Richmond Mutual Bancorporation, Inc. 10-Q

ITEM 1.FINANCIAL STATEMENTS Richmond Mutual Bancorporation, Inc. Condensed Consolidated Balance Sheets September 30, 2024 December 31, 2023 (Unaudited) Assets Cash and due from banks $ 8,520,922 $ 8,578,489 Interest-earning demand deposits 11,049,535 11,661,636 Cash and cash equivalents 19,570,457 20,240,125 Interest-earning time deposits 300,000 — Investment securities - available for sale 267,251,153 282,688,326 Investment securities - held to maturity 4,052,456 4,949,530 Loans held for sale 220,000 793,500 Loans and leases, net of allowance for credit losses of $ 15,772,747 and $ 15,663,153 , respectively 1,140,969,151 1,090,073,198 Premises and equipment, net 13,018,031 13,311,892 Federal Home Loan Bank stock 13,907,100 12,647,100 Interest receivable 5,873,966 5,843,705 Mortgage-servicing rights 1,953,693 1,945,367 Cash surrender value of life insurance 3,833,530 3,764,929 Other assets 21,600,420 24,766,129 Total assets $ 1,492,549,957 $ 1,461,023,801 Liabilities Noninterest-bearing deposits $ 98,521,848 $ 114,376,777 Interest-bearing deposits 990,572,616 926,763,134 Total deposits 1,089,094,464 1,041,139,911 Federal Home Loan Bank advances 252,000,000 271,000,000 Advances by borrowers for taxes and insurance 699,816 588,371 Interest payable 3,434,001 4,396,952 Other liabilities 7,295,079 9,038,991 Total liabilities 1,352,523,360 1,326,164,225 Commitments and Contingent Liabilities — — Stockholders' Equity Common stock, $ 0.01 par value Authorized - 90,000,000 shares Issued and outstanding - 10,948,818 shares and 11,208,500 shares at September 30, 2024 and December 31, 2023, respectively 109,488 112,085 Additional paid-in capital 99,282,509 101,347,566 Retained earnings 90,511,043 87,902,747 Unearned employee stock ownership plan (ESOP) ( 10,906,239 ) ( 11,457,726 ) Accumulated other comprehensive loss ( 38,970,204 ) ( 43,045,096 ) Total stockholders' equity 140,026,597 134,859,576 Total liabilities and stockholders' equity $ 1,492,549,957 $ 1,461,023,801 See Notes to Condensed Consolidated Statements. 1 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Income (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Interest Income Loans and leases $ 18,070,712 $ 15,270,405 $ 53,132,574 $ 42,561,814 Investment securities 2,002,123 2,040,973 6,178,777 5,965,374 Other 188,197 102,152 545,183 301,728 Total interest income 20,261,032 17,413,530 59,856,534 48,828,916 Interest Expense Deposits 8,331,483 6,317,915 23,398,461 15,888,485 Borrowings 2,496,750 1,968,247 7,616,600 4,609,001 Total interest expense 10,828,233 8,286,162 31,015,061 20,497,486 Net Interest Income 9,432,799 9,127,368 28,841,473 28,331,430 (Reversal of)/provision for credit losses ( 98,848 ) 49,700 354,758 228,016 Net Interest Income After (Reversal of)/Provision for Credit Losses 9,531,647 9,077,668 28,486,715 28,103,414 Noninterest Income Service charges on deposit accounts 325,470 274,653 908,121 831,431 Card fee income 301,384 303,815 893,031 904,539 Loan and lease servicing fees, including mortgage servicing right impairment 122,106 111,480 381,060 341,195 Net gains (loss) on sales of securities available for sale (includes $ 11,331 , $ 0 , $( 50,698 ), and $ 0 , respectively, related to accumulated other comprehensive income reclassifications) 11,331 — ( 50,698 ) — Net gains on loan and lease sales 211,102 89,510 420,740 399,111 Other income 353,787 377,660 1,013,953 955,688 Total noninterest income 1,325,180 1,157,118 3,566,207 3,431,964 Noninterest Expenses Salaries and employee benefits 4,580,929 4,377,159 13,826,856 12,891,376 Net occupancy expenses 332,479 337,348 1,005,702 1,005,142 Equipment expenses 233,619 275,318 699,175 872,852 Data processing fees 894,080 853,791 2,680,029 2,512,242 Deposit insurance expense 380,000 280,000 1,163,000 640,000 Printing and office supplies 31,816 49,825 124,225 122,404 Legal and professional fees 463,108 528,045 1,376,585 1,195,520 Advertising expense 111,183 94,707 281,999 261,179 Bank service charges 66,191 50,268 183,427 153,683 Real estate owned expense 3,883 12,112 16,370 35,935 Other expenses 918,246 1,153,819 2,767,545 3,019,254 Total noninterest expenses 8,015,534 8,012,392 24,124,913 22,709,587 Income Before Income Tax Expense 2,841,293 2,222,394 7,928,009 8,825,791 Provision for income taxes (includes $ 2,380 , $ 0 , $( 10,647 ), and $ 0 , respectively, related to income tax benefit from reclassification of items) 369,415 273,637 1,026,636 1,280,861 Net Income $ 2,471,878 $ 1,948,757 $ 6,901,373 $ 7,544,930 Earnings Per Share Basic $ 0.25 $ 0.19 $ 0.68 $ 0.72 Diluted $ 0.24 $ 0.19 $ 0.68 $ 0.72 See Notes to Condensed Consolidated Statements. 2 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net Income $ 2,471,878 $ 1,948,757 $ 6,901,373 $ 7,544,930 Other Comprehensive Income (Loss) Unrealized gain (loss) on available for sale securities, net of tax expense (benefit) of $ 2,184,979 , $( 3,063,330 ), $ 1,072,553 , and $( 2,651,043 ), respectively 8,219,682 ( 11,523,955 ) 4,034,841 ( 9,972,970 ) Less: reclassification adjustment for realized gains (losses) included in net income, net of tax benefit of $ 2,380 , $ 0 , $( 10,647 ), and $ 0 , respectively 8,951 — ( 40,051 ) — 8,210,731 ( 11,523,955 ) 4,074,892 ( 9,972,970 ) Comprehensive Income (Loss) $ 10,682,609 $ ( 9,575,198 ) $ 10,976,265 $ ( 2,428,040 ) See Notes to Condensed Consolidated Statements. 3 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) Three Months Ended September 30, 2024 Common Stock Additional Paid-in Capital Retained Earnings Unearned ESOP Shares Accumulated Other Comprehensive Loss Total Shares Outstanding Amount Balances, June 30, 2024 11,018,824 $ 110,188 $ 99,813,232 $ 89,457,837 $ ( 11,090,068 ) $ ( 47,180,935 ) $ 131,110,254 Net income — — — 2,471,878 — — 2,471,878 Other comprehensive income — — — — — 8,210,731 8,210,731 ESOP shares earned — — ( 17,074 ) — 183,829 — 166,755 Stock based compensation — — 371,537 — — — 371,537 Exercise of stock options 1,300 13 ( 24 ) — — — ( 11 ) Common stock dividends ($ 0.14 per share) — — — ( 1,418,672 ) — — ( 1,418,672 ) Repurchase of common stock ( 71,306 ) ( 713 ) ( 885,162 ) — — — ( 885,875 ) Balances, September 30, 2024 10,948,818 $ 109,488 $ 99,282,509 $ 90,511,043 $ ( 10,906,239 ) $ ( 38,970,204 ) $ 140,026,597 Nine Months Ended September 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 — — — 6,901,373 — — 6,901,373 Other comprehensive income — — — — — 4,074,892 4,074,892 ESOP shares earned — — ( 75,005 ) — 551,487 — 476,482 Forfeiture of restricted stock awards ( 400 ) ( 4 ) 4 — — — — Stock based compensation — — 1,102,526 — — — 1,102,526 Exercise of stock options 1,952 19 ( 32 ) — — — ( 13 ) Common stock dividends ($ 0.42 per share) — — — ( 4,293,077 ) — — ( 4,293,077 ) Repurchase of common stock ( 261,234 ) ( 2,612 ) ( 3,092,550 ) — — — ( 3,095,162 ) Balances, September 30, 2024 10,948,818 $ 109,488 $ 99,282,509 $ 90,511,043 $ ( 10,906,239 ) $ ( 38,970,204 ) $ 140,026,597 See Notes to Condensed Consolidated Statements. 4 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) Three Months Ended September 30, 2023 Common Stock Additional Paid-in Capital Retained Earnings Unearned ESOP Shares Accumulated Other Comprehensive Loss Total Shares Outstanding Amount Balances, June 30, 2023 11,448,621 $ 114,486 $ 103,216,869 $ 86,929,536 $ ( 11,825,384 ) $ ( 48,200,190 ) $ 130,235,317 Net income — — — 1,948,757 — — 1,948,757 Other comprehensive loss — — — — — ( 11,523,955 ) ( 11,523,955 ) ESOP shares earned — — ( 29,955 ) — 183,829 — 153,874 Stock based compensation — — 386,768 — — — 386,768 Common stock dividends ($ 0.14 per share) — — — ( 1,470,633 ) — — ( 1,470,633 ) Repurchase of common stock ( 148,546 ) ( 1,485 ) ( 1,690,478 ) — — — ( 1,691,963 ) Balances, September 30, 2023 11,300,075 $ 113,001 $ 101,883,204 $ 87,407,660 $ ( 11,641,555 ) $ ( 59,724,145 ) $ 118,038,165 Nine Months Ended September 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 — — — 7,544,930 — — 7,544,930 Other comprehensive loss — — — — — ( 9,972,970 ) ( 9,972,970 ) ESOP shares earned — — ( 86,153 ) — 551,488 — 465,335 Stock based compensation — — 1,149,789 — — — 1,149,789 Common stock dividends ($ 0.42 per share) — — — ( 4,474,154 ) — — ( 4,474,154 ) Repurchase of common stock ( 484,171 ) ( 4,841 ) ( 5,269,329 ) — — — ( 5,274,170 ) Balances, September 30, 2023 11,300,075 $ 113,001 $ 101,883,204 $ 87,407,660 $ ( 11,641,555 ) $ ( 59,724,145 ) $ 118,038,165 See Notes to Condensed Consolidated Statements. 5 Richmond Mutual Bancorporation, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2024 2023 Operating Activities Net income $ 6,901,373 $ 7,544,930 Adjustments to reconcile net income to net cash provided by operating activities Provision for credit losses 354,758 228,016 Depreciation and amortization 638,183 752,056 Deferred income tax ( 25,729 ) ( 26,656 ) Stock based compensation 1,102,526 1,149,789 Investment securities amortization, net 726,168 854,478 Net loss on sale of investment securities - available for sale 50,698 — Net gains on loan and lease sales ( 420,740 ) ( 399,111 ) Loss (gain) on sale of real estate owned 7,050 ( 698 ) Gain on sale of premises and equipment ( 6,000 ) ( 1,800 ) Accretion of loan origination fees ( 581,788 ) ( 771,833 ) Amortization of mortgage-servicing rights 141,242 161,024 ESOP shares expense 476,482 465,335 Increase in cash surrender value of life insurance ( 68,601 ) ( 67,746 ) Loans originated for sale ( 20,561,099 ) ( 15,524,749 ) Proceeds on loans sold 19,987,599 15,619,299 Net change in Interest receivable ( 30,261 ) ( 605,206 ) Other assets 1,976,081 ( 560,748 ) Other liabilities ( 1,743,912 ) ( 2,794,381 ) Interest payable ( 962,951 ) 2,303,546 Net cash provided by operating activities 7,961,079 8,325,545 Investing Activities Net change in interest-bearing time deposits ( 300,000 ) 245,000 Purchases of securities available for sale ( 3,502,331 ) ( 9,555,258 ) Proceeds from maturities and paydowns of securities available for sale 16,414,642 16,751,355 Proceeds from sales of securities available for sale 6,907,932 — Proceeds from maturities and paydowns of securities held to maturity 895,228 1,534,358 Net change in loans ( 49,250,751 ) ( 108,229,672 ) Proceeds from sales of real estate owned 125,109 424,671 Purchases of premises and equipment ( 344,322 ) ( 425,488 ) Proceeds from sale of premises and equipment 6,000 1,800 Purchase of FHLB stock ( 1,260,000 ) ( 1,349,800 ) Net cash used in investing activities ( 30,308,493 ) ( 100,603,034 ) Financing Activities Net change in Demand and savings deposits ( 4,363,372 ) ( 33,185,130 ) Certificates of deposit 52,317,925 81,833,169 Advances by borrowers for taxes and insurance 111,445 108,122 Proceeds from FHLB advances 230,500,000 481,500,000 Repayment of FHLB advances ( 249,500,000 ) ( 423,500,000 ) Repurchase of common stock ( 3,095,162 ) ( 5,274,170 ) Proceeds from stock option exercises ( 13 ) — Dividends paid ( 4,293,077 ) ( 4,474,154 ) Net cash provided by financing activities 21,677,746 97,007,837 Net Change in Cash and Cash Equivalents ( 669,668 ) 4,730,348 Cash and Cash Equivalents, Beginning of Period 20,240,125 15,922,093 Cash and Cash Equivalents, End of Period $ 19,570,457 $ 20,652,441 Additional Cash Flows and Supplementary Information Interest paid $ 31,978,012 $ 18,193,940 Transfers from loans to other real estate owned — 1,002,981 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 periods 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. This status will expire on December 31, 2024. 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 November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures , requiring public entities to disclose information about significant expenses for their reportable segments on both an interim and annual basis. Public entities must disclose significant expense categories and amounts for each reportable segment, which are derived from expenses regularly reported to the entity’s chief operating decision-maker (CODM) and included in the segment's reported measures of profit or loss. Additionally, public entities must disclose the title and position of the CODM and explain how the CODM uses these measures to assess segment performance. The ASU also mandates certain segment-related interim disclosures that were previously required only on an annual basis. The ASU is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted, and the ASU should be applied prospectively. Adoption of the ASU is not expected to have a material impact on the Company’s consolidated financial position or results of operations. 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. 8 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 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: September 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available for sale U.S. treasury securities $ 2,206 $ — $ 7 $ 2,199 SBA Pools 4,409 — 447 3,962 Federal agencies 15,000 — 1,427 13,573 State and municipal obligations 162,709 11 26,797 135,923 Mortgage-backed securities - GSE residential 120,757 — 18,399 102,358 Corporate obligations 11,500 — 2,264 9,236 316,581 11 49,341 267,251 Held to maturity State and municipal obligations 4,052 11 35 4,028 4,052 11 35 4,028 Total investment securities $ 320,633 $ 22 $ 49,376 $ 271,279 9 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 The amortized cost and fair value of investment securities at September 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 $ 4,081 $ 4,054 $ 1,000 $ 997 One to five years 24,287 22,908 1,728 1,715 Five to ten years 39,371 35,455 714 725 After ten years 128,085 102,477 610 591 195,824 164,894 4,052 4,028 Mortgage-backed securities –GSE residential 120,757 102,357 — — Totals $ 316,581 $ 267,251 $ 4,052 $ 4,028 Investment securities with a carrying value of $ 115,500,000 and $ 162,430,000 were pledged at September 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 the three and nine months ended September 30, 2024 were $ 3,119,000 and $ 6,908,000 , respectively. Gross losses recognized on the sale of securities available for sale for the three and nine months ended September 30, 2024 were $ 9,000 and $ 71,000 , respectively. Gross gains on the sale of securities available for sale were $ 21,000 for both the three and nine months ended September 30, 2024. There were no sales of securities available for sale for the three and nine months ended September 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 September 30, 2024 and December 31, 2023 was $ 267,216,000 and $ 279,852,000 , respectively, which is approximately 98 % 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 September 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. 10 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 September 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 September 30, 2024: State and municipal obligations AA+ $ 1,014 AA- 295 A+ 605 Not rated 2,138 $ 4,052 The Company has elected to exclude accrued interest receivable from the calculation of the allowance for credit losses. The following tables show the Company’s 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 September 30, 2024 and December 31, 2023: Description of Securities September 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 $ 2,199 $ 7 $ — $ — $ 2,199 $ 7 SBA Pools 253 — 3,203 447 3,456 447 Federal agencies — — 13,573 1,427 13,573 1,427 State and municipal obligations 816 4 133,242 26,793 134,058 26,797 Mortgage-backed securities - GSE residential — — 102,357 18,399 102,357 18,399 Corporate obligations — — 9,236 2,264 9,236 2,264 Total available for sale 3,268 11 261,611 49,330 264,879 49,341 Held to maturity State and municipal obligations 100 2,237 35 2,337 35 Total $ 3,368 $ 11 $ 263,848 $ 49,365 $ 267,216 $ 49,376 11 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 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. 12 Note 4: Loans, Leases and Allowance The following table shows the composition of the loan and lease portfolio at September 30, 2024 and December 31, 2023: September 30, 2024 December 31, 2023 Commercial mortgage $ 348,473 $ 341,633 Commercial and industrial 126,591 115,428 Construction and development 140,761 157,805 Multi-family 183,778 138,757 Residential mortgage 172,873 162,123 Home equity lines of credit 15,236 10,904 Direct financing leases 147,057 156,598 Consumer 22,608 23,264 1,157,377 1,106,512 Less Allowance for credit losses on loans and leases 15,773 15,663 Deferred loan fees 635 776 $ 1,140,969 $ 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 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. 13 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. 14 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 September 30, 2024 and rating category as of December 31, 2023: 2024 2023 2022 2021 2020 Prior Revolving loans amortized cost basis Total As of September 30, 2024: Commercial mortgage Pass $ 14,473 $ 40,885 $ 82,201 $ 63,925 $ 31,744 $ 92,255 $ 17,494 $ 342,977 Substandard — — — 238 4,754 504 — 5,496 Total Commercial mortgage 14,473 40,885 82,201 64,163 36,498 92,759 17,494 348,473 Current period gross charge-offs — — — — — — — — Commercial and industrial Pass 16,374 34,752 10,445 11,720 3,506 10,626 34,656 122,079 Substandard — — 307 — — 58 4,147 4,512 Total Commercial and industrial 16,374 34,752 10,752 11,720 3,506 10,684 38,803 126,591 Current period gross charge-offs — — — — — 16 — 16 Construction and development Pass 18,083 30,210 66,454 20,962 30 122 — 135,861 Substandard — — — — — 4,900 — 4,900 Total Construction and development 18,083 30,210 66,454 20,962 30 5,022 — 140,761 Current period gross charge-offs — — — — — — — — Multi-family Pass 7,279 3,805 59,131 50,424 6,242 25,069 26,884 178,834 Special Mention — — — 1,487 3,457 — — 4,944 Total Multi-family 7,279 3,805 59,131 51,911 9,699 25,069 26,884 183,778 Current period gross charge-offs — — — — — — — — Residential mortgage Pass 17,959 34,812 29,602 29,287 17,039 40,493 2,448 171,640 Substandard — 35 — 122 — 1,076 — 1,233 Total Residential mortgage 17,959 34,847 29,602 29,409 17,039 41,569 2,448 172,873 Current period gross charge-offs — — — — — 10 — 10 Home equity Pass 19 — — — — — 15,203 15,222 Substandard — — — — — — 14 14 Total Home equity lines of credit 19 — — — — — 15,217 15,236 Current period gross charge-offs — — — — — — — — Direct financing leases Pass 38,509 59,110 29,467 14,019 4,764 636 — 146,505 Substandard 11 273 95 85 55 — — 519 Doubtful — 8 — 7 18 — — 33 Total Direct financing leases 38,520 59,391 29,562 14,111 4,837 636 — 147,057 Current period gross charge-offs — 538 560 189 47 — — 1,334 Consumer Pass 6,397 6,998 5,801 2,386 498 344 — 22,424 Substandard — 80 58 46 — — — 184 Total Consumer 6,397 7,078 5,859 2,432 498 344 — 22,608 Current period gross charge-offs 38 63 55 13 — 3 — 172 Total Loans and Leases $ 119,104 $ 210,968 $ 283,561 $ 194,708 $ 72,107 $ 176,083 $ 100,846 $ 1,157,377 Total current period gross charge-offs $ 38 $ 601 $ 615 $ 202 $ 47 $ 29 $ — $ 1,532 15 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 September 30, 2024 and December 31, 2023, the Company did not have any revolving loans convert to term loans. 16 The following tables present the Company’s loan and lease portfolio aging analysis of the recorded investment in loans and leases as of September 30, 2024 and December 31, 2023: September 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 $ 216 $ — $ — $ 216 $ 348,257 $ 348,473 $ — Commercial and industrial 272 — — 272 126,319 126,591 — Construction and development — — 4,900 4,900 135,861 140,761 — Multi-family — — — — 183,778 183,778 — Residential mortgage 362 696 1,233 2,291 170,582 172,873 1,138 Home equity — 484 14 498 14,738 15,236 14 Direct financing leases 682 276 287 1,245 145,812 147,057 287 Consumer 150 86 184 420 22,188 22,608 184 Totals $ 1,682 $ 1,542 $ 6,618 $ 9,842 $ 1,147,535 $ 1,157,377 $ 1,623 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 17 The following table presents information on the Company’s nonaccrual loans and leases at September 30, 2024, and at December 31, 2023: September 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 $ 36 $ — $ 1,241 $ 1,202 Construction and development 4,900 — 4,900 — Residential mortgage 95 95 101 101 Direct financing leases 33 33 82 82 Total nonaccrual loans and leases $ 5,064 $ 128 $ 6,324 $ 1,385 During the three months ended September 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 September 30, 2024 and December 31, 2023: September 30, 2024 Commercial Real Estate Multi-family Housing Residential Real Estate Other Total Allowance on Collateral Dependent Loans Commercial mortgage $ 5,259 $ — $ — $ — $ 5,259 $ — Commercial and industrial — — — 4,147 4,147 — Construction and development 4,900 — — — 4,900 1,000 Multi-family — 1,487 — — 1,487 — Residential mortgage — — 145 — 145 — Direct financing leases — — — — — — Total $ 10,159 $ 1,487 $ 145 $ 4,147 $ 15,938 $ 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 18 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 nine months ended September 30, 2024, the Company modified two residential mortgage loans, both involving term extensions, to borrowers experiencing financial difficulty. The total amortized cost basis of the loans modified at September 30, 2024 was $ 169,000 , representing 0.0 % of the Company's residential mortgage loan portfolio. For both the three and nine months ended September 30, 2024, loan and lease modifications to borrowers experiencing financial difficulty resulted in a weighted average term extension of 20 months for the modified loans. During the three and nine months ended September 30, 2023, the Company had no new loan or lease modifications to borrowers experiencing financial difficulty. There were no modified loans and leases that had a payment default during the three or nine months ended September 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 September 30, 2024, there was no other real estate owned, compared to $ 136,000 of other real estate owned at December 31, 2023, consisting of foreclosed residential real estate properties. At September 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: September 30, 2024 December 31, 2023 Total minimum lease payments to be received $ 167,248 $ 177,952 Initial direct costs 9,446 9,702 176,694 187,654 Less: Unearned income ( 29,637 ) ( 31,056 ) Net investment in direct finance leases $ 147,057 $ 156,598 The following table summarizes the future minimum lease payments receivable subsequent to September 30, 2024: Remainder of 2024 $ 17,207 2025 59,970 2026 45,107 2027 28,445 2028 13,670 Thereafter 2,849 $ 167,248 19 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 nine months ended September 30, 2024 and 2023, respectively: Balances, June 30, 2024 Provision for (reversal of) credit losses Charge-offs Recoveries Balances, September 30, 2024 Commercial mortgage $ 4,781 $ ( 531 ) $ — $ — $ 4,250 Commercial and industrial 1,421 152 ( 16 ) 3 1,560 Construction and development 3,464 ( 1,096 ) — — 2,368 Multi-family 2,097 500 — — 2,597 Residential mortgage 1,761 220 — 2 1,983 Home equity 133 43 — — 176 Direct financing leases 1,920 983 ( 463 ) 18 2,458 Consumer 305 66 ( 34 ) 44 381 Total $ 15,882 $ 337 $ ( 513 ) $ 67 $ 15,773 20 Balances, December 31, 2023 Provision for (reversal of) credit losses Charge-offs Recoveries Balances, September 30, 2024 Commercial mortgage $ 4,655 $ ( 405 ) $ — $ — $ 4,250 Commercial and industrial 1,281 217 ( 16 ) 78 1,560 Construction and development 3,883 ( 1,515 ) — — 2,368 Multi-family 1,789 808 — — 2,597 Residential mortgage 1,681 301 ( 10 ) 11 1,983 Home equity 102 74 — — 176 Direct financing leases 1,955 1,706 ( 1,334 ) 131 2,458 Consumer 317 144 ( 172 ) 92 381 Total $ 15,663 $ 1,330 $ ( 1,532 ) $ 312 $ 15,773 Balances, June 30, 2023 Provision for (reversal of) credit losses Charge-offs Recoveries Balances, September 30, 2023 Commercial mortgage $ 4,963 $ 215 $ — $ — $ 5,178 Commercial and industrial 1,623 ( 307 ) ( 58 ) 18 1,276 Construction and development 2,966 278 — — 3,244 Multi-family 1,981 ( 37 ) — — 1,944 Residential mortgage 1,623 ( 11 ) — 11 1,623 Home equity 102 ( 2 ) — — 100 Direct financing leases 1,814 184 ( 216 ) 10 1,792 Consumer 319 84 ( 79 ) 15 339 Total $ 15,391 $ 404 $ ( 353 ) $ 54 $ 15,496 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, September 30, 2023 Commercial mortgage $ 4,776 $ ( 395 ) $ 4,381 $ 784 $ — $ 13 $ 5,178 Commercial and industrial 1,291 360 1,651 ( 358 ) ( 58 ) 41 1,276 Construction and development 2,855 784 3,639 ( 395 ) — — 3,244 Multi-family 1,955 ( 99 ) 1,856 88 — — 1,944 Residential mortgage 76 1,439 1,515 75 — 33 1,623 Home equity 23 89 112 ( 12 ) — — 100 Direct financing leases 1,196 422 1,618 537 ( 582 ) 219 1,792 Consumer 241 64 305 136 ( 147 ) 45 339 Total $ 12,413 $ 2,664 $ 15,077 $ 855 $ ( 787 ) $ 351 $ 15,496 During the third quarter of 2024, the allowance for credit losses on loans and leases decreased from $ 15.9 million at June 30, 2024, to $ 15.8 million at September 30, 2024. The decrease was attributable to additional provisions totaling $ 337,000 during the third quarter of 2024, offset by net charge-offs of $ 446,000 . During the third quarter of 2024, updates were made to our allowance for credit losses calculation, including macroeconomic inputs, credit metrics, and refreshed loss driver data. Additionally, the availability of increased details within certain loan categories allowed for more precise risk profiling. As a result of these refinements, several loan and lease categories saw changes to their respective loss rates during the quarter. • Commercial Mortgage – allowance decreased due to loan balances decreasing $ 7.8 million. • Commercial & Industrial – allowance increased while loan balances decreased $ 570,000 . • Construction & Development – allowance decreased while loan balances increased $ 1.2 million. 21 • Multi-Family – allowance increased due to loan balances increasing $ 9.5 million. • Residential Mortgage – allowance increased while loan balances decreased $ 2.2 million. • Home Equity – allowance increased due to loan balances increasing $ 1.5 million. • Direct Financing Leases – allowance increased while loan balances decreased $ 1.1 million. • Consumer – allowance increased while loan balances decreased $ 174,000 . Our commercial loan portfolio, consisting of commercial and multi-family real estate loans, commercial and industrial loans, and construction loans, represented 69.1 % and 68.1 % of our portfolio as of September 30, 2024 and December 31, 2023, respectively. The allowance for credit losses on loans and leases allocated to the commercial loan portfolio represented 68.3 % and 74.1 % of our total allowance at September 30, 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 September 30, 2024, the primary economic factors affecting the Company's loan portfolio continued to be persistent inflation, higher interest rates, geopolitical risk, economic growth, and the unemployment outlook. These key factors will continue to influence the Company's loan and lease portfolio for the near future. The Company remains committed to three growth market regions: Columbus, Ohio, Dayton/Springfield, Ohio, and Indianapolis, Indiana. As high-growth areas, these market regions specialize in commercial real estate loans. Their respective forecasts are described below: • Columbus, Ohio – The market region continues to forecast overall job growth in 2024. Construction activity has slowed, 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. Statistically, the market region data for the past three quarters has been constant while reflecting a certain level of market uncertainty. Recession fears remain. The region’s economic outlook for 2024 is mostly, slow but steady. 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 year-to-date 2024 economic results, the market region is expecting stable economic growth throughout 2024. The first half of 2024 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. 22 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 or reversals 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 nine months ended September 30, 2024 and 2023: Three Months Ended September 30, 2024 2023 Beginning balance $ 1,103 $ 2,101 Reversal of credit losses ( 436 ) ( 354 ) Ending balance $ 667 $ 1,747 Nine Months Ended September 30, 2024 2023 Beginning balance $ 1,642 $ — Impact of adopting ASC 326 — 2,374 Reversal of credit losses ( 975 ) ( 627 ) Ending balance $ 667 $ 1,747 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 23 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 September 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) September 30, 2024 Available for sale securities U.S. Treasury securities $ 2,199 $ 2,199 $ — $ — SBA Pools 3,962 — 3,962 — Federal agencies 13,573 — 13,573 — State and municipal obligations 135,923 — 135,923 — Mortgage-backed securities - GSE residential 102,358 — 102,358 — Corporate obligations 9,236 — 9,236 — $ 267,251 $ 2,199 $ 265,052 $ — 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 nine months ended September 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. 24 Nonrecurring Measurements As of September 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 September 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) September 30, 2024 Financial assets Cash and cash equivalents $ 19,570 $ 19,570 $ — $ — Interest-earning time deposits 300 — 300 — Available for sale securities 267,251 2,199 265,052 — Held to maturity securities 4,052 — 4,028 — Loans held for sale 220 — — 220 Loans and leases receivable, net 1,140,969 — — 1,079,589 FHLB stock 13,907 — 13,907 — Interest receivable 5,874 — 5,874 — Financial liabilities Deposits 1,089,094 — 1,092,607 — FHLB advances 252,000 — 251,170 — Interest payable 3,434 — 3,434 — 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 — 25 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 September 30, 2024 2023 Net income $ 2,472 $ 1,949 Shares outstanding for Basic EPS: Average shares outstanding 10,986,327 11,403,229 Less: average restricted stock award shares not vested 83,379 174,192 Less: average unearned ESOP Shares 815,942 870,048 Shares outstanding for Basic EPS 10,087,006 10,358,989 Additional Dilutive Shares 129,388 23,170 Shares outstanding for Diluted EPS 10,216,394 10,382,159 Basic Earnings Per Share $ 0.25 $ 0.19 Diluted Earnings Per Share $ 0.24 $ 0.19 Nine Months Ended September 30, 2024 2023 Net income $ 6,901 $ 7,545 Shares outstanding for Basic EPS: Average shares outstanding 11,072,685 11,568,149 Less: average restricted stock award shares not vested 138,637 231,620 Less: average unearned ESOP Shares 829,418 883,474 Shares outstanding for Basic EPS 10,104,630 10,453,055 Additional Dilutive Shares 106,245 61,018 Shares outstanding for Diluted EPS 10,210,875 10,514,073 Basic Earnings Per Share $ 0.68 $ 0.72 Diluted Earnings Per Share $ 0.68 $ 0.72 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 $ 76,000 and $ 214,000 for the three and nine months ended September 30, 2024, and $ 93,000 and $ 196,000 for the three and nine months ended September 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 26 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, 802,562 and 843,142 shares of common stock acquired by the ESOP were shown as a reduction of stockholders’ equity at September 30, 2024 and December 31, 2023, respectively. Shares are released to participants proportionately as the loan is repaid. ESOP expense was $ 167,000 and $ 476,000 for the three and nine months ended September 30, 2024, and was $ 154,000 and $ 465,000 for the three and nine months ended September 30, 2023, respectively. September 30, 2024 December 31, 2023 Earned ESOP shares 279,568 238,988 Unearned ESOP shares 802,562 843,142 Total ESOP shares 1,082,130 1,082,130 Quoted per share price $ 12.90 $ 11.51 Fair value of earned shares (in thousands) $ 3,606 $ 2,751 Fair value of unearned shares (in thousands) $ 10,353 $ 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 nine months ended September 30, 2024. Nine Months Ended September 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, September 30, 2024 83,379 10.55 Total compensation cost recognized in the income statement for restricted stock awards during the three and nine months ended September 30, 2024 was $ 222,000 and $ 658,000 , and the related tax benefit recognized was $ 47,000 and $ 138,000 , respectively. As of September 30, 2024, unrecognized compensation expense related to restricted stock awards was $ 656,000 . 27 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 nine months ended September 30, 2024. Nine Months Ended September 30, 2024 Number of Shares Weighted-Average Exercise Price Balance at beginning of period 1,050,961 $ 10.56 Exercised ( 16,232 ) 10.53 Forfeited/expired ( 18,232 ) 10.90 Balance, June 30, 2024 1,016,497 10.55 Exercisable at end of period 812,401 $ 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 September 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, September 30, 2024 204,096 $ 2.91 Total compensation cost recognized in the income statement for option-based payment arrangements for the three and nine months ended September 30, 2024 was $ 150,000 and $ 445,000 , and the related tax benefit recognized was $ 16,000 and $ 48,000 , respectively. As of September 30, 2024, unrecognized compensation expense related to the stock option awards was $ 443,000 . 28 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 September 30, 2024 and December 31, 2023, the balance of these investments in LIHTC totaled $ 995,000 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 nine months ended September 30, 2024 and 2023. Three Months Ended June 30, Nine Months Ended September 30, 2024 2023 2024 2023 Amortization expense $ 44 $ 45 $ 134 $ 139 Tax credits recognized 47 47 137 144 Note 9: Subsequent Event Subsequent to September 30, 2024 through November 13, 2024, the Company purchased 40,228 shares of the Company's common stock pursuant to the existing stock repurchase program, leaving 566,574 shares available for future repurchase. 29