270,472 8,210 453,606 178,316 Net Interest Income After Provision for Credit Losses 9,305,421 9,325,042 18,955,068 19,025,746 Non-interest Income Service charges on deposit accounts 309,720 275,783 582,651 556,778 Card fee income 301,461 313,466 591,647 600,724 Loan and lease servicing fees, including mortgage servicing right impairment 131,712 109,643 258,954 229,715 Net loss on sales of securities (includes $( 62,029 ), $ 0 , $( 62,029 ), and $ 0 , respectively, related to accumulated other comprehensive income reclassifications) ( 62,029 ) — ( 62,029 ) — Net gains on loan and lease sales 90,321 154,038 209,638 309,601 Other income 340,907 325,192 660,166 578,028 Total non-interest income 1,112,092 1,178,122 2,241,027 2,274,846 Non-interest Expenses Salaries and employee benefits 4,672,220 4,272,189 9,245,927 8,514,217 Net occupancy expenses 328,869 316,972 673,223 667,794 Equipment expenses 229,340 266,211 465,556 597,534 Data processing fees 879,158 821,938 1,785,949 1,658,451 Deposit insurance expense 380,000 192,000 783,000 360,000 Printing and office supplies 57,733 36,308 92,409 72,579 Legal and professional fees 480,924 356,499 913,477 667,475 Advertising expense 82,093 78,281 170,816 166,472 Bank service charges 56,530 54,796 117,236 103,415 Real estate owned expense 11,161 23,876 12,487 23,823 Other expenses 873,845 916,937 1,849,299 1,865,435 Total non-interest expenses 8,051,873 7,336,007 16,109,379 14,697,195 Income Before Income Tax Expense 2,365,640 3,167,157 5,086,716 6,603,397 Provision for income taxes (includes $ 13,026 , $ 0 , $ 13,026 , and $ 0 , respectively, related to income tax benefit from reclassification of items) 305,061 475,030 657,221 1,007,224 Net Income $ 2,060,579 $ 2,692,127 $ 4,429,495 $ 5,596,173 Earnings Per Share Basic $ 0.20 $ 0.26 $ 0.44 $ 0.53 Diluted $ 0.20 $ 0.26 $ 0.43 $ 0.53 See Notes to Condensed Consolidated Statements. 2 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net Income $ 2,060,579 $ 2,692,127 $ 4,429,495 $ 5,596,173 Other Comprehensive Income (Loss) Unrealized (loss) gain on available for sale securities, net of tax (benefit) expense of $( 354,927 ), $( 1,227,830 ), $( 1,112,426 ), and $ 412,287 , respectively ( 1,335,202 ) ( 4,618,979 ) ( 4,184,842 ) 1,550,985 Less: reclassification adjustment for realized losses included in net income, net of tax benefit of $ 13,026 , $ 0 , $ 13,026 , and $ 0 , respectively ( 49,003 ) — ( 49,003 ) — ( 1,286,199 ) ( 4,618,979 ) ( 4,135,839 ) 1,550,985 Comprehensive Income (Loss) $ 774,380 $ ( 1,926,852 ) $ 293,656 $ 7,147,158 See Notes to Condensed Consolidated Statements. 3 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) Three Months Ended June 30, 2024 Common Stock Additional Paid-in Capital Retained Earnings Unearned ESOP Shares Accumulated Other Comprehensive Loss Total Shares Outstanding Amount Balances, March 31, 2024 11,115,887 $ 111,159 $ 100,613,827 $ 88,834,364 $ ( 11,273,897 ) $ ( 45,894,736 ) $ 132,390,717 Net income — — — 2,060,579 — — 2,060,579 Other comprehensive loss — — — — — ( 1,286,199 ) ( 1,286,199 ) ESOP shares earned — — ( 28,270 ) — 183,829 — 155,559 Forfeiture of restricted stock awards ( 400 ) ( 4 ) 4 — — — — Stock based compensation — — 363,504 — — — 363,504 Exercise of stock options 652 6 ( 8 ) — — — ( 2 ) Common stock dividends ($ 0.14 per share) — — — ( 1,437,106 ) — — ( 1,437,106 ) Repurchase of common stock ( 97,315 ) ( 973 ) ( 1,135,825 ) — — — ( 1,136,798 ) Balances, June 30, 2024 11,018,824 $ 110,188 $ 99,813,232 $ 89,457,837 $ ( 11,090,068 ) $ ( 47,180,935 ) $ 131,110,254 Six Months Ended June 30, 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 — — — 4,429,495 — — 4,429,495 Other comprehensive loss — — — — — ( 4,135,839 ) ( 4,135,839 ) ESOP shares earned — — ( 57,931 ) — 367,658 — 309,727 Forfeiture of restricted stock awards ( 400 ) ( 4 ) 4 — — — — Stock based compensation — — 730,989 — — — 730,989 Exercise of stock options 652 6 ( 8 ) — — — ( 2 ) Common stock dividends ($ 0.28 per share) — — — ( 2,874,405 ) — — ( 2,874,405 ) Repurchase of common stock ( 189,928 ) ( 1,899 ) ( 2,207,388 ) — — — ( 2,209,287 ) Balances, June 30, 2024 11,018,824 $ 110,188 $ 99,813,232 $ 89,457,837 $ ( 11,090,068 ) $ ( 47,180,935 ) $ 131,110,254 See Notes to Condensed Consolidated Statements. 4 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) Three Months Ended June 30, 2023 Common Stock Additional Paid-in Capital Retained Earnings Unearned ESOP Shares Accumulated Other Comprehensive Loss Total Shares Outstanding Amount Balances, March 31, 2023 11,685,693 $ 116,857 $ 105,305,039 $ 85,721,075 $ ( 12,009,214 ) $ ( 43,581,211 ) $ 135,552,546 Net income — — — 2,692,127 — — 2,692,127 Other comprehensive loss — — — — — ( 4,618,979 ) ( 4,618,979 ) ESOP shares earned — — ( 42,880 ) — 183,830 — 140,950 Stock based compensation — — 383,612 — — — 383,612 Common stock dividends ($ 0.14 per share) — — — ( 1,483,666 ) — — ( 1,483,666 ) Repurchase of common stock ( 237,072 ) ( 2,371 ) ( 2,428,902 ) — — — ( 2,431,273 ) Balances, June 30, 2023 11,448,621 $ 114,486 $ 103,216,869 $ 86,929,536 $ ( 11,825,384 ) $ ( 48,200,190 ) $ 130,235,317 Six Months Ended June 30, 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 — — — 5,596,173 — — 5,596,173 Other comprehensive income — — — — — 1,550,985 1,550,985 ESOP shares earned — — ( 56,198 ) — 367,659 — 311,461 Stock based compensation — — 763,021 — — — 763,021 Common stock dividends ($ 0.28 per share) — — — ( 3,003,521 ) — — ( 3,003,521 ) Repurchase of common stock ( 335,625 ) ( 3,356 ) ( 3,578,851 ) — — — ( 3,582,207 ) Balances, June 30, 2023 11,448,621 $ 114,486 $ 103,216,869 $ 86,929,536 $ ( 11,825,384 ) $ ( 48,200,190 ) $ 130,235,317 See Notes to Condensed Consolidated Statements. 5 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2024 2023 Operating Activities Net income $ 4,429,495 $ 5,596,173 Adjustments to reconcile net income to net cash provided by operating activities Provision for credit losses 453,606 178,316 Depreciation and amortization 426,406 508,202 Deferred income tax 55,666 ( 62,485 ) Stock based compensation 730,989 763,021 Investment securities amortization, net 504,769 580,032 Net loss on sale of investment securities - available for sale 62,029 — Net gains on loan and lease sales ( 209,638 ) ( 309,601 ) Loss (gain) on sale of real estate owned 4,124 ( 1,921 ) Gain on sale of premises and equipment ( 6,000 ) ( 1,800 ) Accretion of loan origination fees ( 357,780 ) ( 549,408 ) Amortization of mortgage-servicing rights 89,770 105,350 ESOP shares expense 309,727 311,461 Increase in cash surrender value of life insurance ( 45,422 ) ( 44,856 ) Loans originated for sale ( 10,973,243 ) ( 11,691,998 ) Proceeds on loans sold 10,549,293 11,558,198 Net change in Interest receivable ( 268,840 ) ( 325,757 ) Other assets 1,428,847 ( 213,106 ) Other liabilities ( 1,550,807 ) ( 1,919,449 ) Interest payable ( 553,511 ) 1,918,991 Net cash provided by operating activities 5,079,480 6,399,363 Investing Activities Purchases of securities available for sale ( 2,659,324 ) ( 7,097,933 ) Proceeds from maturities and paydowns of securities available for sale 8,418,748 12,038,103 Proceeds from sales of securities available for sale 3,789,203 — Proceeds from maturities and paydowns of securities held to maturity 290,305 918,473 Net change in loans ( 49,624,675 ) ( 83,539,282 ) Proceeds from sales of real estate owned 81,909 297,670 Purchases of premises and equipment ( 229,675 ) ( 378,407 ) Proceeds from sale of premises and equipment 6,000 1,800 Purchase of FHLB stock ( 1,260,000 ) ( 854,900 ) Net cash used in investing activities ( 41,187,509 ) ( 78,614,476 ) Financing Activities Net change in Demand and savings deposits 8,105,888 ( 22,425,614 ) Certificates of deposit 50,838,793 56,737,523 Advances by borrowers for taxes and insurance 25,966 30,891 Proceeds from FHLB advances 138,000,000 391,500,000 Repayment of FHLB advances ( 157,000,000 ) ( 345,500,000 ) Repurchase of common stock ( 2,209,287 ) ( 3,582,207 ) Proceeds from stock option exercises ( 2 ) — Dividends paid ( 2,874,405 ) ( 3,003,521 ) Net cash provided by financing activities 34,886,953 73,757,072 Net Change in Cash and Cash Equivalents ( 1,221,076 ) 1,541,959 Cash and Cash Equivalents, Beginning of Period 20,240,125 15,922,093 Cash and Cash Equivalents, End of Period $ 19,019,049 $ 17,464,052 Additional Cash Flows and Supplementary Information Interest paid $ 20,740,339 $ 10,292,333 Transfers from loans to other real estate owned — 405,279 See Notes to Condensed Consolidated Statements. 6 Richmond Mutual Bancorporation, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (Table Dollar Amounts in Thousands, Except Per Share Amounts) Note 1: Basis of Presentation The accompanying financial information is unaudited and has been prepared from the consolidated financial statements of Richmond Mutual Bancorporation, Inc., and its wholly owned direct and indirect subsidiaries, First Bank Richmond, First Insurance Management, Inc., 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 7 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 Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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) 8 disaggregated by jurisdiction based on a quantitative threshold. ASU No. 2023-09 is effective for all public business entities for 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: June 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale U.S. treasury securities $ 5,016 $ — $ 18 $ 4,998 SBA Pools 4,686 — 565 4,121 Federal agencies 15,000 — 1,930 13,070 State and municipal obligations 163,658 — 32,091 131,567 Mortgage-backed securities - government-sponsored enterprises (GSE) residential 127,201 16 22,595 104,622 Corporate obligations 11,500 — 2,539 8,961 327,061 16 59,738 267,339 Held to maturity State and municipal obligations 4,658 9 98 4,569 4,658 9 98 4,569 Total investment securities $ 331,719 $ 25 $ 59,836 $ 271,908 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 9 The amortized cost and fair value of investment securities at June 30, 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 $ 6,429 $ 6,400 $ 1,500 $ 1,491 One to five years 24,620 22,541 1,675 1,632 Five to ten years 35,020 30,487 773 777 After ten years 133,791 103,290 710 669 199,860 162,718 4,658 4,569 Mortgage-backed securities –GSE residential 127,201 104,621 — — Totals $ 327,061 $ 267,339 $ 4,658 $ 4,569 Investment securities with a carrying value of $ 102,075,000 and $ 162,430,000 were pledged at June 30, 2024 and December 31, 2023, respectively, to secure certain deposits and for other purposes as permitted or required by law. Proceeds from the sale of securities available for sale for both the three and six months ended June 30, 2024 were $ 3,789,000 . Gross losses recognized on the sale of securities available for sale for the three and six months ended June 30, 2024 were $ 62,000 , while there were no gross gains recognized during those same periods. There were no sales of securities available for sale for the three and six months ended June 30, 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 June 30, 2024 and December 31, 2023 was $ 269,787,000 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 June 30, 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 June 30, 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 June 30, 2024: State and municipal obligations AA+ $ 1,150 AA- 585 A+ 710 BBB+ 40 Not rated 2,173 $ 4,658 The Company has elected to exclude accrued interest receivable from the calculation of the allowance for credit losses. 10 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 June 30, 2024 and December 31, 2023: Description of Securities June 30, 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 $ 2,505 $ 10 $ 2,493 $ 8 $ 4,998 $ 18 SBA Pools 279 — 3,812 565 4,091 565 Federal agencies — — 13,070 1,930 13,070 1,930 State and municipal obligations 1,797 26 129,520 32,065 131,317 32,091 Mortgage-backed securities - GSE residential 1,753 14 101,451 22,581 103,204 22,595 Corporate obligations — — 8,961 2,539 8,961 2,539 Total available for sale 6,334 50 259,307 59,688 265,641 59,738 Held to maturity State and municipal obligations 1,082 13 3,064 85 4,146 98 Total $ 7,416 $ 63 $ 262,371 $ 59,773 $ 269,787 $ 59,836 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 11 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 June 30, 2024 and December 31, 2023: June 30, 2024 December 31, 2023 Commercial mortgage $ 356,250 $ 341,633 Commercial and industrial 127,160 115,428 Construction and development 139,588 157,805 Multi-family 174,251 138,757 Residential mortgage 175,059 162,123 Home equity lines of credit 13,781 10,904 Direct financing leases 148,173 156,598 Consumer 22,782 23,264 1,157,044 1,106,512 Less Allowance for credit losses on loans and leases 15,882 15,663 Deferred loan fees 583 776 $ 1,140,579 $ 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 12 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. 13 The following tables present the credit risk profile of the Company’s loan and lease portfolio based on rating category, payment activity, and origination year as of June 30, 2024 and rating category as of December 31, 2023: 2024 2023 2022 2021 2020 Prior Revolving loans amortized cost basis Total As of June 30, 2024: Commercial mortgage Pass $ 12,335 $ 40,027 $ 87,838 $ 68,164 $ 32,094 $ 93,760 $ 16,470 $ 350,688 Substandard — — — 242 4,785 535 — 5,562 Total Commercial mortgage 12,335 40,027 87,838 68,406 36,879 94,295 16,470 356,250 Current period gross charge-offs — — — — — — — — Commercial and industrial Pass 13,887 35,585 11,847 12,289 3,811 11,060 33,992 122,471 Substandard — — 331 — — 100 4,258 4,689 Total Commercial and industrial 13,887 35,585 12,178 12,289 3,811 11,160 38,250 127,160 Current period gross charge-offs — — — — — — — — Construction and development Pass 11,008 26,792 73,202 20,512 3,044 130 — 134,688 Substandard — — — — — 4,900 — 4,900 Total Construction and development 11,008 26,792 73,202 20,512 3,044 5,030 — 139,588 Current period gross charge-offs — — — — — — — — Multi-family Pass 5,400 3,818 59,342 50,792 6,290 25,277 17,651 168,570 Special Mention — — — 1,513 — — 4,168 5,681 Total Multi-family 5,400 3,818 59,342 52,305 6,290 25,277 21,819 174,251 Current period gross charge-offs — — — — — — — — Residential mortgage Pass 13,481 34,318 30,553 33,693 17,198 41,762 2,293 173,298 Substandard — 62 — 226 — 1,473 — 1,761 Total Residential mortgage 13,481 34,380 30,553 33,919 17,198 43,235 2,293 175,059 Current period gross charge-offs — — — — — 10 — 10 Home equity Pass — — — — — — 13,629 13,629 Substandard — — — — — — 152 152 Total Home equity lines of credit — — — — — — 13,781 13,781 Current period gross charge-offs — — — — — — — — Direct financing leases Pass 24,315 64,749 33,431 17,206 6,444 1,255 — 147,400 Substandard 12 56 502 122 64 — — 756 Doubtful — — — — 17 — — 17 Total Direct financing leases 24,327 64,805 33,933 17,328 6,525 1,255 — 148,173 Current period gross charge-offs — 537 250 70 14 — — 871 Consumer Pass 4,552 7,839 6,589 2,792 564 436 — 22,772 Substandard — — — 10 — — — 10 Total Consumer 4,552 7,839 6,589 2,802 564 436 — 22,782 Current period gross charge-offs 17 56 52 10 — 3 — 138 Total Loans and Leases $ 84,990 $ 213,246 $ 303,635 $ 207,561 $ 74,311 $ 180,688 $ 92,613 $ 1,157,044 Total current period gross charge-offs $ 17 $ 593 $ 302 $ 80 $ 14 $ 13 $ — $ 1,019 14 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 June 30, 2024 and December 31, 2023, the Company did not have any revolving loans convert to term loans. 15 The following tables present the Company’s loan and lease portfolio aging analysis of the recorded investment in loans and leases as of June 30, 2024 and December 31, 2023: June 30, 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 $ 356,071 $ 356,250 $ 179 Commercial and industrial 193 348 15 556 126,604 127,160 15 Construction and development — — 4,900 4,900 134,688 139,588 — Multi-family — — — — 174,251 174,251 — Residential mortgage 616 285 1,762 2,663 172,396 175,059 1,665 Home equity 515 214 152 881 12,900 13,781 152 Direct financing leases 164 189 626 979 147,194 148,173 626 Consumer 427 211 10 648 22,134 22,782 10 Totals $ 1,915 $ 1,247 $ 7,644 $ 10,806 $ 1,146,238 $ 1,157,044 $ 2,647 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 16 The following table presents information on the Company’s nonaccrual loans and leases at June 30, 2024, and at December 31, 2023: June 30, 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 $ 37 $ — $ 1,241 $ 1,202 Construction and development 4,900 — 4,900 — Residential mortgage 97 97 101 101 Direct financing leases 17 17 82 82 Total nonaccrual loans and leases $ 5,051 $ 114 $ 6,324 $ 1,385 During the three months ended June 30, 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 June 30, 2024 and December 31, 2023: June 30, 2024 Commercial Real Estate Multi-family Housing Residential Real Estate Other Total Allowance on Collateral Dependent Loans Commercial mortgage $ 5,297 $ — $ — $ — $ 5,297 $ — Commercial and industrial — — — 4,258 4,258 — Construction and development 4,900 — — — 4,900 1,000 Multi-family — 1,513 — — 1,513 — Residential mortgage — — 147 — 147 — Total $ 10,197 $ 1,513 $ 147 $ 4,258 $ 16,115 $ 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 17 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 and six months ended June 30, 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 or six months ended June 30, 2024 and 2023, and that were modified in the twelve months prior to that default by borrowers experiencing financial difficulty. Other Real Estate Owned Other real estate owned is included in other assets on the Condensed Consolidated Balance Sheets. At June 30, 2024 and December 31, 2023, other real estate owned included $ 43,200 and $ 136,000 , respectively, of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property. At June 30, 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: June 30, 2024 December 31, 2023 Total minimum lease payments to be received $ 168,387 $ 177,952 Initial direct costs 9,297 9,702 177,684 187,654 Less: Unearned income ( 29,511 ) ( 31,056 ) Net investment in direct finance leases $ 148,173 $ 156,598 The following table summarizes the future minimum lease payments receivable subsequent to June 30, 2024: Remainder of 2024 $ 33,487 2025 56,419 2026 41,355 2027 24,965 2028 10,912 Thereafter 1,249 $ 168,387 18 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 ("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 summarize changes in the allowance for credit losses by segment for the three and six months ended June 30, 2024 and 2023, respectively: Balances, March 31, 2024 Provision for (reversal of) credit losses Charge-offs Recoveries Balances, June 30, 2024 Commercial mortgage $ 4,626 $ 155 $ — $ — $ 4,781 Commercial and industrial 1,390 17 — 14 1,421 Construction and development 3,900 ( 436 ) — — 3,464 Multi-family 1,906 191 — — 2,097 Residential mortgage 1,720 36 — 5 1,761 Home equity 113 20 — — 133 Direct financing leases 1,868 477 ( 514 ) 89 1,920 Consumer 302 47 ( 66 ) 22 305 Total $ 15,825 $ 507 $ ( 580 ) $ 130 $ 15,882 19 Balances, December 31, 2023 Provision for (reversal of) credit losses Charge-offs Recoveries Balances, June 30, 2024 Commercial mortgage $ 4,655 $ 126 $ — $ — $ 4,781 Commercial and industrial 1,281 65 — 75 1,421 Construction and development 3,883 ( 419 ) — — 3,464 Multi-family 1,789 308 — — 2,097 Residential mortgage 1,681 81 ( 10 ) 9 1,761 Home equity 102 31 — — 133 Direct financing leases 1,955 723 ( 871 ) 113 1,920 Consumer 317 78 ( 138 ) 48 305 Total $ 15,663 $ 993 $ ( 1,019 ) $ 245 $ 15,882 Balances, March 31, 2023 Provision for (reversal of) credit losses Charge-offs Recoveries Balances, June 30, 2023 Commercial mortgage $ 4,728 $ 232 $ — $ 3 $ 4,963 Commercial and industrial 1,538 74 — 11 1,623 Construction and development 3,475 ( 509 ) — — 2,966 Multi-family 1,967 14 — — 1,981 Residential mortgage 1,596 15 — 12 1,623 Home equity 112 ( 10 ) — — 102 Direct financing leases 1,765 285 ( 281 ) 45 1,814 Consumer 314 10 ( 24 ) 19 319 Total $ 15,495 $ 111 $ ( 305 ) $ 90 $ 15,391 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, June 30, 2023 Commercial mortgage $ 4,776 $ ( 395 ) $ 4,381 $ 569 $ — $ 13 $ 4,963 Commercial and industrial 1,291 360 1,651 ( 51 ) — 23 1,623 Construction and development 2,855 784 3,639 ( 673 ) — — 2,966 Multi-family 1,955 ( 99 ) 1,856 125 — — 1,981 Residential mortgage 76 1,439 1,515 86 — 22 1,623 Home equity 23 89 112 ( 10 ) — — 102 Direct financing leases 1,196 422 1,618 353 ( 366 ) 209 1,814 Consumer 241 64 305 52 ( 68 ) 30 319 Total $ 12,413 $ 2,664 $ 15,077 $ 451 $ ( 434 ) $ 297 $ 15,391 During the second quarter of 2024, the allowance for credit losses on loans and leases increased from $ 15.8 million at March 31, 2023, to $ 15.9 million at June 30, 2024. The increase was attributable to additional provisions totaling $ 507,000 during the second quarter of 2024, partially offset by net charge-offs of $ 450,000 . Multiple loan categories experienced loan growth while a few declined slightly, as compared to prior quarter. • Commercial Mortgage – allowance increased due to loan balances increasing $ 17.8 million. • Commercial & Industrial – allowance increased due to loan balances increasing $ 3.5 million. • Construction & Development – allowance decreased due to loan balances decreasing $ 25.5 million. • Multi-Family – allowance increased due to balances increasing $ 20.5 million. 20 • Residential Mortgage – allowance increased due to balances increasing $ 4.0 million. • Home Equity – allowance increased due to balances increasing $ 1.6 million. • Direct Financing Leases – allowance increased while balances decreased $ 4.3 million, due to a higher calculated reserve percentage. • Consumer – allowance increased slightly, while balances decreased $ 222,000 . Our commercial loan portfolio, consisting of commercial and multi-family real estate loans, commercial and industrial loans, and construction loans, represented 68.9 % and 68.1 % of our portfolio as of June 30, 2024 and December 31, 2023, respectively. The allowance for credit losses on loans and leases allocated to the commercial loan portfolio represented 74.1 % of our total allowance at both June 30, 2024 and December 31, 2023. 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 June 30, 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. 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 2024 first half economic results, the market region is expecting continued economic growth in 2024. First half results were fueled primarily by an expanding labor market, retail sales growth, and increasing median household incomes. 21 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 tables detail activity in the allowance for credit losses on unfunded commitments during the three and six months ended June 30, 2024 and 2023: Three Months Ended June 30, 2024 2023 Beginning balance $ 1,339 $ 2,204 Reversal of credit losses ( 236 ) ( 103 ) Ending balance $ 1,103 $ 2,101 Six Months Ended June 30, 2024 2023 Beginning balance $ 1,642 $ — Impact of adopting ASC 326 — 2,374 Reversal of credit losses ( 539 ) ( 273 ) Ending balance $ 1,103 $ 2,101 Note 5: Fair Value of Financial Instruments Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets or liabilities Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities Level 3 Unobservable inputs supported by little or no market activity that are significant to the fair value of the assets or liabilities 22 Recurring Measurements The following tables present the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 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) June 30, 2024 Available for sale securities U.S. Treasury securities $ 4,998 $ 4,998 $ — $ — SBA Pools 4,121 — 4,121 — Federal agencies 13,070 — 13,070 — State and municipal obligations 131,567 — 131,567 — Mortgage-backed securities - GSE residential 104,622 — 104,622 — Corporate obligations 8,961 — 8,961 — $ 267,339 $ 4,998 $ 262,341 $ — 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 the valuation hierarchy. There have been no significant changes in the valuation techniques during the six months ended June 30, 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. 23 Nonrecurring Measurements As of June 30, 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 June 30, 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) June 30, 2024 Financial assets Cash and cash equivalents $ 19,019 $ 19,019 $ — $ — Available for sale securities 267,339 4,998 262,341 — Held to maturity securities 4,658 — 4,569 — Loans held for sale 370 — — 370 Loans and leases receivable, net 1,140,579 — — 1,043,630 FHLB stock 13,907 — 13,907 — Interest receivable 6,113 — 6,113 — Financial liabilities Deposits 1,100,085 — 1,099,091 — FHLB advances 252,000 — 249,982 — Interest payable 3,843 — 3,843 — 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 — 24 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 June 30, 2024 2023 Net income $ 2,061 $ 2,692 Shares outstanding for Basic EPS: Average shares outstanding 11,062,323 11,546,999 Less: average restricted stock award shares not vested 165,842 260,334 Less: average unearned ESOP Shares 829,467 883,573 Shares outstanding for Basic EPS 10,067,014 10,403,092 Additional Dilutive Shares 111,255 72,452 Shares outstanding for Diluted EPS 10,178,269 10,475,544 Basic Earnings Per Share $ 0.20 $ 0.26 Diluted Earnings Per Share $ 0.20 $ 0.26 Six Months Ended June 30, 2024 2023 Net income $ 4,429 $ 5,596 Shares outstanding for Basic EPS: Average shares outstanding 11,116,338 11,651,976 Less: average restricted stock award shares not vested 166,570 260,810 Less: average unearned ESOP Shares 836,230 890,298 Shares outstanding for Basic EPS 10,113,538 10,500,868 Additional Dilutive Shares 90,591 80,455 Shares outstanding for Diluted EPS 10,204,129 10,581,323 Basic Earnings Per Share $ 0.44 $ 0.53 Diluted Earnings Per Share $ 0.43 $ 0.53 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 $ 70,000 and $ 138,000 for the three and six months ended June 30, 2024, and $ 66,000 and $ 104,000 for the three and six months ended June 30, 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 25 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, 816,089 and 843,142 shares of common stock acquired by the ESOP were shown as a reduction of stockholders’ equity at June 30, 2024 and December 31, 2023, respectively. Shares are released to participants proportionately as the loan is repaid. ESOP expense was $ 156,000 and $ 310,000 for the three and six months ended June 30, 2024, and was $ 141,000 and $ 311,000 for the three and six months ended June 30, 2023, respectively. June 30, 2024 December 31, 2023 Earned ESOP shares 266,041 238,988 Unearned ESOP shares 816,089 843,142 Total ESOP shares 1,082,130 1,082,130 Quoted per share price $ 11.74 $ 11.51 Fair value of earned shares (in thousands) $ 3,123 $ 2,751 Fair value of unearned shares (in thousands) $ 9,581 $ 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. The following table summarizes the restricted stock award activity in the 2020 EIP during the six months ended June 30, 2024. Six Months Ended June 30, 2024 Number of Restricted Shares Weighted Average Grant Date Fair Value Non-vested, beginning of period 167,158 $ 10.56 Granted — — Vested ( 83,379 ) 10.55 Forfeited ( 400 ) 13.86 Non-vested, June 30, 2024 83,379 10.55 Total compensation cost recognized in the income statement for restricted stock awards during the three and six months ended June 30, 2024 was $ 217,000 and $ 436,000 , and the related tax benefit recognized was $ 46,000 and $ 92,000 , respectively. As of June 30, 2024, unrecognized compensation expense related to restricted stock awards was $ 878,000 . 26 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 six months ended June 30, 2024. Six Months Ended June 30, 2024 Number of Shares Weighted-Average Exercise Price Balance at beginning of period 1,050,961 $ 10.56 Exercised ( 8,116 ) 10.53 Forfeited/expired ( 800 ) 13.86 Balance, June 30, 2024 1,042,045 10.55 Exercisable at end of period 837,949 $ 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 A summary of the status of the Company stock option shares as of June 30, 2024 is presented below. Shares Weighted Average Grant Date Fair Value Non-vested, beginning of year 408,992 $ 2.91 Vested ( 204,096 ) 2.91 Forfeited ( 800 ) 3.02 Non-vested, June 30, 2024 204,096 $ 2.91 Total compensation cost recognized in the income statement for option-based payment arrangements for the three and six months ended June 30, 2024 was $ 147,000 and $ 295,000 , and the related tax benefit recognized was $ 16,000 and $ 32,000 , respectively. As of June 30, 2024, unrecognized compensation expense related to the stock option awards was $ 592,000 . 27 Note 8: Qualified Affordable Housing Investments The Company has investments in certain limited partnerships that fund affordable housing projects and provide the Company with low income housing tax credits ("LIHTC"). At June 30, 2024 and December 31, 2023, the balance of these investments in LIHTC totaled $ 1.0 million and $ 1.1 million, respectively. 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 and six months ended June 30, 2024 and 2023. Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Amortization expense $ 46 $ 50 $ 90 $ 95 Tax credits recognized 44 50 90 97 Note 9: Subsequent Event Subsequent to June 30, 2024 through August 9, 2024, the Company purchased 26,917 shares of the Company's common stock pursuant to the existing stock repurchase program, leaving 651,191 shares available for future repurchase. 28