Richmond Mutual Bancorporation, Inc. - Quarter Report: 2021 September (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


x			QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


o			TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ________

Commission file number: 001-38956

RICHMOND MUTUAL BANCORPORATION, INC.

(Exact name of registrant as specified in its charter)


Maryland						36-4926041
(State or other jurisdiction of incorporation of organization)						(I.R.S. Employer Identification No.)

31 North 9th Street, Richmond, Indiana 47374

(Address of principal executive offices; Zip Code)

(765) 962-2581

(Registrant's telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	RMBI	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

[ ]

Accelerated filer

[ ]

Non-accelerated filer

[X]

Smaller reporting company

[X]

Emerging growth company

[X]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No [X]

There were 12,424,489 shares of Registrant’s common stock, par value of $0.01 per share, issued and outstanding as of November 12, 2021.

RICHMOND MUTUAL BANCORPORATION, INC. AND SUBSIDIARY

10-Q

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION


		Page
Item 1.	Condensed Consolidated Balance Sheets at September 30, 2021 (Unaudited) and December 31, 2020	1
	Condensed Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020	2
	Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020	3
	Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the Three and Nine Months Ended Se ptember 30, 2021 and 2020	4
	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2021 and 2020	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42
Item 4.	Controls and Procedures	42

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5	Other Information	44
Item 6.	Exhibits	45

Signatures		46

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

Richmond Mutual Bancorporation, Inc.

Condensed Consolidated Balance Sheets


	September 30, 2021		December 31, 2020
	(Unaudited)
Assets
Cash and due from banks	$	11,308,688	$	16,748,093
Interest-bearing demand deposits	8,528,617		32,020,364
Cash and cash equivalents	19,837,305		48,768,457
Investment securities - available for sale	358,108,288		244,505,189
Investment securities - held to maturity	9,549,322		12,225,275
Loans held for sale	903,200		1,986,650
Loans and leases, net of allowance for losses of $11,849,000 and $10,586,000, respectively	795,407,222		734,413,448
Premises and equipment, net	14,226,532		14,892,110
Federal Home Loan Bank stock	9,542,400		9,049,600
Interest receivable	4,011,771		4,703,604
Mortgage-servicing rights	1,734,574		1,712,138
Cash surrender value of life insurance	3,595,730		3,525,736
Other assets	13,795,892		8,410,450

Total assets	$	1,230,712,236	$	1,084,192,657

Liabilities
Noninterest-bearing deposits	106,166,600		98,724,887
Interest-bearing deposits	718,090,230		594,320,508
Total deposits	824,256,830		693,045,395
Federal Home Loan Bank advances	202,000,000		170,000,000
Advances by borrowers for taxes and insurance	558,188		492,524
Interest payable	198,814		222,118
Multi-employer pension plan liability	17,454,709		17,454,709
Other liabilities	7,605,996		10,265,203
Total liabilities	1,052,074,537		891,479,949

Commitments and Contingent Liabilities	—		—

Stockholders' Equity
Common stock, $0.01 par value
Authorized - 90,000,000 shares
Issued and outstanding - 12,432,184 shares and 13,193,760 shares at September 30, 2021 and December 31, 2020, respectively	124,322		131,938
Additional paid-in capital	114,653,448		124,246,425
Retained earnings	78,237,829		78,290,113
Unearned employee stock ownership plan (ESOP)	(13,112,188)		(13,664,373)
Accumulated other comprehensive (loss) income	(1,265,712)		3,708,605
Total stockholders' equity	178,637,699		192,712,708

Total liabilities and stockholders' equity	$	1,230,712,236	$	1,084,192,657

See Notes to Condensed Consolidated Statements.

Richmond Mutual Bancorporation, Inc.

Condensed Consolidated Statements of Income

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Interest Income
Loans and leases	$	10,437,783	$	9,719,323	$	30,161,755	$	28,264,455
Investment securities	1,456,124		1,017,201		3,714,207		3,458,621
Other	6,581		9,376		19,559		145,853
Total interest income	11,900,488		10,745,900		33,895,521		31,868,929
Interest Expense
Deposits	1,253,901		1,545,183		3,662,562		5,074,191
Borrowings	688,533		763,055		2,083,095		2,272,700
Total interest expense	1,942,434		2,308,238		5,745,657		7,346,891
Net Interest Income	9,958,054		8,437,662		28,149,864		24,522,038
Provision for losses on loans and leases	500,000		1,300,000		1,430,000		2,830,000
Net Interest Income After Provision for Losses on Loans and Leases	9,458,054		7,137,662		26,719,864		21,692,038
Noninterest Income
Service charges on deposit accounts	236,204		150,653		629,425		510,922
Card fee income	266,497		218,482		783,700		599,837
Loan and lease servicing fees	(181,498)		(41,657)		(38,210)		193,881
Net gains on securities (includes $17,887, $117,304, $55,799, and $196,317, respectively, related to accumulated other comprehensive income reclassifications)	17,887		117,304		55,799		196,317
Net gains on loan and lease sales	556,664		1,327,639		2,090,892		2,586,515
Other income	249,184		220,180		791,648		767,764
Total noninterest income	1,144,938		1,992,601		4,313,254		4,855,236
Noninterest Expenses
Salaries and employee benefits	4,217,780		3,647,479		12,977,382		10,281,475
Net occupancy expenses	321,473		307,925		945,806		882,915
Equipment expenses	334,187		308,146		985,951		844,849
Data processing fees	512,917		446,543		1,601,704		1,395,417
Deposit insurance expense	76,000		80,000		211,000		196,000
Printing and office supplies	44,705		32,440		122,516		91,080
Legal and professional fees	302,528		271,137		937,569		839,318
Advertising expense	103,118		71,090		268,988		260,903
Bank service charges	39,327		40,278		99,074		106,098
Real estate owned expense	4,329		350		15,031		3,516
Loss on sale of real estate owned	—		—		1,278		—
Other expenses	887,939		779,791		2,535,140		2,254,922
Total noninterest expenses	6,844,303		5,985,179		20,701,439		17,156,493
Income Before Income Tax Expense	3,758,689		3,145,084		10,331,679		9,390,781
Provision for income taxes (includes $3,756, $24,634, $11,718, and $41,226, respectively, related to income tax expense from reclassification of items)	676,414		613,531		1,905,571		1,900,905
Net Income	$	3,082,275	$	2,531,553	$	8,426,108	$	7,489,876
Earnings Per Share
Basic	$	0.28	$	0.21	$	0.74	$	0.60
Diluted	$	0.27	$	0.21	$	0.72	$	0.60

See Notes to Condensed Consolidated Statements.

Richmond Mutual Bancorporation, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

Net Income	$	3,082,275	$	2,531,553	$	8,426,108	$	7,489,876

Other Comprehensive Income (Loss)
Unrealized (loss) gain on available-for-sale securities, net of tax (benefit) expense of $(774,714), $45,101, $(1,310,569), and $1,040,994, respectively.	(2,914,399)		169,667		(4,930,236)		3,916,120
Less: reclassification adjustment for realized gains included in net income, net of tax expense of $3,756, $24,634, $11,718, and $41,226, respectively.	14,131		92,670		44,081		155,090
	(2,928,530)		76,997		(4,974,317)		3,761,030

Comprehensive Income	$	153,745	$	2,608,550	$	3,451,791	$	11,250,906

See Notes to Condensed Consolidated Statements.

Richmond Mutual Bancorporation, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)


	Common Stock			Additional Paid-in Capital		Retained Earnings		Unearned ESOP Shares		Accumulated Other Comprehensive Income		Total
	Shares Outstanding	Amount

Balances, June 30, 2021	12,684,977	$	126,850	$	118,118,524	$	75,957,135	$	(13,296,017)	$	1,662,818	$	182,569,310
Net income	—	—		—		3,082,275		—		—		3,082,275
Other comprehensive loss	—	—		—		—		—		(2,928,530)		(2,928,530)
ESOP shares earned	—	—		23,233		—		183,829		—		207,062

Stock based compensation	—	—		387,853		—		—		—		387,853
Exercise of stock options	12,116	121		127,460		—		—		—		127,581
Common stock dividends ($0.07 per share)	—	—		—		(801,581)		—		—		(801,581)

Repurchase of common stock	(264,909)	(2,649)		(4,003,622)		—		—		—		(4,006,271)
Balances, September 30, 2021	12,432,184	$	124,322	$	114,653,448	$	78,237,829	$	(13,112,188)	$	(1,265,712)	$	178,637,699


	Common Stock			Additional Paid-in Capital		Retained Earnings		Unearned ESOP Shares		Accumulated Other Comprehensive Income/(Loss)		Total
	Shares Outstanding	Amount

Balances, December 31, 2020	13,193,760	$	131,938	$	124,246,425	$	78,290,113	$	(13,664,373)	$	3,708,605	$	192,712,708
Net income	—	—		—		8,426,108		—		—		8,426,108
Other comprehensive loss	—	—		—		—		—		(4,974,317)		(4,974,317)
ESOP shares earned	—	—		28,391		—		552,185		—		580,576
Granting of restricted stock awards	4,000	40		(40)		—		—		—		—
Stock based compensation	—	—		1,423,236		—		—		—		1,423,236
Exercise of stock options	12,116	121		127,460		—		—		—		127,581
Common stock dividends ($0.21 per share)	—	—		—		(2,476,945)		—		—		(2,476,945)
Common stock dividends ($0.50 per share)	—	—		—		(6,001,447)		—		—		(6,001,447)
Repurchase of common stock	(777,692)	(7,777)		(11,172,024)		—		—		—		(11,179,801)
Balances, September 30, 2021	12,432,184	$	124,322	$	114,653,448	$	78,237,829	$	(13,112,188)	$	(1,265,712)	$	178,637,699


	Common Stock			Additional Paid-in Capital		Retained Earnings		Unearned ESOP Shares		Accumulated Other Comprehensive Income		Total
	Shares Outstanding	Amount

Balances, June 30, 2020	13,526,625	$	135,266	$	132,563,670	$	74,446,405	$	(14,032,728)	$	3,023,289	$	196,135,902
Net income	—	—		—		2,531,553		—		—		2,531,553
Other comprehensive income	—	—		—		—		—		76,997		76,997
ESOP shares earned	—	—		(32,281)		—		183,828		—		151,547
Common stock dividends ($0.05 per share)	—	—		—		(605,081)		—		—		(605,081)
Repurchase of common stock	(582,079)	(5,821)		(6,610,672)		—		—		—		(6,616,493)
Balances, September 30, 2020	12,944,546	$	129,445	$	125,920,717	$	76,372,877	$	(13,848,900)	$	3,100,286	$	191,674,425


	Common Stock			Additional Paid-in Capital		Retained Earnings		Unearned ESOP Shares		Accumulated Other Comprehensive Income/(Loss)		Total
	Shares Outstanding	Amount

Balances, December 31, 2019	13,526,625	$	135,266	$	132,601,876	$	70,111,434	$	(14,400,386)	$	(660,744)	$	187,787,446
Net income	—	—		—		7,489,876		—		—		7,489,876
Other comprehensive income	—	—		—		—		—		3,761,030		3,761,030
ESOP shares earned	—	—		(70,487)		—		551,486		—		480,999
Common stock dividends ($0.10 per share)	—	—		—		(1,228,433)		—		—		(1,228,433)
Repurchase of common stock	(582,079)	(5,821)		(6,610,672)		—		—		—		(6,616,493)
Balances, September 30, 2020	12,944,546	$	129,445	$	125,920,717	$	76,372,877	$	(13,848,900)	$	3,100,286	$	191,674,425

See Notes to Condensed Consolidated Statements.

Richmond Mutual Bancorporation, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
	2021		2020
Operating Activities
Net income	$	8,426,108	$	7,489,876
Items not requiring (providing) cash
Provision for loan losses	1,430,000		2,830,000
Depreciation and amortization	858,190		740,482
Deferred income tax	(393,026)		(679,933)
Stock based compensation	1,423,236		—
Investment securities amortization, net	1,977,350		1,848,533
Investment securities gains	(55,799)		(196,317)
Net gains on loan and lease sales	(2,090,892)		(2,586,515)
Loss on sale of real estate owned	1,278		—
Accretion of loan origination fees	(2,530,686)		(849,503)
Amortization of mortgage-servicing rights	320,193		355,146
ESOP shares expense	580,576		480,999
Increase in cash surrender value of life insurance	(69,994)		(90,240)
Loans originated for sale	(65,375,624)		(79,876,240)
Proceeds on loans sold	64,292,174		81,621,903
Net change in
Interest receivable	691,833		(1,778,037)
Other assets	(3,470,593)		1,152,716
Other liabilities	(2,659,207)		(2,838,842)
Interest payable	(23,304)		(54,902)
Net cash provided by operating activities	3,331,813		7,569,126

Investing Activities
Purchases of securities available for sale	(176,924,319)		(129,901,076)
Proceeds from maturities and paydowns of securities available for sale	49,817,156		68,279,489
Proceeds from sales of securities available for sale	5,296,929		34,737,656
Proceeds from maturities and paydowns of securities held to maturity	2,664,935		3,585,017
Net change in loans	(56,209,011)		(65,198,318)
Proceeds from sales of real estate owned	30,270		—
Purchases of premises and equipment	(192,612)		(1,410,931)
Purchase of FHLB stock	(492,800)		(1,569,200)
Net cash used in investing activities	(176,009,452)		(91,477,363)

Financing Activities
Net change in
Demand and savings deposits	62,873,251		71,899,362
Certificates of deposit	68,338,184		(26,061,187)
Advances by borrowers for taxes and insurance	65,664		16,042
Proceeds from FHLB advances	134,000,000		64,000,000
Repayment of FHLB advances	(102,000,000)		(42,000,000)
Repurchase of common stock	(11,179,801)		(6,616,493)
Proceeds from stock option exercises	127,581		—
Dividends paid	(8,478,392)		(1,228,433)
Net cash provided by financing activities	143,746,487		60,009,291

Net Change in Cash and Cash Equivalents	(28,931,152)		(23,898,946)
Cash and Cash Equivalents, Beginning of Period	48,768,457		40,596,877
Cash and Cash Equivalents, End of Period	$	19,837,305	$	16,697,931
Additional Cash Flows and Supplementary Information
Interest paid	$	5,768,961	$	7,401,793
Transfers from loans to other real estate owned	—		31,548

See Notes to Condensed Consolidated Statements.

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

On July 1, 2019, Richmond Mutual Bancorporation, Inc., a Delaware corporation (“RMB-Delaware”), completed its reorganization from a mutual holding company form of organization to a stock form of organization (“corporate reorganization”). RMB-Delaware, which owned 100% of First Bank Richmond (the “Bank”), was succeeded by Richmond Mutual Bancorporation, Inc., a new Maryland corporation (“RMB-Maryland”). As part of the corporate reorganization, First Mutual of Richmond, Inc.’s (“MHC”) ownership interest in RMB-Delaware was sold in a public offering. Gross proceeds from the offering were $130.3 million. In conjunction with the corporate reorganization, RMB-Maryland contributed 500,000 shares and $1.25 million of cash to a newly formed charitable foundation, First Bank Richmond, Inc. Community Foundation (the “Foundation”). Additionally, a “liquidation account” was established for the benefit of certain depositors of the Bank in an amount equal to MHC’s ownership interest in the retained earnings of RMB-Delaware as of December 31, 2017 and March 31, 2019. In certain circumstances, where appropriate, the terms “Company”, “we”, “us” and “our” refer collectively to (i) RMB-Delaware and First Bank Richmond with respect to discussions in this document involving matters occurring prior to completion of the corporate reorganization and (ii) RMB-Maryland and First Bank Richmond with respect to discussions in this document involving matters occurring post-corporate reorganization, in each case unless the context indicates another meaning.

The costs of the corporate reorganization and the issuance of the common stock have been deducted from the sales proceeds of the offering.

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, 2020 filed with the Securities and Exchange Commission (“SEC”) on March 31, 2021 (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.

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 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.

When cash payments are received on impaired loans in each loan class, the Company records the payment as interest income unless collection of the remaining recorded principal amount is doubtful, at which time payments are used to reduce the

principal balance of the loan. Troubled debt restructured loans recognize interest income on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms, no principal reduction has been granted and the loan has demonstrated the ability to perform in accordance with the renegotiated terms for a period of at least six months.

Certain reclassifications have been made to the 2020 financial statements to conform to the 2021 financial statement presentation. These reclassifications had no effect on net income.

Note 2: Accounting Pronouncements

In March 2020, the novel coronavirus disease of 2019 ("COVID-19") was identified as a global pandemic and began affecting the health of large populations around the world. As a result of the spread of COVID-19, economic uncertainties arose which can ultimately affect the financial position, results of operations and cash flows of the Company, as well as the Company's customers. In response to economic concerns over COVID-19, in March 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was passed into law by the United States Congress ("Congress"). The CARES Act included relief for individual Americans, health care workers, small businesses and certain industries hit hard by the COVID-19 pandemic. The 2021 Consolidated Appropriations Act, passed by Congress in December 2020, extended certain provisions of the CARES Act affecting the Company into 2021.

The CARES Act included several provisions designed to help financial institutions like the Company in working with their customers. Section 4013 of the CARES Act, as extended, allows a financial institution to elect to suspend generally accepted accounting principles and regulatory determinations with respect to qualifying loan modifications related to COVID-19 that would otherwise be categorized as a troubled debt restructuring ("TDR") until January 1, 2022. The Company has taken advantage of this provision to extend certain payment modifications to loan customers in need. As of September 30, 2021, the Company had no loans outstanding that were modified under the CARES Act guidance.

The CARES Act also approved the Paycheck Protection Program ("PPP"), administered by the Small Business Administration ("SBA") with funding provided by financial institutions. The 2021 Consolidated Appropriations Act approved a new round of PPP loans in 2021. The PPP provides loans to eligible businesses through financial institutions like the Company, with loans being eligible for forgiveness of some or all of the principal amount by the SBA if the borrower meets certain requirements. The SBA guarantees repayment of the loans to the Company if the borrower's loan is not forgiven and is then not repaid by the borrower. The Company earns a 1% interest rate on PPP loans, plus a processing fee from the SBA for processing and originating a loan. The Company had originated approximately $103.1 million in PPP loans as of September 30, 2021, of which approximately $16.3 million were outstanding at September 30, 2021.

The Jumpstart Our Business Startups Act (the "JOBS Act"), enacted in April 2012, made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year qualifies as an “emerging growth company.” The Company qualifies as and has elected to be an emerging growth company under the JOBS Act. An emerging growth company may elect to comply with new or amended accounting pronouncements in the same manner as a private company, but must make such election when the company is first required to file a registration statement. Such an election is irrevocable during the period a company is an emerging growth company. The Company has elected to comply with new or amended accounting pronouncements in the same manner as a private company.

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments-Credit Losses (Topic 326). The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements.

In May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief” (ASU 2019-05). This ASU provides transition relief for entities adopting the FASB’s credit losses standard, ASU

2016-13 and allows companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option for certain financial instruments. In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” (ASU 2019-04). This ASU clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments. In October 2019, the FASB voted to extend the implementation of ASU No. 2016-13 for certain financial institutions including smaller reporting companies. As a result, ASU 2016-13 will be effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.

The Company is evaluating its current expected loss methodology on the loan and investment portfolios to identify the necessary modifications in accordance with this standard. The Company has not quantified the impact of these ASUs. The Company is evaluating its historical data available for use in adoption of the new credit loss standards. Additionally, we have formed an implementation team that meets on a regular basis to coordinate efforts of our accounting, credit and operations areas. We will continue to evaluate methodologies available to us under the new standard.

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 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. This ASU is effective for all entities as of March 12, 2020 through December 31, 2022. The adoption of ASU 2020-04 did not have a material impact on the Company's consolidated financial statements.

In October 2020, the FASB issued ASU 2020-08, “Receivables – Nonrefundable Fees and Other Costs” (“ASU 2020-08”). ASU 2020-08 clarifies that the Company should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. ASU 2020-08 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of ASU 2020-08 did not have a material impact on the Company's consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 provides that state franchise or similar taxes that are based, at least in part on an entity’s income, be included in an entity’s income tax recognized as income-based taxes. The ASU further clarifies that the effect of any change in tax laws or rates used in the computation of the annual effective tax rate are required to be reflected in the first interim period that includes the enactment date of the legislation. Technical changes to eliminate exceptions to Topic 740 related to intra-period tax allocations for entities with losses from continuing operations, deferred tax liabilities related to change in ownership of foreign entities, and interim-period tax allocations for businesses with losses where the losses are expected to be realized. The amendments in ASU 2019-12 are effective for public business entities with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The adoption of ASU 2019-12 did not have a material impact on the Company's consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases, with the exception of short-term leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. For the Company, the amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2021. Based on leases outstanding as of December 31, 2020, the new standard will not have a material impact on the Company’s balance sheet or income statement.

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements, which provide entities with an additional (and optional) transition method to adopt the new lease standard. Under this new transition method, an entity initially applies the new lease standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new lease standard will continue to be in accordance with current GAAP (Topic 842, Leases). The amendments in ASU 2018-11 also provide lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (Topic 606) and certain criteria are met.

Note 3: Investment Securities

The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities are as follows:


	September 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale

SBA Pools	$	9,310	$	81	$	101	$	9,290
Federal agencies	15,000		2		126		14,876
State and municipal obligations	161,948		1,778		3,062		160,664
Mortgage-backed securities - government-sponsored enterprises (GSE) residential	170,190		1,295		1,478		170,007
Corporate obligations	3,250		11		3		3,258
Equity securities	13		—		—		13
	359,711		3,167		4,770		358,108
Held to maturity
State and municipal obligations	9,549		179		1		9,727
	9,549		179		1		9,727

Total investment securities	$	369,260	$	3,346	$	4,771	$	367,835


	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale

SBA Pools	$	16,283	$	111	$	94	$	16,300
Federal agencies	5,760		12		15		5,757
State and municipal obligations	93,616		2,778		109		96,285
Mortgage-backed securities - government-sponsored enterprises (GSE) residential	124,139		2,080		69		126,150
Equity securities	13		—		—		13
	239,811		4,981		287		244,505
Held to maturity
State and municipal obligations	12,225		295		—		12,520
	12,225		295		—		12,520

Total investment securities	$	252,036	$	5,276	$	287	$	257,025

The amortized cost and fair value of securities at September 30, 2021, 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	$	2,170	$	2,178	$	1,915	$	1,929
One to five years	6,673		6,851		5,546		5,668
Five to ten years	36,130		36,434		1,198		1,236
After ten years	144,535		142,623		890		894
	189,508		188,086		9,549		9,727
Mortgage-backed securities –GSE residential	170,190		170,009		—		—
Equity securities	13		13		—		—

Totals	$	359,711	$	358,108	$	9,549	$	9,727

Securities with a carrying value of $148,262,000 and $88,370,000 were pledged at September 30, 2021 and December 31, 2020, respectively, to secure certain deposits and for other purposes as permitted or required by law.

Proceeds from sales of securities available for sale for the three and nine months ended September 30, 2021 were $1,316,000 and $5,297,000, respectively. For the three and nine months ended September 30, 2020, proceeds from the sales of securities available for sale were $12,560,000 and $34,738,000, respectively. Gross gains were recognized on the sale of securities available-for-sale for the three and nine months ended September 30, 2021 and 2020 of $18,000, $56,000, $120,000, and $255,000, respectively. There were no gross losses recognized on the sale of securities available for sale for the three and nine months ended September 30, 2021. Gross losses of $3,000 and $59,000 were recognized on the sale of securities available-for-sale for the three and nine months ended September 30, 2020, respectively.

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, 2021 and December 31, 2020 was $211,218,000 and $45,299,000, respectively, which is approximately 57% and 18% 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.

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

Should the impairment of any other securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

The following tables show the Company’s investments 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, 2021 and December 31, 2020:


Description of Securities	September 30, 2021
	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available-for-sale
SBA Pools	$	1,827	$	77	$	3,473	$	24	$	5,300	$	101
Federal agencies	12,874		126		—		—		12,874		126
State and municipal obligations	91,345		2,815		5,064		247		96,409		3,062
Mortgage-backed securities - GSE residential	92,092		1,460		2,123		18		94,215		1,478
Corporate obligations	1,997		3		—		—		1,997		3
Total available-for-sale	200,135		4,481		10,660		289		210,795		4,770

Held-to-maturity
State and municipal obligations	423		1		—		—		423		1

Total temporarily impaired securities	$	200,558	$	4,482	$	10,660	$	289	$	211,218	$	4,771


Description of Securities	December 31, 2020
	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available-for-sale

SBA Pools	$	5,213	$	46	$	5,687	$	48	$	10,900	$	94
Federal agencies	985		15		—		—		985		15
State and municipal obligations	8,587		109		—		—		8,587		109
Mortgage-backed securities - GSE residential	24,013		67		684		2		24,697		69
Total available-for-sale	38,798		237		6,371		50		45,169		287

Held-to-maturity
State and municipal obligations	130		—		—		—		130		—

Total temporarily impaired securities	$	38,928	$	237	$	6,371	$	50	$	45,299	$	287

Federal Agencies. 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. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2021.

Mortgage-Backed Securities – GSE Residential and SBA Pools. 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. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2021.

State and Municipal Obligations. The unrealized losses on the Company’s investments in securities of state and municipal obligations were caused by interest rate changes and illiquidity. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before

recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2021.

Note 4: Loans, Leases and Allowance

The following table shows the composition of the loan and lease portfolio at September 30, 2021 and December 31, 2020:


	September 30, 2021		December 31, 2020

Commercial mortgage	$	255,211	$	247,564
Commercial and industrial	101,818		122,831
Construction and development	82,511		58,424
Multi-family	92,652		55,998
Residential mortgage	131,094		125,121
Home equity	6,784		5,982
Direct financing leases	123,025		117,171
Consumer	15,347		13,257
	808,442		746,348
Less
Allowance for loan and lease losses	11,849		10,586
Deferred loan fees	1,186		1,349

	$	795,407	$	734,413

The following tables present the activity in the allowance for loan and lease losses for the three and nine months ended September 30, 2021 and 2020:


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

Three Months Ended September 30, 2021:
Commercial mortgage	$	4,517	$	156	$	(25)	$	7	$	4,655
Commercial and industrial	1,951		(214)		—		21		1,758
Construction and development	2,009		88		—		—		2,097
Multi-family	1,353		273		—		—		1,626
Residential mortgage	368		138		(80)		16		442
Home equity	23		5		—		—		28
Leases	1,010		59		(31)		9		1,047
Consumer	200		(5)		(8)		9		196
Total	$	11,431	$	500	$	(144)	$	62	$	11,849

Nine Months Ended September 30, 2021:
Commercial mortgage	$	4,628	$	33	$	(25)	$	19	$	4,655
Commercial and industrial	2,271		(580)		(3)		70		1,758
Construction and development	1,068		1,029		—		—		2,097
Multi-family	1,039		587		—		—		1,626
Residential mortgage	323		126		(80)		73		442
Home equity	18		10		—		—		28
Leases	1,054		201		(396)		188		1,047
Consumer	185		24		(83)		70		196
Total	$	10,586	$	1,430	$	(587)	$	420	$	11,849


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

Three Months Ended September 30, 2020:
Commercial mortgage	$	3,484	$	699	$	—	$	10	$	4,193
Commercial and industrial	1,815		265		—		23		2,103
Construction and development	871		53		—		1		925
Multi-family	840		229		—		—		1,069
Residential mortgage	517		(94)		—		17		440
Home equity	19		2		—		—		21
Leases	838		93		(110)		70		891
Consumer	137		53		(26)		3		167
Total	$	8,521	$	1,300	$	(136)	$	124	$	9,809

Nine Months Ended September 30, 2020:
Commercial mortgage	$	2,930	$	1,232	$	—	$	31	$	4,193
Commercial and industrial	1,758		293		—		52		2,103
Construction and development	614		284		—		27		925
Multi-family	779		290		—		—		1,069
Residential mortgage	441		(4)		(35)		38		440
Home equity	5		13		—		3		21
Leases	426		662		(300)		103		891
Consumer	136		60		(47)		18		167
Total	$	7,089	$	2,830	$	(382)	$	272	$	9,809

The following tables present the balance in the allowance for loan and lease losses and the recorded investment in loans and leases based on portfolio segment and impairment method as of September 30, 2021 and December 31, 2020:


	Allowance for loan and lease losses:						Loans and leases:
	Individually evaluated for impairment		Collectively evaluated for impairment		Balance, September 30		Individually evaluated for impairment		Collectively evaluated for impairment		Balance, September 30

As of September 30, 2021:
Commercial mortgage	$	—	$	4,655	$	4,655	$	141	$	255,070	$	255,211
Commercial and industrial	301		1,457		1,758		1,017		100,801		101,818
Construction and development	750		1,347		2,097		4,900		77,611		82,511
Multi-family	—		1,626		1,626		—		92,652		92,652
Residential mortgage	—		442		442		202		130,892		131,094
Home equity	—		28		28		—		6,784		6,784
Leases	—		1,047		1,047		—		123,025		123,025
Consumer	—		196		196		—		15,347		15,347
Total	$	1,051	$	10,798	$	11,849	$	6,260	$	802,182	$	808,442


	Allowance for loan and lease losses:						Loans and leases:
	Individually evaluated for impairment		Collectively evaluated for impairment		Balance, December 31		Individually evaluated for impairment		Collectively evaluated for impairment		Balance, December 31

As of December 31, 2020:
Commercial mortgage	$	—	$	4,628	$	4,628	$	76	$	247,488	$	247,564
Commercial and industrial	202		2,069		2,271		1,118		121,713		122,831
Construction and development	—		1,068		1,068		—		58,424		58,424
Multi-family	—		1,039		1,039		—		55,998		55,998
Residential mortgage	—		323		323		269		124,852		125,121
Home equity	—		18		18		—		5,982		5,982
Leases	—		1,054		1,054		—		117,171		117,171
Consumer	—		185		185		—		13,257		13,257
Total	$	202	$	10,384	$	10,586	$	1,463	$	744,885	$	746,348

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 Indiana Department of Financial Institutions (“IDFI”) and Federal Deposit Insurance Corporation (“FDIC”) regulations. Documentation exceptions are minimal or are in the process of being corrected and are not of a type that could subsequently expose the Company to risk of loss.

Grade 3 – Acceptable Loans

This category is for “average” quality loans 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 leases 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 pertaining to the loan and lease portfolio contained in the Company's 2020 Form 10-K.

The following tables present the credit risk profile of the Company’s loan and lease portfolio based on rating category and payment activity as of September 30, 2021 and December 31, 2020:


	Pass		Special Mention		Substandard		Doubtful		Loss		Total

As of September 30, 2021:
Commercial mortgage	$	251,470	$	3,600	$	141	$	—	$	—	$	255,211
Commercial and industrial	94,691		5,773		1,354		—		—		101,818
Construction and development	77,611		—		4,900		—		—		82,511
Multi-family	92,652		—		—		—		—		92,652
Residential mortgage	128,698		—		2,396		—		—		131,094
Home equity	6,733		—		51		—		—		6,784
Leases	122,961		—		16		48		—		123,025
Consumer	15,325		—		22		—		—		15,347
Total	$	790,141	$	9,373	$	8,880	$	48	$	—	$	808,442


	Pass		Special Mention		Substandard		Doubtful		Loss		Total

As of December 31, 2020:
Commercial mortgage	$	239,055	$	6,976	$	1,533	$	—	$	—	$	247,564
Commercial and industrial	114,411		5,542		2,878		—		—		122,831
Construction and development	53,524		4,900		—		—		—		58,424
Multi-family	55,998		—		—		—		—		55,998
Residential mortgage	121,976		—		3,145		—		—		125,121
Home equity	5,916		—		66		—		—		5,982
Leases	117,136		—		15		20		—		117,171
Consumer	13,256		—		1		—		—		13,257
Total	$	721,272	$	17,418	$	7,638	$	20	$	—	$	746,348

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, 2021 and December 31, 2020:


	September 30, 2021
	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	$	640	$	394	$	141	$	1,175	$	254,036	$	255,211	$	—
Commercial and industrial	148		594		372		1,114		100,704		101,818		—
Construction and development	3		—		4,900		4,903		77,608		82,511		—
Multi-family	—		1,209		—		1,209		91,443		92,652		—
Residential mortgage	643		227		2,371		3,241		127,853		131,094		2,250
Home equity	116		—		12		128		6,656		6,784		12
Leases	217		—		36		253		122,772		123,025		—
Consumer	57		1		22		80		15,267		15,347		22

Totals	$	1,824	$	2,425	$	7,854	$	12,103	$	796,339	$	808,442	$	2,284


	December 31, 2020
	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	$	340	$	—	$	1,177	$	1,517	$	246,047	$	247,564	$	1,100
Commercial and industrial	1,251		203		439		1,893		120,938		122,831		—
Construction and development	—		4,900		—		4,900		53,524		58,424		—
Multi-family	—		—		—		—		55,998		55,998		—
Residential mortgage	1,913		243		2,680		4,836		120,285		125,121		2,554
Home equity	138		15		25		178		5,804		5,982		25
Leases	234		65		—		299		116,872		117,171		—
Consumer	318		129		317		764		12,493		13,257		317

Totals	$	4,194	$	5,555	$	4,638	$	14,387	$	731,961	$	746,348	$	3,996

The following tables present the Company’s impaired loans and specific valuation allowance at September 30, 2021 and December 31, 2020:


	September 30, 2021
	Recorded Balance		Unpaid Principal Balance		Specific Allowance

Impaired loans without a specific valuation allowance
Commercial mortgage	$	141	$	199	$	—
Commercial and industrial	372		571		—
Residential mortgage	202		298		—
	$	715	$	1,068	$	—

Impaired loans with a specific valuation allowance

Commercial and industrial	$	645	$	664	$	301
Construction and development	4,900		4,900		750

	$	5,545	$	5,564	$	1,051

Total impaired loans
Commercial mortgage	$	141	$	199	$	—
Commercial and industrial	1,017		1,235		301
Construction and development	4,900		4,900		750
Residential mortgage	202		298		—
Total impaired loans	$	6,260	$	6,632	$	1,051


	December 31, 2020
	Recorded Balance		Unpaid Principal Balance		Specific Allowance

Impaired loans without a specific valuation allowance
Commercial mortgage	$	76	$	86	$	—
Commercial and industrial	439		770		—
Residential mortgage	269		491		—
	$	784	$	1,347	$	—

Impaired loans with a specific valuation allowance

Commercial and industrial	679		689		202
	$	679	$	689	$	202

Total impaired loans
Commercial mortgage	$	76	$	86	$	—
Commercial and industrial	1,118		1,459		202
Residential mortgage	269		491		—
Total impaired loans	$	1,463	$	2,036	$	202

The following tables present the Company’s average investment in impaired loans and leases, and interest income recognized for the three and nine months ended September 30, 2021 and 2020:


	Average Investment in Impaired Loans and Leases		Interest Income Recognized

Three Months Ended September 30, 2021:
Total impaired loans
Commercial mortgage	$	171	$	13
Commercial and industrial	1,022		13
Construction and development	4,900		—
Residential mortgage	190		4
Total impaired loans and leases	$	6,283	$	30


	Average Investment in Impaired Loans and Leases		Interest Income Recognized

Nine Months Ended September 30, 2021:
Total impaired loans
Commercial mortgage	$	124	$	23
Commercial and industrial	1,054		24
Construction and development	3,675		—
Residential mortgage	185		7
Total impaired loans and leases	$	5,038	$	54


	Average Investment in Impaired Loans and Leases		Interest Income Recognized

Three Months Ended September 30, 2020:
Total impaired loans
Commercial mortgage	$	215	$	5
Commercial and industrial	1,114		12
Residential mortgage	269		6
Total impaired loans and leases	$	1,598	$	23


	Average Investment in Impaired Loans and Leases		Interest Income Recognized

Nine Months Ended September 30, 2020:
Total impaired loans
Commercial mortgage	$	275	$	10
Commercial and industrial	1,130		53
Residential mortgage	298		12
Total impaired loans and leases	$	1,703	$	75

The following table presents the Company’s nonaccrual loans and leases at September 30, 2021 and December 31, 2020:


	September 30, 2021		December 31, 2020

Commercial mortgage	$	141	$	76
Commercial and industrial	1,016		493
Construction	4,900		—
Residential mortgage	121		214
Leases	48		20

	$	6,226	$	803

During the three and nine months ended September 30, 2021 and 2020, there were no newly classified TDRs. For the three and nine months ended September 30, 2021 and 2020, the Company recorded no charge-offs related to TDRs. As of September 30, 2021 and December 31, 2020, TDRs had a related allowance of $51,000 and $52,000, respectively. During the three and nine months ended September 30, 2021, there were no TDRs for which there was a payment default within the first 12 months of the modification.

The CARES Act provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers are considered current under the CARES Act if they are less than 30 days past due on their contractual payments at the time a modification program is implemented.

In March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic. As of September 30, 2021, the Company had no loan and lease modifications outstanding related to the COVID-19 pandemic in accordance with the CARES Act. Accordingly, the Company does not account for such loan modifications as TDRs. Loan modifications in accordance with the CARES Act and related regulatory guidance are still subject to an evaluation in regard to determining whether or not a loan is deemed to be impaired.

At September 30, 2021 and December 31, 2020, the balance of real estate owned included $0 and $32,000, respectively, of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property. At September 30, 2021 and December 31, 2020, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceeds were in process was $326,000 and $283,000, respectively.

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


	September 30, 2021		December 31, 2020

Total minimum lease payments to be received	$	135,495	$	129,114
Initial direct costs	7,197		6,353
	142,692		135,467
Less: Unearned income	(19,667)		(18,296)

Net investment in direct finance leases	$	123,025	$	117,171

Leases serviced by First Bank Richmond for the benefit of others totaled approximately $0 and $86,000 at September 30, 2021 and December 31, 2020, respectively. Additionally, certain leases have been sold with partial recourse. First Bank Richmond estimates and records its obligation based upon historical loss percentages. At both September 30, 2021 and December 31, 2020, First Bank Richmond recorded a recourse obligation on leases sold of $0, and had a maximum exposure of $0 and $86,000, respectively, for these leases.

The following table summarizes the future minimum lease payments receivable subsequent to September 30, 2021:


2021	$	14,225
2022	47,802
2023	34,852
2024	23,235
2025	12,277
Thereafter	3,104

	$	135,495

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

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, 2021 and December 31, 2020:


			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, 2021
Available-for-sale securities

SBA Pools	$	9,290	$	—	$	9,290	$	—
Federal agencies	14,876		—		14,876		—
State and municipal obligations	160,664		—		160,664		—
Mortgage-backed securities - GSE residential	170,007		—		170,007		—
Corporate obligations	3,258		—		3,258		—
Equity securities	13		13		—		—
	$	358,108	$	13	$	358,095	$	—


			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, 2020
Available-for-sale securities

SBA Pools	$	16,300	$	—	$	16,300	$	—
Federal agencies	5,757		—		5,757		—
State and municipal obligations	96,285		—		96,285		—
Mortgage-backed securities - GSE residential	126,150		—		126,150		—
Equity securities	13		13		—		—
	$	244,505	$	13	$	244,492	$	—

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, 2021.

Available-for-Sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy, which includes equity securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include agency securities, obligations of state and political subdivisions, and mortgage-backed securities. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Nonrecurring Measurements

The following table presents the fair value measurement of assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2021 and December 31, 2020:


			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, 2021
Impaired loans, collateral dependent	$	4,656	$	—	$	—	$	4,656
Mortgage-servicing rights	1,735		—		—		1,735

December 31, 2020
Impaired loans, collateral dependent	$	532	$	—	$	—	$	532
Mortgage-servicing rights	1,712		—		—		1,712

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Collateral-Dependent Impaired Loans, Net of ALLL

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by management. Appraisals are reviewed for accuracy and consistency by management. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by management by comparison to historical results.

Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.

Mortgage-Servicing Rights

Mortgage-servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models having significant inputs of discount rate, prepayment speed and default rate. Due to the nature of the valuation inputs, mortgage-servicing rights are classified within Level 3 of the hierarchy.

Mortgage-servicing rights are tested for impairment on a quarterly basis based on an independent valuation. The valuation is reviewed by management for accuracy and for potential impairment.

Unobservable (Level 3) Inputs

The following tables present the fair value measurement of assets recognized in the accompanying consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2021 and December 31, 2020:

Fair Value at September 30,
2021

Valuation
Technique

Unobservable
Inputs

Range

Collateral-dependent impaired loans

4,656

Appraisal

Marketability discount

0 - 57%

Mortgage-servicing rights

1,735

Discounted cash flow

Discount rate

10%

Fair Value at December 31,
2020

Valuation
Technique

Unobservable
Inputs

Range

Collateral-dependent impaired loans

532

Appraisal

Marketability discount

0 - 12%

Mortgage-servicing rights

1,712

Discounted cash flow

Discount rate

10%

Fair Value of Financial Instruments

The following tables present estimated fair values of the Company’s financial instruments at September 30, 2021 and December 31, 2020:


			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, 2021
Financial assets
Cash and cash equivalents	$	19,837	$	19,837	$	—	$	—
Available-for-sale securities	358,108		13		358,095		—
Held-to-maturity securities	9,549		—		9,727		—
Loans held for sale	903		—		—		910
Loans and leases receivable, net	795,407		—		—		805,512
Federal Reserve and FHLB stock	9,542		—		9,542		—
Interest receivable	4,012		—		4,012		—
Financial liabilities
Deposits	824,257		—		826,128		—
FHLB advances	202,000		—		208,720		—
Interest payable	199		—		199		—


			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, 2020
Financial assets
Cash and cash equivalents	$	48,768	$	48,768	$	—	$	—
Available-for-sale securities	244,505		13		244,492		—
Held-to-maturity securities	12,225		—		12,520		—
Loans held for sale	1,987		—		—		2,021
Loans and leases receivable, net	734,413		—		—		749,130
Federal Reserve and FHLB stock	9,050		—		9,050		—
Interest receivable	4,704		—		4,704		—
Financial liabilities
Deposits	693,045		—		695,216		—
FHLB advances	170,000		—		178,015		—
Interest payable	222		—		222		—

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, 2021		Three Months Ended September 30, 2020

Net income	$	3,082	$	2,532
Shares outstanding for Basic EPS:
Average shares outstanding	12,499,455		13,313,399
Less: average restricted stock award shares not vested	348,395		—
Less: average unearned ESOP Shares	978,260		1,032,367
Shares outstanding for Basic EPS	11,172,800		12,281,032

Additional Dilutive Shares	300,652		—

Shares outstanding for Diluted EPS	11,473,452		12,281,032

Basic Earnings Per Share	$	0.28	$	0.21
Diluted Earnings Per Share	$	0.27	$	0.21


	Nine Months Ended September 30, 2021		Nine Months Ended September 30, 2020

Net income	$	8,426	$	7,490
Shares outstanding for Basic EPS:
Average shares outstanding	12,837,793		13,455,031
Less: average restricted stock award shares not vested	404,509		—
Less: average unearned ESOP Shares	991,686		1,045,788
Shares outstanding for Basic EPS	11,441,598		12,409,243

Additional Dilutive Shares	244,137		—

Shares outstanding for Diluted EPS	11,685,735		12,409,243

Basic Earnings Per Share	$	0.74	$	0.60
Diluted Earnings Per Share	$	0.72	$	0.60

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 $49,000, $165,000, $50,000, and $156,000 for the three and nine months ended September 30, 2021 and 2020, respectively.

Pension Plan

The Company participates in the Pentegra Defined Benefit Plan for Financial Institutions (the “DB Plan”), an industry-wide, tax-qualified defined-benefit pension plan. The Company is in the process of terminating its participation in the Pentegra Defined Benefits Plan, which will require a payment of an amount based on the underfunded status of the plan, referred to

as a withdrawal liability. In 2019, the Company estimated and accrued approximately $17.5 million for this withdrawal liability. This estimated withdrawal liability was calculated by plan administrators based on an interest rate of 2.35%, Pri-2012 mortality tables with white collar adjustments, and an assumed December 31, 2019 withdrawal date. The Company’s actual termination expense will be based on the cost of purchasing annuities through an insurance company, and may be higher or lower depending on a number of factors, including the interest rate environment and the valuation of plan assets. Due to the

current low interest rate environment, terminating the DB Plan at this time would require the Company to incur a substantial additional expense over and above the amount presently accrued, as interest rates are even lower now than they were in 2019. As a result, the Company’s Board of Directors will continue to monitor and evaluate the timing of, and costs associated with, termination of the DB Plan, and it is currently uncertain when the termination of the DB Plan will be completed or what the actual costs of such termination will be. Any additional expenses associated with the termination of the DB Plan will negatively impact our results of operations in the future. We recorded ongoing expenses of $179,000 for the quarter ended September 30, 2021, in connection with the freezing of the DB Plan.

Employee Stock Ownership Plan

As part of the reorganization and related stock offering, the Company established an Employee Stock Ownership Plan, or ESOP, covering substantially all employees. The ESOP acquired 1,082,130 shares of Company common stock at an average price of $13.59 per share on the open market with funds provided by a loan from the Company. Dividends on unallocated shares used to repay the loan for the Company are recorded as a reduction of the loan or accrued interest, as applicable. Dividends on allocated shares paid to participants are reported as compensation expense. Unearned ESOP shares which have not yet been allocated to ESOP participants are excluded from the computation of average shares outstanding for earnings per share calculation. Accordingly, $13,112,188 and $13,664,373 of common stock acquired by the ESOP was shown as a reduction of stockholders’ equity at September 30, 2021 and December 31, 2020, respectively. Shares are released to participants proportionately as the loan is repaid.

ESOP expense for the three and nine months ended September 30, 2021 and 2020 was $207,000, $581,000, $152,000, and $481,000, respectively.


	September 30, 2021		December 31, 2020

Earned ESOP shares	117,249		76,669
Unearned ESOP shares	964,881		1,005,461
Total ESOP shares	1,082,130		1,082,130

Quoted per share price	$	15.76	$	13.66
Fair value of earned shares	$	1,848	$	1,047
Fair value of unearned shares	$	15,207	$	13,735

Richmond Mutual Bancorporation, Inc. 2020 Equity Incentive Plan

On September 15, 2020, the Company's stockholders approved the Richmond Mutual Bancorporation, Inc. 2020 Equity Incentive Plan ("2020 EIP") which provides for the grant to eligible participants of up to (i) 1,352,662 shares of Company common stock to be issued upon the exercise of stock options and stock appreciation rights and (ii) 541,065 shares of Company common stock to participants as restricted stock awards (which may be in the form of shares of common stock or share units giving the participant the right to receive shares of common stock at a specified future date).

Restricted Stock Awards. On October 1, 2020, the Company awarded 449,086 shares of common stock under the 2020 EIP with a grant date fair value of $10.53 per share (total fair value of $4.7 million at issuance) to eligible participants. On April 1, 2021, the Company awarded an additional 4,000 shares of common stock under the 2020 EIP with a grant date fair value of $13.86 (total fair value of $55,000 at issuance) to eligible participants. These awards vest in five equal annual installments with the first vesting occurring on June 30, 2021. Forfeited shares may be awarded to other eligible recipients in future grants until the 2020 EIP terminates in September 2030.

The following table summarizes the restricted stock awards activity in the 2020 EIP during the nine months ended September 30, 2021.


	Nine Months Ended September 30, 2021
	Number of Restricted Shares	Weighted Average Grant Date Fair Value

Non-vested, beginning of period	431,501	$	10.53
Granted	4,000	13.86
Vested	(87,106)	10.56
Forfeited	—	—
Non-vested, September 30	348,395	10.56

Total compensation cost recognized in the income statement for restricted stock awards during the three and nine months ended September 30, 2021 was $232,000 and $851,000, respectively, and the related tax benefit recognized was $49,000 and $179,000, respectively. As of September 30, 2021, unrecognized compensation expense related to restricted stock awards was $3.4 million.

Stock Option Plan. On October 1, 2020, the Company awarded options to purchase 1,095,657 of common stock under the 2020 EIP with an exercise price of $10.53 per share, the fair value of a share of the Company's common stock on the date of grant, to eligible participants. On April 1, 2021, the Company awarded options to purchase 8,000 shares of common stock under the 2020 EIP with an exercise price of $13.86 per share, the fair value of a share of the Company's common stock on the date of the grant, to eligible participants. These options awarded vest in five equal annual installments with the first vesting occurring on June 30, 2021. Forfeited options may be awarded to other eligible recipients in future grants until the 2020 EIP terminates in September 2030.

The following table summarizes the stock option activity in the 2020 EIP during the nine months ended September 30, 2021.


	Nine Months Ended September 30, 2021
	Number of Shares	Weighted-Average Exercise Price

Balance at beginning of period	1,095,657	$	10.53
Granted	8,000	13.86
Exercised	(12,116)	10.53
Forfeited/expired	—	—
Balance, September 30	1,091,541	10.55
Exercisable at end of period	241,083	$	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, 2021 is presented below.


	Shares	Weighted Average Grant Date Fair Value

Non-vested, beginning of year	1,055,077	$	2.91
Vested	(212,619)	2.91
Granted	8,000	3.02
Forfeited	—	—
Non-vested, September 30	850,458	$	2.91

Total compensation cost recognized in the income statement for option-based payment arrangements for the three and nine months ended September 30, 2021 was $156,000 and $572,000, respectively, and the related tax benefit recognized was $17,000 and $63,000, respectively. As of September 30, 2021, unrecognized compensation expense related to the stock option awards was $2.3 million.

Note 8: Subsequent Event

Subsequent to September 30, 2021 through November 12, 2021 the Company purchased 21,651 shares of the Company's common stock pursuant to the existing stock repurchase program, leaving 1,023,847 shares available for future repurchase.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Management’s discussion and analysis of financial condition of the Richmond Mutual Bancorporation, Inc. (the “Company”) at September 30, 2021, and the consolidated results of operations for the three and nine month periods ended September 30, 2021, compared to the same periods in 2020, is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto appearing in Part I, Item 1, of this Form 10-Q.

The terms “we,” “our,” “us,” or the “Company” refer to Richmond Mutual Bancorporation, Inc. and its consolidated subsidiary, First Bank Richmond, which we sometimes refer to as the “Bank,” unless the context otherwise requires.

Cautionary Note Regarding Forward-Looking Statements

Certain matters in this Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of words such as “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” and “could.” These forward-looking statements include, but are not limited to:

•statements of our goals, intentions and expectations;

•statements regarding our business plans, prospects, growth and operating strategies;

•statements regarding the quality of our loan and investment portfolios; and

•estimates of our risks and future costs and benefits.

You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These forward-looking statements are based on our current beliefs and expectations and, by their nature, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

Important factors that could cause our actual results to differ materially from the results anticipated or projected, include, but are not limited to, the following:

•the effect of the novel coronavirus disease of 2019 (“COVID-19”), including on the Company’s credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate clients, including economic activity, employment levels and market liquidity;

•general economic conditions, either nationally or in our market areas, that are worse than expected;

•changes in the level and direction of loan or lease delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan and lease losses;

•our ability to access cost-effective funding;

•fluctuations in real estate values, and residential, commercial, and multifamily real estate market conditions;

•demand for loans and deposits in our market area;

•our ability to implement and change our business strategies;

•competition among depository and other financial institutions and equipment financing companies;

•the impact and intended termination of our frozen defined benefit plan;

•inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans and leases we have made and make;

•adverse changes in the securities or secondary mortgage markets;

•changes in the quality or composition of our loan, lease or investment portfolios;

•our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, "denial of service" attacks, "hacking" and identity theft, and other attacks on our information technology systems or on the third-party vendors who perform several of our critical processing functions;

•the inability of third-party providers to perform as expected;

•our ability to manage market risk, credit risk and operational risk in the current economic environment;

•our ability to enter new markets successfully and capitalize on growth opportunities;

•our ability to retain key employees;

•our compensation expense associated with equity allocated or awarded to our employees;

•changes in the financial condition, results of operations or future prospects of issuers of securities that we own;

•our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;

•changes in consumer spending, borrowing and savings habits;

•changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission ("SEC") or the Public Company Accounting Oversight Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; including as a result of the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act") and the Consolidated Appropriations Act, 2021 ("CAA 2021");

•legislative or regulatory changes such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and its implementing regulations that adversely affect our business, and the availability of resources to address such changes;

•our ability to pay dividends on our common stock;

•other economic, competitive, governmental, regulatory, and technical factors affecting our operations, pricing, products and services including as a result of the CAA 2021 and recent COVID vaccination effort; and

•the other risks detailed in this report and from time to time in our other filings with the Securities and Exchange Commission ("SEC"), including our Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”).

We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur and you should not put undue reliance on any forward-looking statements.

Overview

The Company, a Maryland corporation, is a bank holding company for its wholly owned subsidiary, First Bank Richmond. Substantially all of the Company's business is conducted through First Bank Richmond. The Company is regulated by the Board of Governors of the Federal Reserve System (the “FRB”) and the Indiana Department of Financial Institutions ("IDFI"). The Company's corporate office is located at 31 North 9th Street, Richmond, Indiana, and its telephone number is (765) 962-2581.

First Bank Richmond is an Indiana state-chartered commercial bank headquartered in Richmond, Indiana. The Bank was originally established in 1887 as an Indiana state-chartered mutual savings and loan association and in 1935 converted to a federal mutual savings and loan association, operating under the name First Federal Savings and Loan Association of Richmond. In 1993, the Bank converted to a state-chartered mutual savings bank and changed its name to First Bank Richmond, S.B. In 1998, the Bank, in connection with its non-stock mutual holding company reorganization, converted to a national bank charter operating as First Bank Richmond, National Association. In July 2007, Richmond Mutual Bancorporation-Delaware, the Bank’s then current holding company, acquired Mutual Federal Savings Bank headquartered in Sidney, Ohio. Mutual Federal Savings Bank was operated independently as a separately chartered, wholly owned subsidiary of Richmond Mutual Bancorporation-Delaware until 2016 when it was combined with the bank through an internal merger transaction that consolidated both banks into a single, more efficient commercial bank charter. In 2017, the Bank converted to an Indiana state-chartered commercial bank and changed its name to First Bank Richmond. The former Mutual Federal Savings Bank continues to operate in Ohio under the name Mutual Federal, a division of First Bank Richmond.

First Bank 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 IDFI and the Federal Deposit Insurance Corporation (“FDIC”).

Our principal business consists of attracting deposits from the general public, as well as brokered deposits, and investing those funds primarily in loans secured by commercial and multi-family real estate, first mortgages on owner-occupied, one- to four-family residences, a variety of consumer loans, direct financing leases and commercial and industrial loans. We also obtain funds by utilizing Federal Home Loan Bank (“FHLB”) advances. Funds not invested in loans generally are invested in investment securities, including mortgage-backed and mortgage-related securities and government sponsored agency and municipal bonds.

First Bank Richmond generates commercial, mortgage and consumer loans and leases and receives deposits from customers located primarily in Wayne and Shelby Counties, in Indiana and Shelby, Miami and Franklin (no deposits) Counties, in Ohio. We sometimes refer to these counties as our primary market area. First Bank Richmond’s loans are generally secured by specific items of collateral including real property, consumer assets and business assets. Our leasing operation consists of direct investments in equipment that we lease (referred to as direct finance leases) to small businesses located throughout the United States. Our lease portfolio consists of various kinds of equipment, generally technology-related, such as computer systems, medical equipment and general manufacturing, industrial, construction and transportation equipment. We seek leasing transactions where we believe the equipment leased is integral to the lessee's business. We also provide trust and wealth management services, including serving as executor and trustee under wills and deeds and as guardian and custodian of employee benefits, and manage private investment accounts for individuals and institutions. Total wealth management assets under management and administration were $151.8 million at September 30, 2021.

Our results of operations are primarily dependent on net interest income. Net interest income is the difference between interest income, which is the income that is earned on loans and investments, and interest expense, which is the interest that is paid on deposits and borrowings. Other significant sources of pre-tax income are service charges (mostly from service charges on deposit accounts and loan servicing fees), and fees from sale of residential mortgage loans originated for sale in the secondary market. We also recognize income from the sale of investment securities.

Changes in market interest rates, the slope of the yield curve, and interest we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and shareholders’ equity, usually have the largest impact on changes in our net interest spread, net interest margin and net

interest income during a reporting period. Because the length of the COVID-19 pandemic and the efficacy of the extraordinary measures being put in place to address its economic consequences are still unknown, including the 150 basis point reduction in the targeted federal funds rate in March 2020, until the pandemic further subsides, the Company expects its net interest income and net interest margin will be adversely affected in 2021 and possibly longer.

At September 30, 2021, on a consolidated basis, we had $1.2 billion in assets, $795.4 million in loans and leases, net of allowance, $824.3 million in deposits and $178.6 million in stockholders’ equity. At September 30, 2021, First Bank Richmond’s total risk-based capital ratio was 17.63%, exceeding the 10.0% requirement for a well-capitalized institution. For the nine months ended September 30, 2021, net income was $8.4 million, compared with net income of $7.5 million for the nine months ended September 30, 2020.

Critical Accounting Policies

Certain accounting policies are important to the portrayal of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Management believes that its critical accounting policies include determining the allowance for loan and lease losses, the valuation of foreclosed assets, mortgage servicing rights, valuation of intangible assets and securities, deferred tax asset and income tax accounting.

Allowance for Loan and Lease Losses. We maintain an allowance for loan and lease losses to cover probable incurred credit losses at the balance sheet date. Loan and lease losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off. A provision for loan and lease losses is charged to operations based on our periodic evaluation of the necessary allowance balance.

We have an established process to determine the adequacy of the allowance for loan and lease losses. The determination of the allowance is inherently subjective, as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on other classified loans and pools of homogeneous loans, and consideration of past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors, all of which may be susceptible to significant change.

Mortgage Servicing Rights (“MSRs”). MSRs associated with loans originated and sold, where servicing is retained, are capitalized and included in the consolidated balance sheet. The value of the capitalized servicing rights represents the fair value of the right to service loans in the portfolio. Critical accounting policies for MSRs relate to the initial valuation and subsequent impairment tests. The methodology used to determine the valuation of MSRs requires the development and use of a number of estimates, including anticipated principal amortization and prepayments of that principal balance. Events that may significantly affect the estimates used are changes in interest rates, mortgage loan prepayment speeds and the payment performance of the underlying loans. The carrying value of the MSRs is periodically reviewed for impairment based on a determination of fair value. For purposes of measuring impairment, the servicing rights are compared to a valuation prepared based on a discounted cash flow methodology, utilizing current prepayment speeds and discount rates. Impairment, if any, is recognized through a valuation allowance and is recorded as a reduction in loan servicing fee income.

Securities. Under Financial Accounting Standards Board (“FASB”) Codification Topic 320 (ASC 320), Investments-Debt, investment securities must be classified as held to maturity, available for sale or trading. Management determines the appropriate classification at the time of purchase. The classification of securities is significant since it directly impacts the accounting for unrealized gains and losses on securities. Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and we have the ability to hold the securities to maturity. Securities not classified as held to maturity are classified as available for sale and are carried at fair value, with the unrealized holding gains and losses, net of tax, reported in other comprehensive income and which do not affect earnings until realized.

The fair values of our securities are generally determined by reference to quoted prices from reliable independent sources utilizing observable inputs. Certain of our fair values of securities are determined using models whose significant value drivers or assumptions are unobservable and are significant to the fair value of the securities. These models are utilized when quoted prices are not available for certain securities or in markets where trading activity has slowed or ceased. When quoted prices are not available and are not provided by third party pricing services, management judgment is necessary to determine

fair value. As such, fair value is determined using discounted cash flow analysis models, incorporating default rates, estimation of prepayment characteristics and implied volatilities.

We evaluate all securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, for determining if any other-than-temporary-impairments (“OTTI”) exist pursuant to guidelines established in ASC 320. In evaluating the possible impairment of securities, consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and our ability and intent to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, we may consider whether the securities are issued by the federal government or its agencies or government sponsored agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.

If management determines that an investment experienced an OTTI, we must then determine the amount of the OTTI to be recognized in earnings. If we do not intend to sell the security and it is more likely than not that we will not be required to sell the security before recovery of its amortized cost basis less any current period loss, the OTTI will be separated into the amount representing the credit loss and the amount related to all other factors. The amount of OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the OTTI related to other factors will be recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings will become the new amortized cost basis of the investment. If management intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current period credit loss, the OTTI will be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. Any recoveries related to the value of these securities are recorded as an unrealized gain (as accumulated other comprehensive income (loss) in stockholders’ equity) and not recognized in income until the security is ultimately sold.

From time to time we may dispose of an impaired security in response to asset/liability management decisions, future market movements, business plan changes, or if the net proceeds can be reinvested at a rate of return that is expected to recover the loss within a reasonable period of time.

Deferred Tax Asset. We have evaluated our deferred tax asset to determine if it is more likely than not that the asset will be utilized in the future. Our most recent evaluation has determined that we will more likely than not be able to utilize our remaining deferred tax asset.

Income Tax Accounting. We file a consolidated federal income tax return. The provision for income taxes is based upon income in our consolidated financial statements, rather than amounts reported on our income tax return. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on our deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date.

COVID 19 Response

Paycheck Protection Program ("PPP"). On December 27, 2020, the Consolidated Appropriations Act, 2021, or CAA, was signed into law. This legislation included another round of COVID-19 stimulus funding, including approximately $285 billion in funding to reopen the U.S. Small Business Administration's ("SBA") PPP which initially expired on August 8, 2020. The new round of COVID-19 stimulus funding under the PPP concluded May 31, 2021. As of September 30, 2021, we had funded a total of 892 PPP loans totaling $103.1 million and the SBA had approved 732 loan forgiveness applications totaling $84.8 million. PPP loans totaled $16.3 million at September 30, 2021.

Loan Modifications. We offer payment and financial relief programs for borrowers impacted by COVID-19, primarily through loan and lease payment deferments of principal and interest up to 90 days. All loans modified due to COVID-19 were separately monitored and any request for continuation of relief beyond the initial modification was reassessed at that time to determine if a further modification should be granted and if a downgrade in risk rating was appropriate. At September 30, 2021, we had no loans and leases that were subject to payment deferrals, compared to 48 loans and leases at December 31, 2020 totaling $54.7 million.

Branch Operations and Additional Client Support

The Company remains focused on keeping its employees safe and the Bank running effectively to serve its clients. The Bank is managing branch access and occupancy levels in relation to cases and close contact scenarios, following governmental restrictions and public health authority guidelines, and encouraging remote work and supporting employees with paid time off. As of September 30, 2021, all of the Bank's branch lobbies were open. We continuously monitor and conform our practices based on updates from the Center for Disease Control, World Health Organization, Financial Regulatory Agencies, and local and state health departments. The Company is aware of the surge in COVID-19 infections arising out of the so-called Delta variant and is prepared to restore other protocols, as may prove to be necessary.

Comparison of Financial Condition at September 30, 2021 and December 31, 2020

General. Total assets increased $146.5 million, or 13.5%, to $1.2 billion at September 30, 2021 from $1.1 billion at December 31, 2020. The increase was primarily a result of a $61.0 million, or 8.3%, increase in loans and leases, net of allowance, to $795.4 million at September 30, 2021 from $734.4 million at December 31, 2020, and a $110.9 million, or 43.2%, increase in investment securities to $367.7 million at September 30, 2021, compared to $256.7 million at December 31, 2020, partially offset by a $28.9 million, or 59.3%, decrease in cash and cash equivalents to $19.8 million at September 30, 2021, from $48.8 million at December 31, 2020.

Investment Securities. Investment securities available-for-sale increased $113.6 million, or 46.5%, to $358.1 million, while investment securities held-to-maturity decreased $2.7 million, or 21.9%, to $9.5 million at September 30, 2021 compared to December 31, 2020. The increase in investment securities available-for-sale was primarily the result of using our excess liquidity to purchase securities during the first nine months of 2021. The decrease in investment securities held-to-maturity was the result of scheduled principal repayments and maturities.

Loans and Leases. Our loan and lease portfolio, net of allowance for loan and lease losses, increased $61.0 million, to $795.4 million at September 30, 2021 from $734.4 million at December 31, 2020. The increase in loans and leases was attributable to an increase in multi-family loans of $36.7 million, an increase in construction and development loans of $24.1 million, an increase in commercial real estate loans of $7.6 million, and an increase in residential loans and leases of $6.0 million and $5.9 million respectively. Commercial and industrial loans declined $21.0 million due to a decrease in PPP loans of $27.1 million resulting from PPP loan forgiveness by the SBA. Loans held for sale totaled $903,000 and $2.0 million at September 30,2021 and December 31, 2020, respectively.

Nonperforming loans and leases, consisting of nonaccrual loans and leases and accruing loans and leases more than 90 days past due, totaled $8.5 million or 1.05% of total loans and leases at September 30, 2021, compared to $4.8 million or 0.65% of total loans and leases at December 31, 2020. The increase in nonperforming loans and leases was the result of a $4.9 million non-accruing commercial real estate loan more than 90 days past due that is currently subject to litigation between the developer and other parties. At the time of origination, this loan had a loan to value ratio of 73%. Accruing loans and leases past due more than 90 days at September 30, 2021 totaled $2.3 million, compared to $4.0 million at December 31, 2020.

At September 30, 2021, troubled debt restructurings ("TDRs") totaled $477,000, compared to $541,000 at December 31, 2020. The CARES Act amended generally accepted accounting principles with respect to the modification of loans to borrowers affected by the COVID-19 pandemic. Among other criteria, this guidance provided that short-term loan modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. As of September 30, 2021, the Company had no outstanding loan and lease modifications qualifying under the CARES Act related to the COVID-19 pandemic. This was a decrease from 48 loans and leases with modifications totaling $54.7 million at December 31, 2020.

Allowance for Loan and Lease Losses. The allowance for loan and lease losses increased $1.3 million, or 11.9%, to $11.8 million at September 30, 2021 from $10.6 million at December 31, 2020, primarily as a result of increases in the loan portfolio and level of nonperforming loans, partially offset by the continued improvement since December 31, 2020 in the national and local economy associated with the recovery from the COVID-19 pandemic which reduced the loss rates utilized to calculate the allowance for loan losses at September 30, 2021 as compared to the uncertain economic outlook and loss rates utilized at December 31, 2020. At September 30, 2021, the allowance for loan and lease losses totaled 1.47% of total loans and leases outstanding compared to 1.42% at December 31, 2020. The allowance for loan and lease losses to total loans at September 30, 2021 and December 31, 2020 would increase three and eight basis points, respectively, if PPP loans, which totaled $16.3 million and $43.3 million at September 30, 2021 and December 31, 2020, respectively, are excluded from the calculation. PPP loans are fully guaranteed by the SBA and management expects that the vast majority of PPP borrowers will seek full or partial forgiveness of their loan obligations from the SBA within a short time frame, which in turn will reimburse the Bank for the amount forgiven. Net charge-offs during the first nine months of 2021 were $167,000 or 0.02% of average

loans and leases outstanding, compared to net charge-offs of $110,000 during the first nine months of 2020. The allowance for loan and lease losses to non-performing loans and leases was 139.2% at September 30, 2021, compared to 220.6% at December 31, 2020.

Management regularly analyzes conditions within its geographic markets and evaluates its loan and lease portfolio. The Company evaluated its exposure to potential loan and lease losses as of September 30, 2021, which evaluation included consideration of potential credit losses due to the ongoing economic uncertainties driven by the impact of the COVID-19 pandemic, which have lingered due to the lagging vaccination rates and an increase in cases within our markets related to the Delta variant. The full impact of the pandemic on the Company’s deposit and loan and lease customers is still uncertain. The Company has increased its qualitative factors when determining the adequacy of its allowance for loan and lease losses. Credit metrics are being reviewed and stress testing is being performed on the loan portfolio. Potentially higher risk segments of the portfolio, such as hotels and restaurants, are being closely monitored.

Deposits. Total deposits increased $131.2 million, or 18.9%, to $824.3 million at September 30, 2021, from $693.0 million at December 31, 2020. The increase in deposits primarily was due to overall changes in spending and savings habits by businesses and consumers due to the COVID-19 pandemic as well as additional PPP funds and government stimulus payments made to customers in the first quarter 2021. Brokered deposits increased $40.5 million to $63.8 million, or 7.7% of total deposits, at September 30, 2021, compared to $23.3 million, or 3.4% of total deposits, at December 31, 2020. Management increased longer-term brokered deposits as a result of continued low rates being offered in the brokered CD market. Demand deposit and savings accounts increased $62.9 million to $513.4 million at September 30, 2021, compared to $450.6 million at December 31, 2020, which included a $7.4 million, or 7.5%, increase in noninterest-bearing deposits. At September 30, 2021, noninterest-bearing deposits totaled $106.2 million, or 12.9% of total deposits, compared to $98.7 million or 14.2% of total deposits at December 31, 2020.

Borrowings. Total borrowings, consisting solely of FHLB advances, increased $32.0 million to $202.0 million at September 30, 2021, compared to $170.0 million at December 31, 2020, which together with the increase in deposits, were used to fund loan growth and the purchase of investment securities.

Stockholders’ Equity. Stockholders’ equity totaled $178.6 million at September 30, 2021, a decrease of $14.1 million, or 7.3%, from December 31, 2020. The decrease in stockholders' equity from year-end 2020 resulted from the repurchase of $11.2 million of Company common stock, the payment of $8.5 million in dividends to Company stockholders and a $5.0 million reduction in accumulated comprehensive income, partially offset by net income of $8.4 million in the first nine months of 2021. The Company repurchased 777,692 shares of Company common stock at an average price of $14.38 per share for a total of $11.2 million during the first nine months of 2021. The Company’s equity to asset ratio was 14.5% at September 30, 2021. At September 30, 2021, the Bank’s Tier 1 capital to total assets ratio was 12.8% and the Bank’s capital was well in excess of all regulatory requirements.

Comparison of Results of Operations for the Three Months Ended September 30, 2021 and 2020.

General. Net income for the three months ended September 30, 2021 was $3.1 million, a $551,000 increase from net income of $2.5 million for the three months ended September 30, 2020. The $3.1 million in earnings equaled $0.27 diluted earnings per share for the third quarter of 2021, compared to $0.21 diluted earnings per share for the third quarter of 2020. The increase in net income was primarily the result of a $1.5 million increase in net interest income and an $800,000 decrease in the provision for loan losses, partially offset by a $848,000 decrease in noninterest income and a $859,000 increase in noninterest expense.

Interest Income. Interest income increased $1.2 million, or 10.7%, to $11.9 million during the quarter ended September 30, 2021, compared to $10.7 million during the quarter ended September 30, 2020. Interest income on loans and leases increased $718,000, or 7.4%, to $10.4 million for the quarter ended September 30, 2021, from $9.7 million for the comparable quarter in 2020, due to higher average balances in the loan and lease portfolio and an increase in the average loan and lease yield of 18 basis points. The average outstanding loan and lease balances were $784.5 million for the quarter ended September 30, 2021, compared to $756.3 million for the quarter ended September 30, 2020. The average yield on loans and leases was 5.32% for the quarter ended September 30, 2021, compared to 5.14% for the comparable quarter in 2020. Interest income also included $876,000 in fees earned related to PPP loans in the quarter ended September 30, 2021 compared to $269,000 during the same quarter in 2020. As of September 30, 2021, total unrecognized fees on PPP loans were $700,000. For the three months ended September 30, 2021, average PPP loans were $22.5 million and the average yield was 16.57%. The impact of PPP loans on loan yields will change during any period based on the volume of prepayments or amounts forgiven by the SBA as certain criteria are met, but will cease completely after the maturity of the loans.

Interest income on investment securities, including FHLB stock, increased $439,000, or 43.2%, to $1.5 million during the quarter ended September 30, 2021, compared to the same quarter in 2020. The increase in interest income on investment securities from the comparable period in 2020 was due to an increase in the average balances of $107.1 million. The average balance of investment securities, including FHLB stock, was $363.3 million for the quarter ended September 30, 2021, compared to $256.2 million for the quarter ended September 30, 2020. The average yield on investment securities, including FHLB stock, was 1.60% for the third quarter of 2021, compared to 1.59% for the third quarter of 2020.

Interest Expense. Interest expense decreased $366,000, or 15.8%, to $1.9 million for the quarter ended September 30, 2021, from $2.3 million for the quarter ended September 30, 2020. Interest expense on deposits decreased $291,000, or 18.9%, to $1.3 million for the quarter ended September 30, 2021, from $1.5 million for the comparable quarter in 2020. This decrease in interest expense was attributable to a decrease of 34 basis points in the average rate paid on interest-bearing deposits, partially offset by an increase of $118.5 million in average interest-bearing deposit balances. The average rate paid on interest-bearing deposits was 0.70% for the quarter ended September 30, 2021, compared to 1.04% for the quarter ended September 30, 2020. The average balance of interest-bearing deposits increased to $713.9 million, or 19.9%, in the quarter ended September 30, 2021, compared to $595.4 million in the comparable quarter in 2020. Interest expense on FHLB borrowings decreased $75,000, or 9.8%, to $689,000 in the third quarter of 2021 compared to $763,000 for the same quarter in 2020 due to a 15 basis point decline in the average rate paid on borrowings to 1.54% during the three months ended September 30, 2021, from 1.69% for the comparable quarter in 2020.

Net Interest Income. Net interest income before the provision for loan and lease losses increased $1.5 million, or 18.0%, to $10.0 million in the third quarter of 2021, compared to $8.4 million for the third quarter of 2020. This increase was due to both an increase in average interest-earning assets and a 27 basis point increase in the net interest rate spread during the third quarter of 2021 compared to the comparable quarter in 2020. Net interest margin (annualized) was 3.42% for the three months ended September 30, 2021, compared to 3.24% for the three months ended September 30, 2020. The increase in net interest margin was due to both an increase in average earning assets and a 27 basis point increase in the net interest rate spread. The yield on the loan and lease portfolio was impacted by the PPP loan forgiveness activity during the third quarter of 2021 as PPP loans were originated at an interest rate of 1%, although the effective yield is higher as a result of the recognition of the net deferred fees for PPP loans repaid and forgiven by the SBA. The average yield on PPP loans, including the recognition of deferred fees, resulted in a positive impact to the yield on loans and leases of 33 basis points during the quarter ended September 30, 2021, compared to a negative impact of 23 basis points to the yield on loans and leases in the comparable quarter in 2020.

Average Balances, Interest and Average Yields/Cost. The following tables set forth for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities. Average balances have been calculated using quarterly balances. Non-accruing loans have been included in the table as loans carrying a zero yield. Loan fees are included in interest income on loans and are not material.


	Three Months Ended September 30,
	2021							2020
	Average Balance Outstanding			Interest Earned/ Paid		Yield/ Rate		Average Balance Outstanding			Interest Earned/ Paid		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans and leases receivable	$	784,531		$	10,437	5.32	%	$	756,307		$	9,720	5.14	%
Securities	354,211			1,387		1.57	%	247,113			891		1.44	%
FHLB stock	9,081			69		3.04	%	9,083			126		5.55	%
Cash and cash equivalents and other	17,515			7		0.16	%	28,096			9		0.13	%
Total interest-earning assets	1,165,338			11,900		4.08	%	1,040,599			10,746		4.13	%

Interest-bearing liabilities:
Savings and money market accounts	250,799			325		0.52	%	189,848			243		0.51	%
Interest-bearing checking accounts	166,138			98		0.24	%	123,271			68		0.22	%
Certificate accounts	296,954			830		1.12	%	282,306			1,234		1.75	%
Borrowings	179,413			689		1.54	%	180,913			763		1.69	%
Total interest-bearing liabilities	893,304			1,942		0.87	%	776,338			2,308		1.19	%

Net interest income				$	9,958						$	8,438
Net earning assets	$	272,034						$	264,261

Net interest rate spread(1)						3.21	%						2.94	%
Net interest margin(2)						3.42	%						3.24	%
Average interest-earning assets to average interest-bearing liabilities	130.45		%					134.04		%

_____________

(1)Annualized. Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(2)Annualized. Net interest margin represents net interest income divided by average total interest-earning assets.

Provision for Loan and Lease Losses. The provision for loan and lease losses for the three months ended September 30, 2021 totaled $500,000 compared to $1.3 million for the three months ended September 30, 2020, an $800,000 or 61.5% decrease. The decrease was primarily due to improvement in the overall economy from the effects of the COVID-19 pandemic and the positive effects of the government's response to the pandemic on the Bank's loan portfolio, partially offset by the increase in the loan portfolio and nonperforming loans. Net charge-offs during the third quarter of 2021 were $82,000, compared to net charge-offs of $12,000 in the third quarter of 2020. To date, we are not seeing renewed business activity restrictions in our primary markets. To the extent business activity restrictions are renewed, due to COVID-19 or otherwise, this will likely affect our business operations which may, in turn, require us to increase our allowance through our provision for loan and lease losses which would adversely affect our financial performance.

Noninterest Income. Noninterest income decreased $848,000 or 42.5%, to $1.1 million for the quarter ended September 30, 2021, compared to $2.0 million for the comparable quarter in 2020. The decrease in noninterest income resulted primarily from a $771,000 or 58.1% decrease in net gains on loan and lease sales to $557,000 during the third quarter of 2021, compared to $1.3 million during the third quarter of 2020. The decrease in net gains on loan and lease sales was due to declining mortgage banking activity primarily resulting from lower refinancing activity and a lower supply of houses for sale in the Bank's market area. During the three months ended September 30, 2021, the Company sold $17.2 million of loans compared to the sale of $31.4 million of loans during the three months ended September 30, 2020. There was a net gain on the sale of securities recorded in the third quarter of 2021 of $18,000 compared to a net gain on the sale of securities of $117,000 in the third quarter of 2020. Card fee income increased $48,000, or 22.0%, to $266,000 in the third quarter of 2021 from $218,000 in the third quarter of 2020 due to increased debit card usage. Loan and lease servicing income decreased $140,000, to a loss of $181,000 for the third quarter of 2021 compared to a loss of $42,000 for the comparable quarter in 2020, as the Company recorded an impairment of $251,000 to the value of its mortgage servicing rights in the third quarter of 2021, compared to a recovery of $6,000 in the third quarter of 2020. Service fees on deposit accounts increased $86,000, or 56.8%, to $236,000 for

the quarter ended September 30, 2021, compared to $151,000 for the quarter ended September 30, 2020. The increase in service fees on deposit accounts during the third quarter of 2021 compared to the third quarter of 2020 was primarily the result of the resumption of overdraft fees after the suspension of such fees in 2020 during the height of the COVID-19 pandemic.

Noninterest Expense. Noninterest expense increased $859,000, or 14.4%, to $6.8 million for the three months ended September 30, 2021, from $6.0 million for the same period in 2020. Salaries and employee benefits increased $570,000, or 15.6%, to $4.2 million for the quarter ended September 30, 2021 from $3.6 million for the quarter ended September 30, 2020. The increase in salaries and benefits from the third quarter of 2020 primarily was due to $388,000 of expenses associated with equity awards granted during the fourth quarter of 2020 and increased compensation expense of $154,000 primarily as a result of annual merit increases and additional staff. Equipment expense increased $26,000, or 8.5%, to $334,000 from the comparable period in 2020, primarily due to increased depreciation expense associated with replacing the Bank's ATM machines during the last quarter of 2020. Data processing fees increased $66,000, or 14.9%, to $513,000 in the third quarter of 2021 compared to the same quarter of 2020, primarily due to the upgrading of our digital banking products. Legal and professional fees increased $31,000, or 11.6% to $303,000 compared to the same quarter in 2020. Other expenses increased $108,000, or 13.9%, to $888,000 in the third quarter of 2021 compared to the same quarter of 2020 primarily due to increased loan, tax and insurance expenses of $66,000 and expenses of $28,000 associated with converting our digital banking services to a new provider.

Income Tax Expense. Income tax expense increased $63,000 during the three months ended September 30, 2021, compared to the same period in 2020, primarily due to a higher level of pre-tax income offset by a lower tax rate. The effective tax rate for the third quarter of 2021 was 18.0% compared to 19.5% for the same quarter a year ago.

Comparison of Results of Operations for the Nine Months Ended September 30, 2021 and 2020.

General. Net income for the nine months ended September 30, 2021 was $8.4 million, a $936,000 increase from net income of $7.5 million for the nine months ended September 30, 2020. The $8.4 million in earnings equaled $0.72 diluted earnings per share for the first nine months of 2021, compared to $0.60 diluted earnings per share for the first nine months of 2020. The increase in net income was primarily the result of a $3.6 million increase in net interest income and a $1.4 million decrease in the provision for loan losses, partially offset by a $542,000 decrease in noninterest income and a $3.5 million increase in noninterest expense.

Interest Income. Interest income increased $2.0 million, or 6.4%, to $33.9 million during the nine months ended September 30, 2021, compared to $31.9 million during the nine months ended September 30, 2020. Interest income on loans and leases increased $1.9 million, or 6.7%, to $30.2 million for the nine months ended September 30, 2021, from $28.3 million for the comparable quarter in 2020, due to higher average balances in the loan and lease portfolio, partially offset by a 27 basis point decline in the yield earned on loans and leases. The average outstanding loan and lease balances were $775.6 million for the first nine months of 2021, compared to $691.9 million for the first nine months of 2020. The average yield on loans and leases was 5.18% for the first nine months of 2021, compared to 5.45% for the comparable period in 2020. Interest income also included $2.2 million in fees earned related to PPP loans in the nine months ended September 30, 2021 compared to $534,000 during the same period in 2020. As of September 30, 2021, total unrecognized fees on PPP loans were approximately $700,000. For the nine months ended September 30, 2021, average PPP loans were $40.0 million and the average yield was 8.43%.

Interest income on investment securities, including FHLB stock, increased $256,000, or 7.4%, to $3.7 million during the nine months ended September 30, 2021, from $3.5 million during the comparable period in 2020. The increase in interest income on investment securities was due to an increase of $70.5 million in the average balance of investment securities, including FHLB stock, to $318.8 million for the nine months ended September 30, 2021, compared to $248.4 million for the nine months ended September 30, 2020. The average yield on investment securities, including FHLB stock, was 1.55% for the first nine months of 2021, compared to 1.86% for the first nine months of 2020. Interest income earned on cash and cash equivalents decreased to $20,000 in the first nine months of 2021 compared to $146,000 in the comparable period of 2020, due to the significantly lower yield earned on funds at the Federal Reserve after the rate reductions experienced in March 2020 as well as a $14.4 million reduction in average balances.

Interest Expense. Interest expense decreased $1.6 million, or 21.8%, to $5.7 million for the nine months ended September 30, 2021, from $7.3 million for the nine months ended September 30, 2020. Interest expense on deposits decreased $1.4 million, or 27.8%, to $3.7 million for the nine months ended September 30, 2021, from $5.1 million for the comparable period in 2020. This decrease in interest expense was attributable to the lower average rate paid on interest-bearing deposits, partially offset by higher average deposit balances. The average rate paid on interest-bearing deposits was 0.73% for the nine months ended September 30, 2021, compared to 1.16% for the nine months ended September 30, 2020. The average balance of

interest-bearing deposits increased to $668.5 million, or 15.0%, in the nine months ended September 30, 2021, compared to $581.5 million in the comparable period in 2020. Interest expense on FHLB borrowings decreased $190,000, or 8.3%, to $2.1 million in the first nine months of 2021 compared to $2.3 million for the same period in 2020 due to a 14 basis point decline in the average rate paid on borrowings to 1.59% for the nine months ended September 30, 2021, compared to 1.73% for the same period in 2020.

Net Interest Income. Net interest income before the provision for loan and lease losses increased $3.6 million, or 14.8%, to $28.1 million in the first nine months of 2021, compared to $24.5 million for the first nine months of 2020. This increase was primarily due to an increase in average interest-earning assets. Net interest margin (annualized) was 3.36% for the nine months ended September 30, 2021, compared to 3.34% for the nine months ended September 30, 2020. The yield on the loan and lease portfolio was impacted by the PPP loan activity during the first three quarters of 2021 as PPP loans are originated at an interest rate of 1%, although the effective yield is higher as a result of the recognition of the net deferred fees for PPP loans repaid and forgiven by the SBA. The average yield on PPP loans, including the recognition of deferred fees, resulted in a positive impact to the yield on loans and leases of 17 basis points during the nine months ended September 30, 2021, compared to a negative impact of 15 basis points to the yield on loans and leases in the comparable period in 2020.


	Nine Months Ended September 30,
	2021							2020
	Average Balance Outstanding			Interest Earned/ Paid		Yield/ Rate		Average Balance Outstanding			Interest Earned/ Paid		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans and leases receivable	$	775,647		$	30,162	5.18	%	$	691,890		$	28,264	5.45	%
Securities	309,776			3,512		1.51	%	239,696			3,252		1.81	%
FHLB stock	9,060			202		2.97	%	8,681			207		3.18	%
Cash and cash equivalents and other	23,932			20		0.11	%	38,355			146		0.51	%
Total interest-earning assets	1,118,415			33,896		4.04	%	978,622			31,869		4.34	%

Interest-bearing liabilities:
Savings and money market accounts	242,257			921		0.51	%	178,699			787		0.59	%
Interest-bearing checking accounts	153,817			267		0.23	%	114,205			216		0.25	%
Certificate accounts	272,440			2,475		1.21	%	288,571			4,071		1.88	%
Borrowings	174,198			2,083		1.59	%	175,620			2,273		1.73	%
Total interest-bearing liabilities	842,712			5,746		0.91	%	757,095			7,347		1.29	%

Net interest income				$	28,150						$	24,522
Net earning assets	$	275,703						$	221,527

Net interest rate spread(1)						3.13	%						3.05	%
Net interest margin(2)						3.36	%						3.34	%
Average interest-earning assets to average interest-bearing liabilities	132.72		%					129.26		%

_____________

(1)Annualized. Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(2)Annualized. Net interest margin represents net interest income divided by average total interest-earning assets.

Provision for Loan and Lease Losses. The provision for loan and lease losses for the nine months ended September 30, 2021 totaled $1.4 million compared to $2.8 million for the nine months ended September 30, 2020, a $1.4 million or 49.5% decrease. The decrease in the provision for loan and lease losses was primarily due to improvement in the overall economy from the effects of the COVID-19 pandemic and the positive effects of the government's response to the pandemic on the Bank's loan and lease portfolio, partially offset by the increase in the loan portfolio and non-performing loans experienced in the first nine months of 2021. Net charge-offs during the first nine months of 2021 were $167,000, compared to net charge-offs of $110,000 in the first nine months of 2020.

Noninterest Income. Noninterest income decreased $542,000 or 11.2%, to $4.3 million for the nine months ended September 30, 2021, compared to $4.9 million for the comparable period in 2020. The decrease resulted primarily from a decrease of $496,000, or 19.2%, to $2.1 million in net gain on sale of loans and leases during the first nine months of 2021, compared to $2.6 million during the first nine months of 2020. The decrease in net gains on loan and lease sales was due to declining mortgage banking activity primarily resulting from lower refinancing activity and a lower supply of houses for sale in the Bank's market area. During the nine months ended September 30, 2021, the Company sold $62.3 million of loans compared to the sale of $79.3 million of loans during the nine months ended September 30, 2020. The net gain on the sale of securities recorded in the first nine months of 2021 was $56,000, a decrease of $141,000 from the net gain on the sale of securities of $196,000 in the first nine months of 2020 due to the declining mortgage banking activity discussed above. Card fee income increased $184,000, or 30.7%, to $784,000 in the first nine months of 2021 from $600,000 in the first nine months of 2020 due to increased debit card usage. Loan and lease servicing income decreased $232,000, to a loss of $38,000 for the first nine months of 2021 compared to income of $194,000 for the comparable period in 2020, due to impairment of mortgage servicing rights in the first nine months of 2021 of $231,000 compared to a recovery of mortgage servicing rights of $187,000 in the first nine months of 2020. Service fees on deposit accounts increased $119,000, or 23.2%, to $629,000 for the nine months ended September 30, 2021, compared to $511,000 for the nine months ended September 30, 2020. The increase in service fees on deposit accounts was primarily due to the resumption of charging overdraft fees after the suspension of such fees in 2020 during the height of the COVID-19 pandemic.

Noninterest Expense. Noninterest expense increased $3.5 million, or 20.7%, to $20.7 million for the nine months ended September 30, 2021, from $17.2 million for the same period in 2020. Salaries and employee benefits increased $2.7 million, or 26.2%, to $13.0 million for the nine months ended September 30, 2021 from $10.3 million for the nine months ended September 30, 2020. The increase in salaries and benefits from the first nine months of 2020 primarily was due to $1.4 million of expenses associated with equity awards granted during the fourth quarter of 2020, increased pension expense of $322,000 due to the recognition of nine months of expense in 2021, compared to three months of expense in 2020 in connection with freezing of the defined benefit plan ("DB Plan"), and increased compensation expense of $764,000 primarily as a result of annual merit increases and additional staff. Net occupancy expense increased $63,000, or 7.1% to $946,000 from $883,000 in the first nine months of 2020, primarily as a result of higher building maintenance expenses. Equipment expense increased $141,000, or 16.7% to $986,000 from the comparable period in 2020, primarily due to increased depreciation expense associated with replacing the Bank's ATM machines during the last quarter of 2020. Legal and professional fees increased $98,000, or 11.7% to $938,000 compared to the same period in 2020 primarily due to expenses associated with the contract renewal of the Company's data core processing, and routine litigation matters. Other expenses increased $280,000, or 12.4%, to $2.5 million in the first nine months of 2021 compared to the same period of 2020 primarily due to expenses associated with loan administration and servicing increasing $131,000, losses related to electronic banking fraud on customers' accounts increasing $73,000, and franchise tax expense increasing $115,000, partially offset by a $79,000 decrease in insurance costs.

The Company froze its DB Plan in October 2019 with the intent to terminate it. The freezing of the DB Plan has reduced, but not eliminated, the ongoing expenses associated with the DB Plan until it is terminated. See Note 7 of the Notes to Condensed Consolidated Financial Statements in this report for additional information relating to the Company’s DB Plan.

Income Tax Expense. Income tax expense increased $5,000 during the nine months ended September 30, 2021, compared to the same period in 2020, primarily due to a lower tax rate offsetting higher pre-tax income. The effective tax rate for the first nine months of 2021 was 18.4% compared to 20.2% for the first nine months of 2020.

Liquidity

We are required to have enough cash and investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure safe and sound operations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. Historically, liquid assets have been maintained above

levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained.

Liquidity management involves the matching of cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs and our ability to manage those requirements. We strive to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance in short-term investments at any given time will cover adequately any reasonably anticipated immediate need for funds. Additionally, First Bank Richmond maintains a relationship with the FHLB of Indianapolis which could provide funds on short notice if needed.

Liquidity management is both a daily and long-term function of the management of our business. It is overseen by the Asset and Liability Management Committee. Excess liquidity is generally invested in short-term investments, such as overnight deposits and holding excess funds at the Federal Reserve Bank. On a long-term basis, we maintain a strategy of investing in various lending products and investment securities, including mortgage-backed and municipal securities. First Bank Richmond can also generate funds from borrowings, primarily FHLB advances. In addition, we have historically sold eligible long-term, fixed-rate residential mortgage loans in the secondary market in order to reduce interest rate risk and to create another source of liquidity. At September 30, 2021, the Bank had $225.7 million in cash and unpledged available-for-sale investment securities for its cash needs. The Bank had the ability to borrow an additional $48.0 million in FHLB advances based on existing collateral pledged.

First Bank Richmond uses its sources of funds primarily to meet its ongoing commitments, pay maturing deposits, fund deposit withdrawals and fund loan and lease commitments. At September 30, 2021, outstanding loan and lease commitments, including unused lines and letters of credit, totaled $177.9 million, including $84.0 million of undisbursed construction and land loans. Certificates of deposit scheduled to mature in one year or less at September 30, 2021, totaled $168.1 million. It is management’s policy to offer deposit rates that are competitive with other local financial institutions. Based on this management strategy, we believe that a majority of maturing deposits will remain with the Bank.

Liquidity, represented by cash, cash equivalents, and investment securities, is a product of our operating, investing and financing activities. Primary sources of funds are deposits, amortization, prepayments and maturities of outstanding loans and mortgage-backed securities, maturities of investment securities and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. In addition, excess funds are invested in short-term interest-earning assets, which provide liquidity to meet lending requirements. Cash is also generated through borrowings. FHLB advances are utilized to leverage our capital base and provide funds for lending and investment activities, as well as to enhance interest rate risk management.

Cash and cash equivalents decreased $28.9 million to $19.8 million as of September 30, 2021, from $48.8 million as of December 31, 2020. Net cash provided by operating activities was $3.3 million for the nine months ended September 30, 2021. Net cash used in investing activities totaled $176.0 million during the nine months ended September 30, 2021 and consisted primarily of increases in net loans and available-for-sale securities. The $143.7 million of net cash provided by financing activities during the nine months ended September 30, 2021 was primarily the result of a $131.2 million net increase in deposits.

As a separate legal entity from the Bank, the Company must provide for its own liquidity. At September 30, 2021, the Company, on an unconsolidated basis, had $21.6 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs. The Company’s principal source of liquidity is dividends and ESOP loan repayments from the Bank.

Management believes that its primary liquidity sources of loan repayments, maturing investment securities, available FHLB borrowing and access to the brokered CD market are sufficient in the current economic environment.

In the normal course of operations, we engage in a variety of financial transactions that are not recorded in our financial statements, including commitments to extend credit and unused lines of credit. These transactions involve varying degrees of off-balance sheet risks. While these commitments are contractual obligations and represent our potential future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At September 30, 2021, we had $177.9 million in loan and lease commitments and unused lines of credit.

Except as set forth above, management is not aware of any trends, events, or uncertainties that will have, or that are reasonably likely to have a material impact on liquidity, capital resources or operations. Further, management is not aware of any current recommendations by regulatory agencies, which, if they were to be implemented, would have this effect.

Capital Resources

First Bank Richmond is subject to minimum capital requirements imposed by the FDIC. The FDIC may require us to have additional capital above the specific regulatory levels if it believes we are subject to increased risk due to asset problems, high interest rate risk and other risks. At September 30, 2021 First Bank Richmond’s regulatory capital exceeded the FDIC regulatory requirements, and First Bank Richmond was well-capitalized under regulatory prompt corrective action standards. Consistent with our goals to operate a sound and profitable organization, our policy is for First Bank Richmond to maintain well-capitalized status.


	Actual				Required for Adequate Capital				To Be Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
As of September 30, 2021
Total risk-based capital (to risk weighted assets)	$	165,046	17.6	%	$	74,911	8.0	%	$	93,639	10.0	%
Tier 1 risk-based capital (to risk weighted assets)	153,340		16.4		56,183		6.0		74,911		8.0
Common equity tier 1 capital (to risk weighted assets)	153,340		16.4		42,138		4.5		60,865		6.5
Tier 1 leverage (core) capital (to adjusted tangible assets)	153,340		12.8		48,077		4.0		60,096		5.0

As of December 31, 2020
Total risk-based capital (to risk weighted assets)	$	162,624	21.9	%	$	59,416	8.0	%	$	74,270	10.0	%
Tier 1 risk-based capital (to risk weighted assets)	153,325		20.6		44,562		6.0		59,416		8.0
Common equity tier 1 capital (to risk weighted assets)	153,325		20.6		33,422		4.5		48,276		6.5
Tier 1 leverage (core) capital (to adjusted tangible assets)	153,325		14.3		42,939		4.0		53,673		5.0

Pursuant to the capital regulations of the FDIC and the other federal banking agencies, First Bank Richmond must maintain a capital conservation buffer consisting of additional common equity tier 1 (“CET1”) capital greater than 2.5% of risk-weighted assets above the required minimum levels of risk-based CET1 capital, tier 1 capital and total capital in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses. At September 30, 2021 the Bank’s CET1 capital exceeded the required capital conservation buffer.

For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank only basis and the FRB expects the holding company’s subsidiary banks to be well capitalized under the prompt corrective action regulations. If Richmond Mutual Bancorporation was subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at September 30, 2021, it would have exceeded all regulatory capital requirements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There has not been any material change in the market risk disclosures contained in our 2020 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Act”)) as of September 30, 2021, was carried out under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and several other members of senior management. Our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures in effect as of September 30, 2021, were effective. In addition, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We do not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all errors and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at September 30, 2021, we were not involved in any legal proceedings the outcome of which would be material to our financial condition or results of operations.

ITEM 1A. RISK FACTORS

There have been no material changes in the Risk Factors previously disclosed in Item 1A of the Company's 2020 Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)Not applicable

(b)Not applicable

(c)On May 19, 2021, the Board of Directors authorized a third stock repurchase program for up to 1,263,841 shares, or approximately 10% of its outstanding shares. This repurchase program commenced on July 3, 2021, and will expire on July 3, 2022 unless completed sooner. The following table sets forth information with respect to our repurchases of our outstanding common shares during the three months ended September 30, 2021:


	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
July 1, 2021 - July 31, 2021	188,611	$	14.96	188,611	1,121,796
August 1, 2021 - August 31, 2021	49,024	15.59		49,024	1,072,772
September 1, 2021 - September 30, 2021	27,274	15.41		27,274	1,045,498
	264,909	$	15.12	264,909	1,045,498

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Nothing to report.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Nothing to report.

ITEM 6. EXHIBITS

Exhibit


			3.1			Charter of Richmond Mutual Bancorporation, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1 (Commission File No. 333-230184))
			3.2			Bylaws of Richmond Mutual Bancorporation, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1 (Commission File No. 333-230184))
			4.0			Form of Common Stock Certificate of Richmond Mutual Bancorporation, Inc. (incorporated by reference to Exhibit 4.0 of the Company’s Registration Statement on Form S-1 (Commission File No. 333-230184))
			10.1			Form of Non-Qualified Deferred Compensation Plan for Garry Kleer (incorporated by reference to Exhibit 10.1 of the Company's Registration Statement on Form S-1 (Commission File No. 333-230184))
			10.2			Richmond Mutual Bancorporation, Inc. 2020 Equity Incentive Plan (included as Appendix A to the Registrant’s definitive proxy statement filed with the SEC on July 28, 2020 (File No. 001-38956) and incorporated herein by reference).
			10.3			Form of Incentive Stock Option Award Agreement under the 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s Registration Statement on Form S-8 (Commission File No. 333-248862)).
			10.4			Form of Non-qualified Stock Option Award Agreement under the 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 of the Company’s Registration Statement on Form S-8 (Commission File No. 333-248862)).
			10.5			Form of Restricted Stock Award Agreement under the 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 of the Company’s Registration Statement on Form S-8 (Commission File No. 333-248862)).
			31.1			Rule 13a-14(a) Certifications (Chief Executive Officer)
			31.2			Rule 13a-14(a) Certifications (Chief Financial Officer)
			32.0			Section 1350 Certifications
			101.0			The following materials for the quarter ended September 30, 2021, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements
			104			Cover Page Interactive Data File (embedded within the Inline XBRL document).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	RICHMOND MUTUAL BANCORPORATION, INC.


Date: November 12, 2021	By:	/s/ Garry D. Kleer
		Garry D. Kleer
		Chairman, President and CEO
		(Duly Authorized Officer)

Date: November 12, 2021	By:	/s/ Donald A. Benziger
		Donald A. Benziger
		Executive Vice President and CFO
		(Principal Financial and Accounting Officer)