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


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
oTRANSITION 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 StreetRichmondIndiana 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 12,883,803 shares of Registrant’s common stock, par value of $0.01 per share, issued and outstanding as of May 14, 2021.




RICHMOND MUTUAL BANCORPORATION, INC. AND SUBSIDIARY
10-Q
TABLE OF CONTENTS
Page
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Controls and Procedures
Legal Proceedings
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Other Information
Exhibits




PART I. FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS

Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Balance Sheets
March 31,
2021
December 31,
2020
(Unaudited)
Assets
Cash and due from banks$13,713,168 $16,748,093 
Interest-bearing demand deposits51,810,044 32,020,364 
Cash and cash equivalents65,523,212 48,768,457 
Investment securities - available for sale258,158,592 244,505,189 
Investment securities - held to maturity10,211,437 12,225,275 
Loans and leases, net of allowance for losses of $10,959,000 and $10,586,000, respectively
763,731,414 736,400,098 
Premises and equipment, net14,718,289 14,892,110 
Federal Home Loan Bank stock9,049,600 9,049,600 
Interest receivable4,203,991 4,703,604 
Mortgage-servicing rights1,658,879 1,712,138 
Cash surrender value of life insurance3,548,371 3,525,736 
Other assets10,102,117 8,410,450 
Total assets$1,140,905,902 $1,084,192,657 
Liabilities
Noninterest-bearing deposits118,075,878 98,724,887 
Interest bearing deposits638,997,768 594,320,508 
Total deposits757,073,646 693,045,395 
Federal Home Loan Bank advances170,000,000 170,000,000 
Advances by borrowers for taxes and insurance535,910 492,524 
Interest payable207,893 222,118 
Multi-employer pension plan liability17,454,709 17,454,709 
Other liabilities6,114,110 10,265,203 
Total liabilities951,386,268 891,479,949 
Commitments and Contingent Liabilities— — 
Stockholders' Equity
Common stock, $0.01 par value
Authorized - 90,000,000 shares
Issued and outstanding - 13,050,996 shares and 13,193,760 shares at March 31, 2021 and December 31, 2020, respectively
130,510 131,938 
Additional paid-in capital122,814,920 124,246,425 
Retained earnings80,005,652 78,290,113 
Unearned employee stock ownership plan (ESOP)(13,479,847)(13,664,373)
Accumulated other comprehensive income48,399 3,708,605 
Total stockholders' equity189,519,634 192,712,708 
Total liabilities and stockholders' equity$1,140,905,902 $1,084,192,657 
See Notes to Condensed Consolidated Statements.

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Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended March 31,
20212020
Interest Income
Loans and leases$9,628,305 $9,063,567 
Investment securities1,009,239 1,262,937 
Other6,904 125,030 
Total interest income10,644,448 10,451,534 
Interest Expense
Deposits1,187,272 1,824,698 
Borrowings693,951 739,341 
Total interest expense1,881,223 2,564,039 
Net Interest Income8,763,225 7,887,495 
Provision for losses on loans and leases400,000 210,000 
Net Interest Income After Provision for Losses on Loans and Leases8,363,225 7,677,495 
Non-Interest Income
Service charges on deposit accounts194,439 254,651 
Card fee income242,515 179,607 
Loan and lease servicing fees(105,450)(65,692)
Net gains on securities (includes $0 and $69,139, respectively, related to accumulated other comprehensive loss reclassifications) 
— 69,139 
Net gains on loan and lease sales964,817 228,208 
Other loan fees247,891 82,874 
Other income222,372 204,281 
Total non-interest income1,766,584 953,068 
Non-Interest Expenses
Salaries and employee benefits4,445,732 3,363,685 
Net occupancy expenses330,640 290,009 
Equipment expenses336,564 255,848 
Data processing fees526,173 476,803 
Deposit insurance expense71,000 56,000 
Printing and office supplies31,414 26,543 
Legal and professional fees346,518 241,366 
Advertising expense84,044 109,557 
Bank service charges30,751 37,355 
Real estate owned expense2,332 2,177 
Loss on sale of real estate owned1,278 — 
Other expenses771,210 664,274 
Total non-interest expenses6,977,656 5,523,617 
Income Before Income Tax Expense3,152,153 3,106,946 
Provision for income taxes (includes $0 and $17,522, respectively, related to income tax expense from reclassification of items)
589,667 654,800 
Net Income$2,562,486 $2,452,146 
Earnings Per Share
Basic$0.22 $0.20 
Diluted$0.22 $0.20 
See Notes to Condensed Consolidated Statements.

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Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended
March 31,
20212020
Net Income$2,562,486 $2,452,146 
Other Comprehensive Income (Loss)
Unrealized gain (loss) on available-for-sale securities, net of tax (benefit) expense of $(972,966) and $957,976, respectively.
(3,660,206)2,821,591 
Less: reclassification adjustment for realized gains included in net income, net of tax expense of $0 and $17,523, respectively.
— 51,616 
(3,660,206)2,769,975 
Comprehensive (Loss) Income$(1,097,720)$5,222,121 
See Notes to Condensed Consolidated Statements.

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Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
Common StockAdditional
Paid-in
Capital
Retained
Earnings
Unearned
ESOP
Shares
Accumulated
Other
Comprehensive
Income/(Loss)
Total
Shares
Outstanding
Amount
Balances, December 31, 202013,193,760 $131,938 $124,246,425 $78,290,113 $(13,664,373)$3,708,605 $192,712,708 
Net income— — — 2,562,486 — — 2,562,486 
Other comprehensive loss— — — — — (3,660,206)(3,660,206)
ESOP shares earned— — (1,821)— 184,526 — 182,705 
Stock based compensation— — 507,624 — — — 507,624 
Common stock dividends ($0.07 per share)
— — — (846,947)— — (846,947)
Repurchase of common stock(142,764)(1,428)(1,937,308)— — — (1,938,736)
Balances, March 31, 202113,050,996 $130,510 $122,814,920 $80,005,652 $(13,479,847)$48,399 $189,519,634 


Common StockAdditional
Paid-in
Capital
Retained
Earnings
Unearned
ESOP
Shares
Accumulated
Other
Comprehensive
Income/(Loss)
Total
Shares
Outstanding
Amount
Balances, December 31, 201913,526,625 $135,266 $132,601,876 $70,111,434 $(14,400,386)$(660,744)$187,787,446 
Net income— — — 2,452,146 — — 2,452,146 
Other comprehensive income— — — — — 2,769,975 2,769,975 
ESOP shares earned— — 2,858 — 183,829 — 186,687 
Balances, March 31, 202013,526,625 $135,266 $132,604,734 $72,563,580 $(14,216,557)$2,109,231 $193,196,254 

See Notes to Condensed Consolidated Statements.

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Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
20212020
Operating Activities
Net income$2,562,486 $2,452,146 
Items not requiring (providing) cash
Provision for loan losses400,000 210,000 
Depreciation and amortization293,402 238,330 
Deferred income tax(93,250)(84,000)
Stock based compensation507,624 — 
Investment securities amortization, net712,845 486,500 
Investment securities gains— (69,139)
Net gains on loan and lease sales(964,817)(228,208)
Loss on sale of real estate owned1,278 — 
Accretion of loan origination fees(881,097)(38,827)
Amortization of mortgage-servicing rights128,288 67,132 
ESOP shares expense182,705 186,687 
Increase in cash surrender value of life insurance(21,361)(30,106)
Loans originated for sale(27,868,042)(6,807,172)
Proceeds on loans sold26,770,692 8,147,368 
Net change in
Interest receivable499,613 (195,661)
Other assets(500,776)354,702 
Other liabilities(4,151,093)26,550 
Interest payable(14,225)53,692 
Net cash (used in) provided by operating activities(2,435,728)4,769,994 
Investing Activities
Purchases of securities available for sale(37,779,114)(70,744,743)
Proceeds from maturities and paydowns of securities available for sale18,783,517 25,505,906 
Proceeds from sales of securities available for sale— 11,461,388 
Proceeds from maturities and paydowns of securities held to maturity2,010,016 2,140,036 
Net change in loans(25,020,579)(1,169,710)
Proceeds from sales of real estate owned30,270 — 
Purchases of premises and equipment(119,581)(158,241)
Purchase of FHLB stock— (1,030,400)
Net cash used in investing activities(42,095,471)(33,995,764)
Financing Activities
Net change in
Demand and savings deposits50,062,196 (8,410,494)
Certificates of deposit13,966,055 (3,572,941)
Advances by borrowers for taxes and insurance43,386 68,073 
Proceeds from FHLB advances— 30,000,000 
Repayment of FHLB advances— (2,000,000)
Repurchase of common stock(1,938,736)— 
Dividends paid(846,947)— 
Net cash provided by financing activities61,285,954 16,084,638 
Net Change in Cash and Cash Equivalents16,754,755 (13,141,132)
Cash and Cash Equivalents, Beginning of Period48,768,457 40,596,877 
Cash and Cash Equivalents, End of Period$65,523,212 $27,455,745 
Additional Cash Flows and Supplementary Information
Interest paid$1,895,448 $2,510,347 
Transfers from loans to other real estate owned— 31,548 
See Notes to Condensed Consolidated Statements.

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Richmond Mutual Bancorporation, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Table Dollar Amounts in Thousands except shares and 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

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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.
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 March 31, 2021, the Company has 33 loans outstanding for $24.6 million 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 has originated a total of approximately $100.0 million in PPP loans as of March 31, 2021, of which approximately $54.7 million were outstanding at March 31, 2021.
The Jumpstart Our Business Startups Act (the "JOBS Act"), which was enacted in April 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year qualifies as an “emerging growth company.” The Company qualifies as and has elected to be an emerging growth company under the JOBS Act. An emerging growth company may elect to comply with new or amended accounting pronouncements in the same manner as a private company, but must make such election when the company is first required to file a registration statement. Such an election is irrevocable during the period a company is an emerging growth company. The Company has elected to comply with new or amended accounting pronouncements in the same manner as a private company.
In June 2016, the 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

7


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 in the early stages of 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:

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March 31, 2021
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Available for sale
SBA Pools$15,647 $36 $155 $15,528 
Federal agencies7,756 228 7,533 
State and municipal obligations100,347 1,599 1,610 100,336 
Mortgage-backed securities - government-sponsored enterprises (GSE) residential134,335 1,618 1,204 134,749 
Equity securities13 — — 13 
258,098 3,258 3,197 258,159 
Held to maturity
State and municipal obligations10,211 234 — 10,445 
10,211 234 — 10,445 
Total investment securities$268,309 $3,492 $3,197 $268,604 

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 agencies5,760 12 15 5,757 
State and municipal obligations93,616 2,778 109 96,285 
Mortgage-backed securities - government-sponsored enterprises (GSE) residential124,139 2,080 69 126,150 
Equity securities13 — — 13 
239,811 4,981 287 244,505 
Held to maturity
State and municipal obligations12,225 295 — 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 March 31, 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 SaleHeld to Maturity
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Within one year$954 $959 $1,751 $1,766 
One to five years6,331 6,520 5,373 5,491 
Five to ten years28,444 28,660 2,027 2,118 
After ten years88,021 87,258 1,060 1,070 
123,750 123,397 10,211 10,445 
Mortgage-backed securities –GSE residential134,335 134,749 — — 
Equity securities13 13 — — 
Totals$258,098 $258,159 $10,211 $10,445 

9


Securities with a carrying value of $74,171,000 and $88,370,000 were pledged at March 31, 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 months ended March 31, 2021 and 2020 were $0 and $11,461,000, respectively. Gross gains were recognized on the sale of securities available-for-sale for the three months ended March 31, 2021 and 2020 of $0 and $74,000, respectively.  Gross losses were recognized on the sale of securities available for sale for the three months ended March 31, 2021 and 2020 of $0 and $5,000, 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 March 31, 2021 and December 31, 2020 was $120,426,000 and $45,299,000, respectively, which is approximately 45% 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 March 31, 2021 and December 31, 2020:
Description of
Securities
March 31, 2021
Less Than 12 Months12 Months or MoreTotal
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Available-for-sale
SBA Pools$4,318 $83 $7,984 $72 $12,302 $155 
Federal agencies6,773 228 — — 6,773 228 
State and municipal obligations45,177 1,505 1,475 105 46,652 1,610 
Mortgage-backed securities - GSE residential54,165 1,202 534 54,699 1,204 
Total temporarily impaired securities$110,433 $3,018 $9,993 $179 $120,426 $3,197 

Description of
Securities
December 31, 2020
Less Than 12 Months12 Months or MoreTotal
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 agencies985 15 — — 985 15 
State and municipal obligations8,587 109 — — 8,587 109 
Mortgage-backed securities - GSE residential24,013 67 684 24,697 69 
Total available-for-sale38,798 237 6,371 50 45,169 287 
Held-to-maturity
State and municipal obligations130 — — — 130 — 
Total temporarily impaired securities$38,928 $237 $6,371 $50 $45,299 $287 

10


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 March 31, 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 market 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 March 31, 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 March 31, 2021.
Note 4: Loans, Leases and Allowance
The following table shows the composition of the loan and lease portfolio at March 31, 2021 and December 31, 2020:
March 31,
2021
December 31,
2020
Commercial mortgage$254,561 $247,564 
Commercial and industrial128,126 122,831 
Construction and development67,728 58,424 
Multi-family60,608 55,998 
Residential mortgage128,947 127,108 
Home equity6,104 5,982 
Direct financing leases117,725 117,171 
Consumer13,183 13,257 
776,982 748,335 
Less
Allowance for loan and lease losses10,959 10,586 
Deferred loan fees2,292 1,349 
$763,731 $736,400 

11


The following tables present the activity in the allowance for loan and lease losses for the three months ended March 31, 2021 and 2020:
Commercial
Mortgage (1)
Commercial
and
Industrial
Residential
Mortgage (2)
LeasesConsumerTotal
Three Months Ended March 31, 2021:
Balance, beginning of period$7,797 $1,248 $270 $1,054 $217 $10,586 
Provision (credit) for losses561 (133)(19)75 (84)400 
Charge-offs— — — (194)(11)(205)
Recoveries23 94 54 178 
Balance, end of period$8,359 $1,138 $257 $1,029 $176 $10,959 
(1)Commercial mortgage includes commercial and multifamily real estate loans and commercial construction and development loans.
(2)Residential mortgage includes one- to four-family and home equity loans and residential construction and development loans.


Commercial
Mortgage (1)
Commercial
and
Industrial
Residential
Mortgage (2)
LeasesConsumerTotal
Three Months Ended March 31, 2020:
Balance, beginning of period$4,564 $1,852 $109 $426 $138 $7,089 
Provision (credit) for losses72 (87)38 190 (4)210 
Charge-offs— — (15)(55)(5)(75)
Recoveries32 16 22 83 
Balance, end of period$4,668 $1,772 $148 $583 $135 $7,306 
(1)Commercial mortgage includes commercial and multifamily real estate loans and commercial construction and development loans.
(2)Residential mortgage includes one- to four-family and home equity loans and residential construction and development loans.

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 March 31, 2021 and December 31, 2020:
March 31, 2021
Commercial
Mortgage (1)
Commercial
and
Industrial
Residential
Mortgage (2)
LeasesConsumerTotal
Allowance for loan and lease losses:
Individually evaluated for impairment$811 $52 $— $— $— $863 
Collectively evaluated for impairment7,548 1,086 257 1,029 176 10,096 
Balance, March 31$8,359 $1,138 $257 $1,029 $176 $10,959 
Loans and leases:
Individually evaluated for impairment5,581 450 178 — — 6,209 
Collectively evaluated for impairment427,822 111,660 96,465 117,725 17,101 770,773 
Ending Balance, March 31$433,403 $112,110 $96,643 $117,725 $17,101 $776,982 
(1)Commercial mortgage includes commercial and multifamily real estate loans and commercial construction and development loans.
(2)Residential mortgage includes one- to four-family and home equity loans and residential construction and development loans.

12



December 31, 2020
Commercial
Mortgage (1)
Commercial
and
Industrial
Residential
Mortgage (2)
LeasesConsumerTotal
Allowance for loan and lease losses:
Individually evaluated for impairment$150 $52 $— $— $— $202 
Collectively evaluated for impairment7,647 1,196 270 1,054 217 10,384 
Balance, December 31$7,797 $1,248 $270 $1,054 $217 $10,586 
Loans and leases:
Individually evaluated for impairment701 493 269 — — 1,463 
Collectively evaluated for impairment404,278 106,794 101,380 117,171 17,249 746,872 
Ending Balance, December 31$404,979 $107,287 $101,649 $117,171 $17,249 $748,335 
(1)Commercial mortgage includes commercial and multifamily real estate loans and commercial construction and development loans.
(2)Residential mortgage includes one- to four-family and home equity loans and residential construction and development loans.

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

13


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.
The risk characteristics of each loan and lease portfolio segment are as follows:
Commercial and Industrial
Commercial and industrial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may include a personal guarantee.  Short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.
Commercial Mortgage including Construction
Loans in this segment include commercial loans, commercial construction loans, and multi-family loans. This segment also includes loans secured by 1-4 family residences which were made for investment purposes. Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The characteristics of properties securing the Company’s commercial real estate portfolio are diverse, but with geographic location almost entirely in the Company’s market area. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In general, the Company avoids financing single purpose projects unless other underwriting factors are

14


present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate versus nonowner-occupied loans.
Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews and financial analysis of the developers and property owners. Construction loans are generally based on estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.
Residential, Brokered and Consumer
Residential, brokered and consumer loans consist of three segments – residential mortgage loans, brokered mortgage loans and personal loans. For residential mortgage loans that are secured by 1-4 family residences and are generally owner-occupied, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Brokered mortgages are purchased residential mortgage loans meeting the Company’s criteria established for originating residential mortgage loans. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer personal loans are secured by consumer personal assets, such as automobiles or recreational vehicles. Some consumer personal loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.
Leases
Lease financing consists of direct financing leases and are used by commercial customers to finance capital purchases of equipment.  The credit decisions for these transactions are based upon an assessment of the overall financial capacity of the applicant.  A determination is made as to the applicant’s financial condition and ability to repay in accordance with the proposed terms as well as an overall assessment of the risks involved.
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 March 31, 2021 and December 31, 2020:
March 31, 2021
Commercial
Mortgage
IndustrialConstruction
and
Development
Multi-
Family
Residential
Mortgage
Home
Equity
LeasesConsumerTotal
1-4 Pass$246,578 $121,798 $62,828 $60,608 $126,766 $6,033 $117,661 $12,867 $755,139 
5 Special Mention6,939 3,514 — — — — — — 10,453 
6 Substandard1,044 2,814 4,900 — 2,181 71 11 316 11,337 
7 Doubtful— — — — — — 53 — 53 
8 Loss— — — — — — — — — 
$254,561 $128,126 $67,728 $60,608 $128,947 $6,104 $117,725 $13,183 $776,982 


15


December 31, 2020
Commercial
Mortgage
IndustrialConstruction
and
Development
Multi-
Family
Residential
Mortgage
Home
Equity
LeasesConsumerTotal
1-4 Pass$239,055 $114,411 $53,524 $55,998 $123,963 $5,916 $117,136 $13,256 $723,259 
5 Special Mention6,976 5,542 4,900 — — — — — 17,418 
6 Substandard1,533 2,878 — — 3,145 66 15 7,638 
7 Doubtful— — — — — — 20 — 20 
8 Loss— — — — — — — — — 
$247,564 $122,831 $58,424 $55,998 $127,108 $5,982 $117,171 $13,257 $748,335 

The following tables present the Company’s loan and lease portfolio aging analysis of the recorded investment in loans and leases as of March 31, 2021 and December 31, 2020:
March 31, 2021
Delinquent LoansCurrentTotal
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$431 $— $210 $641 $253,920 $254,561 $134 
Commercial and industrial— 24 397 421 127,705 128,126 — 
Construction and development— — 4,900 4,900 62,828 67,728 — 
Multi-family— — — — 60,608 60,608 — 
Residential mortgage2,071 142 2,154 4,367 124,580 128,947 2,029 
Home equity— 31 38 6,066 6,104 31 
Leases136 21 — 157 117,568 117,725 — 
Consumer140 277 316 733 12,450 13,183 315 
Totals$2,785 $464 $8,008 $11,257 $765,725 $776,982 $2,509 

December 31, 2020
Delinquent LoansCurrentTotal
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 industrial1,251 203 439 1,893 120,938 122,831 — 
Construction and development— 4,900 — 4,900 53,524 58,424 — 
Multi-family— — — — 55,998 55,998 — 
Residential mortgage1,913 243 2,680 4,836 122,272 127,108 2,554 
Home equity138 15 25 178 5,804 5,982 25 
Leases234 65 — 299 116,872 117,171 — 
Consumer318 129 317 764 12,493 13,257 317 
Totals$4,194 $5,555 $4,638 $14,387 $733,948 $748,335 $3,996 


16


The following tables present the Company’s impaired loans and specific valuation allowance at March 31, 2021 and December 31, 2020:
March 31, 2021
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
Impaired loans without a specific valuation allowance
Commercial mortgage$77 $86 $— 
Commercial and industrial397 731 — 
Residential mortgage124 246 — 
$598 $1,063 $— 
Impaired loans with a specific valuation allowance
Commercial mortgage$5,504 $5,504 $811 
Commercial and industrial53 64 52 
Residential mortgage54 54 — 
$5,611 $5,622 $863 
Total impaired loans
Commercial mortgage$5,581 $5,590 $811 
Commercial and industrial450 795 52 
Residential mortgage178 300 — 
Total impaired loans$6,209 $6,685 $863 

December 31, 2020
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
Impaired loans without a specific valuation allowance
Commercial mortgage$76 $86 $— 
Commercial and industrial439 770 — 
Residential mortgage269 491 — 
$784 $1,347 $— 
Impaired loans without a specific valuation allowance
Commercial mortgage$625 $625 $150 
Commercial and industrial54 64 52 
$679 $689 $202 
Total impaired loans
Commercial mortgage$701 $711 $150 
Commercial and industrial493 834 52 
Residential mortgage269 491 — 
Total impaired loans$1,463 $2,036 $202 


17


The following tables present the Company’s average investment in impaired loans and interest income recognized for the three months ended March 31, 2021 and 2020:
Average
Investment in
Impaired
Loans
Interest
Income
Recognized
Three Months Ended March 31, 2021:
Total impaired loans
Commercial mortgage$3,141 $
Commercial and industrial471 
Residential mortgage180 
Total impaired loans$3,792 $12 

Average
Investment in
Impaired
Loans
Interest
Income
Recognized
Three Months Ended March 31, 2020:
Total impaired loans
Commercial mortgage$797 $
Commercial and industrial684 14 
Residential mortgage326 
Total impaired loans$1,807 $26 





The following table presents the Company’s nonaccrual loans and leases at March 31, 2021 and December 31, 2020:
March 31,
2021
December 31,
2020
Commercial mortgage$77 $76 
Commercial and industrial450 493 
Construction4,900 — 
Residential mortgage124 214 
Leases53 20 
$5,604 $803 
During the three months ended March 31, 2021 and 2020, there were no newly classified troubled debt restructured loans or leases (“TDRs”). For the three months ended March 31, 2021 and 2020, the Company recorded no charge-offs related to TDRs. As of both March 31, 2021 and December 31, 2020, TDRs had a related allowance of $52,000. During the three months ended March 31, 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.

18


In March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic. As of March 31, 2021, the Company had 33 loan and lease modifications outstanding related to the COVID-19 pandemic with an outstanding loan balance totaling $24.6 million 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 March 31, 2021 and December 31, 2020, the balance of real estate owned includes $0 and $32,000, respectively, of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property.  At March 31, 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 $520,000 and $283,000, respectively.
The following lists the components of the net investment in direct financing leases:
March 31,
2021
December 31,
2020
Total minimum lease payments to be received$129,865 $129,114 
Initial direct costs6,639 6,353 
136,504 135,467 
Less: Unearned income(18,779)(18,296)
Net investment in direct finance leases$117,725 $117,171 
Leases serviced by First Bank Richmond for the benefit of others totaled approximately $22,000 and $86,000 at March 31, 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 March 31, 2021 and December 31, 2020, First Bank Richmond has recorded a recourse obligation on leases sold with recourse of $0, and has a maximum exposure of $22,000 and $86,000, respectively, for these leases.
The following table summarizes the future minimum lease payments receivable subsequent to March 31, 2021:
2021$38,107 
202239,561 
202327,108 
202416,659 
20257,405 
Thereafter1,025 
$129,865 

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

19


Recurring Measurements
The following tables present the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 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)
March 31, 2021
Available-for-sale securities
SBA Pools$15,528 $— $15,528 $— 
Federal agencies7,533 — 7,533 — 
State and municipal obligations100,336 — 100,336 — 
Mortgage-backed securities - GSE residential134,749 — 134,749 — 
Equity securities13 13 — — 
$258,159 $13 $258,146 $— 

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 agencies5,757 — 5,757 — 
State and municipal obligations96,285 — 96,285 — 
Mortgage-backed securities - GSE residential126,150 — 126,150 — 
Equity securities13 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 three months ended March 31, 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

20


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 March 31, 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)
March 31, 2021
Impaired loans, collateral dependent$4,748 $— $— $4,748 
Mortgage-servicing rights1,659 — — 1,659 
December 31, 2020
Impaired loans, collateral dependent$532 $— $— $532 
Mortgage-servicing rights1,712 — — 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

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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 March 31, 2021 and December 31, 2020:
Fair Value at March 31, 2021Valuation
Technique
Unobservable
Inputs
Range
Collateral-dependent impaired loans$4,748 AppraisalMarketability discount
0 - 16%
Mortgage-servicing rights$1,659 Discounted cash flowDiscount rate10%

Fair Value at December 31, 2020Valuation
Technique
Unobservable
Inputs
Range
Collateral-dependent impaired loans$532 AppraisalMarketability discount
0 - 12%
Mortgage-servicing rights$1,712 Discounted cash flowDiscount rate10%
Fair Value of Financial Instruments
The following tables present estimated fair values of the Company’s financial instruments at March 31, 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)
March 31, 2021
Financial assets
Cash and cash equivalents$65,523 $65,523 $— $— 
Available-for-sale securities258,159 13 258,146 — 
Held-to-maturity securities10,211 — 10,445 — 
Loans and leases receivable, net763,731 — — 781,646 
Federal Reserve and FHLB stock9,050 — 9,050 — 
Interest receivable4,204 — 4,204 — 
Financial liabilities
Deposits757,074 — 759,129 — 
FHLB advances170,000 — 177,192 — 
Interest payable208 — 208 — 


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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 securities244,505 13 244,492 — 
Held-to-maturity securities12,225 — 12,520 — 
Loans and leases receivable, net736,400 — — 751,151 
Federal Reserve and FHLB stock9,050 — 9,050 — 
Interest receivable4,704 — 4,704 — 
Financial liabilities
Deposits693,045 — 695,216 — 
FHLB advances170,000 — 178,015 — 
Interest payable222 — 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 March 31, 2021Three Months Ended March 31, 2020
Net income$2,562 $2,452 
Shares outstanding for Basic EPS:
Average shares outstanding13,124,015 13,526,625 
Less: average restricted stock award shares not vested431,501 
Less: average unearned ESOP Shares1,005,311 1,059,419 
Shares outstanding for Basic EPS11,687,203 12,467,206 
Additional Dilutive Shares176,705 — 
Shares outstanding for Diluted EPS11,863,908 12,467,206 
Basic Earnings Per Share$0.22 $0.20 
Diluted Earnings Per Share$0.22 $0.20 

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 $52,000 and $49,000 for the three months ended March 31, 2021 and 2020, respectively.
Pension Plan

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The Company participates in the Pentegra Defined Benefit Plan for Financial Institutions (the “DB Plan”), an industry-wide, tax-qualified defined-benefit pension plan. As previously disclosed, the Company has frozen and intends to terminate the Bank’s participation in the DB Plan, which will require it to pay an amount based on the underfunded status of the plan. As of March 31, 2021 the Company has accrued $17.5 million for this expense. The actual termination expense of the DB Plan may be higher or lower than the amount currently accrued for by the Company depending on a number of factors, including but not limited to 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 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. Any additional expenses associated with the termination of the DB Plan will negatively impact our results of operations in the future.
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, $13,479,847 and $13,664,373 of common stock acquired by the ESOP was shown as a reduction of stockholders’ equity at March 31, 2021 and December 31, 2020, respectively. Shares are released to participants proportionately as the loan is repaid.
ESOP expense for the three months ended March 31, 2021 and 2020 was $183,000 and $187,000, respectively.
March 31, 2021March 31, 2020
Earned ESOP shares90,196 22,545 
Unearned ESOP shares991,934 1,059,585 
Total ESOP shares1,082,130 1,082,130 
Quoted per share price$13.56 $10.22 
Fair value of earned shares$1,223 $230 
Fair value of unearned shares$13,451 $10,829 

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. 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.
Total compensation cost recognized in the income statement for restricted stock awards during the three months ended March 31, 2021 was $303,000 and the related tax benefit recognized was $64,000. As of March 31, 2021, unrecognized compensation expense related to restricted stock awards was $4.0 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 market value of a share of the Company's common stock on the date of

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grant, to eligible participants. These options awarded vest in five equal annual installments with the first vesting occurring on June 30, 2021. Forfeited options may be awarded to other eligible recipients in future grants until the 2020 EIP terminates in September 2030.
The following table summarizes the stock option activity in the 2020 EIP during the three months ended March 31, 2021.
March 31, 2021
Number of SharesWeighted-Average Exercise Price
Balance at beginning of year1,095,657$10.53 
Granted— 
Exercised— 
Forfeited/expired— 
Balance at end of year1,095,65710.53 
Exercisable at end of period(1)
40,580$10.53 
(1) As a result of the acceleration of option vesting upon the death of a recipient.


A summary of the status of the Company stock option shares as of March 31, 2021 is presented below.
SharesWeighted Average Grant Date Fair Value
Non-vested, beginning of year1,055,077$2.91 
Vested— 
Granted— 
Forfeited— 
Non-vested, March 311,055,077$2.91 

Total compensation cost recognized in the income statement for option-based payment arrangements during 2020 was $205,000 and the related tax benefit recognized was $23,000. As of March 31, 2021, unrecognized compensation expense related to the stock option awards was $2.7 million.

Note 8: Subsequent Event
Subsequent to March 31, 2021 through May 14, 2021 the Company purchased 167,193 shares under the existing stock repurchase program, leaving 249,392 shares available for future repurchase.

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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 March 31, 2021, and the consolidated results of operations for the three months ended March 31, 2021, compared to the same period 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;

26


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 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.

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Overview
On February 6, 2019, the Board of Directors of First Mutual of Richmond, Inc. (the “MHC”), the parent mutual holding company of Richmond Mutual Bancorporation-Delaware, adopted a Plan of Reorganization and Stock Offering (the “Plan”). The Plan was approved by the Board of Governors of the Federal Reserve System (the “FRB”) and by the Indiana Department of Financial Institutions (the “IDFI”), as well as the voting members of the MHC at a special meeting of members held on June 19, 2019.  Pursuant to the Plan, upon completion of the transaction, the MHC would convert from a mutual holding company to the stock holding company corporate structure, the MHC and Richmond Mutual Bancorporation-Delaware would cease to exist, and First Bank Richmond would become a wholly owned subsidiary of the Company, a newly formed Maryland corporation. The transaction was completed on July 1, 2019.  In connection with the related stock offering, which was also completed on July 1, 2019, the Company sold 13,026,625 shares of common stock at $10.00 per share, for gross offering proceeds of approximately $130.3 million in its subscription offering and contributed 500,000 shares and $1.25 million to a newly formed charitable foundation, First Bank Richmond, Inc. Community Foundation (the “Foundation”).
In certain circumstances, where appropriate, the terms “we”, “us”, “our” and the “Company” 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) the Company 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 Company is regulated by the FRB and the IDFI.  Our corporate office is located at 31 North 9th Street, Richmond, Indiana, and our 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

28


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 $151.3 million at March 31, 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 March 31, 2021, on a consolidated basis, we had $1.1 billion in assets, $763.7 million in loans and leases, net of allowance, $757.1 million in deposits and $189.5 million in stockholders’ equity.  At March 31, 2021, First Bank Richmond’s total risk-based capital ratio was 20.8%, exceeding the 10.0% requirement for a well-capitalized institution. For the three months ended March 31, 2021, net income was $2.6 million, compared with net income of $2.5 million for the three months ended March 31, 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.

29


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
The Company continues to offer a number of options designed to support our customers and the communities that we serve during the ongoing COVID-19 pandemic.

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Paycheck Protection Program ("PPP"). The CARES Act was signed into law on March 27, 2020, and authorized the SBA to temporarily guarantee loans under a loan program called the Paycheck Protection Program, or PPP. As a qualified SBA lender, the Company was automatically authorized to originate PPP loans upon commencement of the program in April 2020. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be forgiven and repaid by the SBA. The initial PPP concluded on August 8, 2020 and was then reopened through May 31, 2021.
During the first quarter of 2021, the Company continued its participation in the initial SBA PPP by processing applications for PPP loan forgiveness. As of March 31, 2021, the Company has received SBA forgiveness for 413 PPP loans totaling $47.0 million out of the $64.9 million in PPP loans funded during the first PPP program. During the first quarter of 2021, the Company began accepting and processing loan applications under the second PPP program enacted in December 2020. As of March 31, 2021, the Bank has funded 329 PPP loans totaling $35.2 million under the second PPP program. As of March 31, 2021, there was a total of 408 PPP loans outstanding totaling $54.7 million. We expect to continue accepting and processing applications for the second round of PPP loans through its expiration date of May 31, 2021.
We may utilize the FRB's Paycheck Protection Program Liquidity Facility (“PPPLF”), pursuant to which the Company would pledge its PPP loans as collateral to obtain FRB non-recourse loans. The PPPLF will take the PPP loans as collateral at face value. As of March 31, 2021, we had not utilized the PPPLF.
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, although requests for payment relief during the first quarter of 2021 declined significantly from 2020. We continue to monitor our loan portfolio and strive to work with our customers and communities. Deferred loans are re-evaluated at the end of the initial deferral period and will either return to the original loan terms or be reassessed at that time to determine if a further modification should be granted and if a downgrade in risk rating is appropriate. At March 31, 2021, the number of loans and leases granted payment deferrals was 33, representing $24.6 million in loans and leases outstanding, compared to 48 loans and leases at December 31, 2020 totaling $54.7 million. The decrease in the outstanding deferred loan and lease amounts was primarily attributable to $21.0 million in commercial mortgage loans and $8.9 million in multi-family loans returning to their normal payment terms. Of the loans and leases currently deferred at March 31, 2021, six loans, representing $2.3 million in loans and leases outstanding, were new deferrals and 27 loans, representing $22.3 million in loans and leases outstanding, were repeat deferrals. The following table summarizes information relating to loan deferments at March 31, 2021 and December 31, 2020:
March 31, 2021December 31, 2020
($ in thousands)Number of LoansBalanceNumber of LoansBalance
Commercial mortgage823,372 1844,352 
Commercial and industrial— 1770 
Multi-Family— 48,868 
Residential mortgage5450 3163 
Direct financing leases19756 20494 
Consumer1218 
Total Loans3324,582 4854,665 
The following table summarizes information relating to hospitality loan deferments (which are included in the commercial mortgage balance in the table above) at March 31, 2021 and December 31, 2020:
March 31, 2021December 31, 2020
($ in thousands)Number
of Loans
BalancePercent of total
loans in category
Number
of Loans
BalancePercent of total
loans in category
Restaurants— $— — %$375 6.78 %
Hotels16,350 23.15 %12 37,056 56.17 %
Total Loans$16,350 21.74 %13 $37,431 52.35 %


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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 March 31, 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.
Comparison of Financial Condition at March 31, 2021 and December 31, 2020
General.  Total assets increased $56.7 million, or 5.2%, to $1.1 billion at March 31, 2021 from $1.1 billion at December 31, 2020.  The increase was primarily a result of a $27.3 million, or 3.7%, increase in loans and leases, net of allowance to $763.7 million at March 31, 2021 from $736.4 million at December 31, 2020; and a $11.6 million, or 4.5%, increase in investment securities to $268.4 million at March 31, 2021, compared to $256.7 million at December 31, 2020. The balance of the increase in assets was attributable to a $16.8 million, or 34.4%, increase in cash and cash equivalents to $65.5 million at March 31, 2021, from $48.8 million at December 31, 2020.
Loans and Leases. Our loan and lease portfolio, net of allowance for loan and lease losses, increased $27.3 million, to $763.7 million at March 31, 2021 from $736.4 million at December 31, 2020.  The increase in loans and leases was attributable to an increase in commercial and industrial loans of $5.3 million (consisting of an increase of $11.4 million in PPP loans and a decrease of $6.1 million of non-PPP commercial and industrial loans), an increase in commercial mortgage loans of $7.0 million, and an increase in construction and development loans of $9.3 million.
Nonperforming loans and leases, consisting of nonaccrual loans and leases and accruing loans and leases more than 90 days past due, totaled $8.1 million or 1.05% of total loans and leases at March 31, 2021, compared to $4.8 million or 0.64% 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. 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 March 31, 2021, totaled $2.5 million, compared to $4.0 million at December 31, 2020.
At March 31, 2021, TDRs totaled $528,000, 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 March 31, 2021, the Company had outstanding 33 loan and lease modifications qualifying under the CARES Act related to the COVID-19 pandemic with an outstanding loan and lease balance totaling $24.6 million. This was a decrease from 48 loans and leases with modifications totaling $54.7 million at December 31, 2020. Loan and lease modifications in accordance with the CARES Act and related regulatory guidance are still subject to an evaluation in regards to determining whether or not a loan or lease is deemed to be impaired.
Allowance for Loan and Lease Losses. The allowance for loan and lease losses increased $372,000, or 3.5%, to $11.0 million at March 31, 2021 from $10.6 million at December 31, 2020.  At March 31, 2021, the allowance for loan and lease losses totaled 1.41% 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 March 31, 2021 and December 31, 2020 would increase eleven and eight basis points, respectively, if PPP loans, which totaled $54.7 million and $43.3 million at March 31, 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 three months of 2021 were $27,000 or 0.01% of average loans and leases outstanding, compared to net recoveries of $7,000 during the first three months of 2020.  The allowance for loan and lease losses to non-performing loans and leases was 135.1% at March 31, 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 March 31, 2021, which evaluation included consideration of potential credit losses due to the deteriorating economic conditions driven by the impact of the COVID-19 pandemic. 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

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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 as are loan payment deferrals.
Deposits. Total deposits increased $64.0 million, or 9.2%, to $757.1 million at March 31, 2021, from $693.0 million at December 31, 2020.  The increase in deposits from December 31, 2020 primarily was due to overall changes in spending and savings habits by business and consumers due to the COVID-19 pandemic as well as additional PPP funds and government stimulus payments made to customers in December 2020 and first quarter 2021. Brokered deposits increased $3.4 million to $26.7 million, or 3.5% of total deposits, at March 31, 2021, compared to $23.3 million, or 3.4% of total deposits, at December 31, 2020.  Demand deposit and savings accounts increased $50.1 million to $500.6 million at March 31, 2021, compared to $450.6 million at December 31, 2020.  At March 31, 2021, noninterest bearing deposits totaled $118.1 million, or 15.6% 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, were steady at $170.0 million at March 31, 2021 and December 31, 2020, consistent with the Company’s strategy to maintain excess liquidity in light of the ongoing COVID-19 pandemic and continuing economic uncertainty.
Stockholders’ Equity. Stockholders’ equity totaled $189.5 million at March 31, 2021, a decrease of $3.2 million, or 1.7%, from December 31, 2020.  The decrease in stockholders' equity from year-end 2020 was the result of a reduction in accumulated comprehensive income of $3.7 million, the repurchase of $1.9 million of Company common stock and the payment of $847,000 in dividends to Company stockholders during the current quarter, partially offset by net income of $2.6 million in the first quarter, an increase of $508,000 due to the Company's equity incentive plan, and a $183,000 increase due to ESOP shares earned.  The Company repurchased 142,764 shares of Company common stock at an average price of $13.58 per share for a total of $1.9 million during the first quarter of 2021.  The Company’s equity to asset ratio was 16.6% at March 31, 2021.  At March 31, 2021, the Bank’s Tier 1 capital to total assets ratio was 14.2% and the Bank’s capital was well in excess of all regulatory requirements.
Comparison of Results of Operations for the Three Months Ended March 31, 2021 and 2020.
General. Net income for the three months ended March 31, 2021 was $2.6 million, a $110,000 increase from net income of $2.5 million for the three months ended March 31, 2020. The $2.6 million in earnings equaled $0.22 diluted earnings per share for the first quarter of 2021, compared to $0.20 diluted earnings per share for the first quarter of 2020.
Interest Income.  Interest income increased $193,000, or 1.8%, to $10.6 million during the quarter ended March 31, 2021, compared to $10.5 million during the quarter ended March 31, 2020.  Interest income on loans and leases increased $565,000, or 6.2%, to $9.6 million for the quarter ended March 31, 2021, from $9.1 million for the comparable quarter in 2020, due to higher average balances in the loan and lease portfolio as well as higher yield. The average outstanding loan and lease balances were $718.0 million for the quarter ended March 31, 2021, compared to $686.2 million for the quarter ended March 31, 2020.  The average yield on loans and leases was 5.36% for the quarter ended March 31, 2021, compared to 5.28% for the comparable quarter in 2020. Interest income also included $772,000 in fees earned related to PPP loans in the quarter ended March 31, 2021 compared to none during the same quarter in 2020. As of March 31, 2021, total unrecognized fees on PPP loans were $1.9 million.
Interest income on investment securities, including FHLB stock, decreased $254,000, or 20.1%, to $1.0 million during the quarter ended March 31, 2021, from $1.3 million during the comparable quarter in 2020.  The decrease in interest income on investment securities from the comparable period in 2020 was due to a decrease in the weighted average yield of 68 basis points, partially offset by an increase in the average balances of investment securities including FHLB stock.  The average balance of investment securities, including FHLB stock, was $269.8 million for the quarter ended March 31, 2021, compared to $232.2 million for the quarter ended March 31, 2020.  The average yield on investment securities, including FHLB stock, was 1.50% for the first quarter of 2021, compared to 2.18% for the first quarter of 2020.  Interest income earned on cash and cash equivalents decreased to $7,000 in the first quarter of 2021 compared to $125,000 in the comparable quarter of 2020.  The decrease in interest income earned on cash and cash equivalents in the first quarter of 2021 compared to the comparable quarter of 2020 was due to the significantly lower yield earned on funds at the Federal Reserve after the rate reductions experienced in March 2020.
Interest Expense. Interest expense decreased $683,000, or 26.6%, to $1.9 million for the quarter ended March 31, 2021, from $2.6 million for the quarter ended March 31, 2020.  Interest expense on deposits decreased $637,000, or 34.9%, to $1.2 million for the quarter ended March 31, 2021, from $1.8 million for the comparable quarter in 2020. This decrease in interest expense was attributable to the lower weighted average rate paid on interest-bearing deposits, partially offset by higher

33


average deposit balances.  The weighted average rate paid on interest-bearing deposits was 0.77% for the quarter ended March 31, 2021, compared to 1.34% for the quarter ended March 31, 2020.  Average balance of interest-bearing deposits increased to $614.4 million, or 12.4%, in the quarter ended March 31, 2021, compared to $546.5 million in the comparable quarter in 2020. Interest expense on FHLB borrowings decreased $45,000, or 6.1%, to $694,000 in the first quarter of 2021 compared to $739,000 for the same quarter in 2020.  The average balance of FHLB borrowings totaled $170.0 million during the quarter ended March 31, 2021, compared to $164.1 million for the quarter ended March 31, 2020.  The weighted average rate paid on FHLB borrowings was 1.63% for the quarter ended March 31, 2021, a 17 basis point decline from 1.80% for the comparable quarter in 2020. 
Net Interest Income.  Net interest income before the provision for loan and lease losses increased $876,000, or 11.1%, to $8.8 million in the first quarter of 2021, compared to $7.9 million for the first quarter of 2020.  This increase was primarily due to an increase in average interest-earning assets during the first quarter of 2021 compared to the comparable period in 2020. Net interest margin (annualized) was 3.44% for the three months ended March 31, 2021, compared to 3.32% for the three months ended March 31, 2020.  The increase in net interest margin was primarily due to yields earned on interest-earning assets declining at a slower rate than rates paid on interest-bearing liabilities. The yield on the loans and lease portfolio was impacted by the PPP loan activity during the first quarter of 2021 as PPP loans are originated at an interest rate of 1%, although the effective yield is higher as a result of the origination fees paid to us by the SBA. The average yield on PPP loans was 7.85%, including the recognition of deferred fees, resulting in a positive impact to net interest margin of 17 basis points during the quarter ended March 31, 2021, compared to no impact in the comparable quarter in 2020 as no PPP loans were originated at that time.
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 March 31,
20212020
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$717,980 $9,628 5.36 %$686,180 $9,064 5.28 %
Securities260,763 940 1.44 %224,300 1,182 2.11 %
FHLB stock9,050 69 3.05 %7,922 81 4.09 %
Cash and cash equivalents and other31,595 0.09 %32,277 125 1.55 %
Total interest-earning assets1,019,388 10,644 4.18 %950,679 10,452 4.40 %
Interest-bearing liabilities:
Savings and money market accounts223,560 278 0.50 %163,948 292 0.71 %
Interest-bearing checking accounts142,457 81 0.23 %104,154 82 0.31 %
Certificate accounts248,360 828 1.33 %278,434 1,451 2.08 %
Borrowings170,000 694 1.63 %164,066 739 1.80 %
Total interest-bearing liabilities784,377 1,881 0.96 %710,602 2,564 1.44 %
Net interest income$8,763 $7,888 
Net earning assets$235,011 $240,077 
Net interest rate spread(1)
3.22 %2.96 %
Net interest margin(2)
3.44 %3.32 %
Average interest-earning assets to average interest-bearing liabilities
129.96 %133.79 %

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_____________
(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 March 31, 2021 totaled $400,00 compared to $210,000 for the three months ended March 31, 2020, a $190,000 or 90.5% increase. The increase in the provision for loan and lease losses was primarily due to the increase in non-performing loans experienced in the quarter.  Net charge-offs during the first quarter of 2021 were $27,000, compared to net recoveries of $7,000 in the first quarter of 2020.  
Non-Interest Income.  Non-interest income increased $814,000 or 85.4%, to $1.8 million for the quarter ended March 31, 2021, compared to $953,000 for the comparable quarter in 2020.  The increase in noninterest income resulted primarily from the increase in the gain on sale of loans and leases, which increased $737,000, or 322.8%, to $965,000 during the first quarter of 2021, compared to $228,000 during the first quarter of 2020 as a result of continued strong mortgage banking activity during the current quarter due to continuing low interest rates. There was no gain on the sale of securities recorded in the first quarter of 2021 while the Company recognized a net gain on the sale of securities of $69,000 in the first quarter of 2020. Card fee income increased $63,000, or 35.0%, to $243,000 in the first quarter of 2021 from $180,000 in the first quarter of 2020 due to increased debit card usage.  Loan and lease servicing income decreased $40,000, to a loss of $105,000 for the first quarter of 2021 compared to a loss of $66,000 for the comparable quarter in 2020, due to a larger impairment of mortgage servicing rights in the first quarter of 2021 compared to the first quarter of 2020. An impairment write down of $158,000 was recorded in the first quarter of 2021 compared to a write down of $114,000 in the first quarter of 2020.  Other loan fees increased $165,000, or 199.1%, to $248,000 in the first quarter of 2021 compared to the comparable quarter of 2020 primarily due to an increase in commercial loan processing fees of $168,000 over the comparable quarter of 2020. Service fees on deposit accounts decreased $60,000, or 23.6%, to $194,000 for the quarter ended March 31, 2021, compared to $255,000 for the quarter ended March 31, 2020. The decrease in service fees on deposit accounts during the first quarter of 2021 compared to the first quarter of 2020 was the result of higher customer balances maintained in deposit accounts.
Non-Interest Expense.  Non-interest expense increased $1.5 million, or 26.3%, to $7.0 million for the three months ended March 31, 2021, from $5.5 million for the same period in 2020.  Salaries and employee benefits increased $1.1 million, or 32.2%, to $4.4 million for the quarter ended March 31, 2021 from $3.4 million for the quarter ended March 31, 2020. The increase in salaries and benefits from the first quarter of 2020 primarily was due to $508,000 of expenses associated with equity awards granted during the fourth quarter of 2020 following shareholder approval of the Company's equity incentive plan, increased pension expense of $182,000, and increased compensation expense of $380,000 primarily as a result of annual merit increases and additional staff. Net occupancy expense increased $41,000, or 14.0% to $331,000 from $290,000 in the same quarter of 2020, primarily as a result of higher building maintenance expenses. Equipment expense increased $81,000, or 31.5% to $337,000 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.  Deposit insurance expense increased $15,000, or 26.8% compared to the first quarter of 2020 primarily due to growth in the Bank's balance sheet and subsequent decline in its leverage ratio.  Legal and professional fees increased $105,000, or 43.6% to $347,000 compared to the same quarter in 2020 primarily due to expenses associated with the contract renewal of the Company's data core processing, and routine litigation matters. Advertising expense declined $26,000 or 23.3%, from the first quarter of 2020, primarily due to less media advertising during the first quarter of 2021. Other expenses increased $107,000, or 16.1%, to $771,000 in the first quarter of 2021 compared to the same quarter of 2020 primarily due to loan related expenses increasing $40,000, debit card expenses increasing $8,000, and franchise tax expense increasing $70,000.
The Company froze its defined benefit plan (“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. Freezing the DB plan resulted in some immediate cost savings because future benefit accruals were stopped. However, the freeze did not impact unfunded liabilities or eliminate cost volatility. The frozen DB Plan remains subject to the interest rate, investment and demographic risks that apply to ongoing defined benefit plans. In addition, the frozen DB Plan is still subject to the same minimum funding, compliance, administrative and fiduciary requirements as an ongoing defined benefit plan. The Company still intends to terminate the Bank’s participation in the DB Plan, which will require it to pay an amount based on the underfunded status of the plan. As of March 31, 2021, the Company has accrued $17.5 million for this expense. The actual termination expense of the DB Plan may be higher or lower than the amount currently accrued for by the Company depending on a number of factors, including but not limited to 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 a result, the Company’s Board of Directors will continue

35


to monitor and evaluate the timing of, and costs associated with, termination of the DB Plan. Any additional expenses associated with the termination of the DB Plan will negatively impact our results of operations in the future.
Income Tax Expense.  Income tax expense decreased $65,000 during the three months ended March 31, 2021, compared to the same period in 2020, primarily due to a lower tax rate.  The effective tax rate for the first quarter of 2021 was 18.7% compared to 21.1% for the same quarter a year ago.
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-term 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 March 31, 2021, the Bank had $249.8 million in cash and unpledged available-for-sale investment securities for its cash needs.  The Bank had the ability to borrow an additional $34.2 million in FHLB advances based on existing collateral pledged.  First Bank Richmond’s liquidity may be supplemented if it participates in the FRB’s PPPLF pursuant to which First Bank Richmond would pledge PPP loans as collateral to obtain FRB non-recourse loans.  At March 31, 2021, we had no borrowings from the PPPLF, with the ability to borrow up to $54.7 million based on PPP loans unpledged at that date.
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 March 31, 2021, outstanding loan and lease commitments, including unused lines and letters of credit, totaled $167.3 million, including $88.0 million of undisbursed construction and land loans. Certificates of deposit scheduled to mature in one year or less at March 31, 2021, totaled $54.4 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 increased $16.8 million to $65.5 million as of March 31, 2021, from $48.8 million as of December 31, 2020.  Net cash used in operating activities was $2.4 million for the three months ended March 31, 2021. Net cash used in investing activities totaled $42.1 million during the three months ended March 31, 2021 and consisted primarily of increases in net loans and available-for-sale securities. The $61.3 million of net cash provided by financing activities during the three months ended March 31, 2021 was primarily the result of a $64.0 million net increase in deposits.

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As a separate legal entity from the Bank, the Company must provide for its own liquidity. At March 31, 2021, the Company, on an unconsolidated basis, had $29.6 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, possible utilization of the PPPLF facility, and access to the brokered CD market are sufficient in the economic environment created by the COVID-19 pandemic.
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 March 31, 2021, we had $167.4 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 March 31, 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.
ActualRequired for Adequate CapitalTo Be Well
Capitalized
AmountRatioAmountRatioAmountRatio

(Dollars in thousands)
As of March 31, 2021
Total risk-based capital (to risk weighted assets)$166,493 20.8 %$64,114 8.0 %$80,143 10.0 %
Tier 1 risk-based capital (to risk weighted assets)156,464 19.5 48,086 6.0 64,114 8.0 
Common equity tier 1 capital (to risk weighted assets)156,464 19.5 36,064 4.5 52,093 6.5 
Tier 1 leverage (core) capital (to adjusted tangible assets)156,464 14.2 44,120 4.0 55,150 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

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limitations on paying dividends, repurchasing shares, and paying discretionary bonuses.  At March 31, 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 March 31, 2021, it would have exceeded all regulatory capital requirements.
Impact of Inflation
The effects of price changes and inflation can vary substantially for most financial institutions. While management believes that inflation affects the economic value of total assets, it believes that it is difficult to assess the overall impact. Management believes this to be the case due to the fact that generally neither the timing nor the magnitude of inflationary changes in the economy coincides with changes in interest rates.  Since virtually all of our assets and liabilities are monetary in nature, interest rates generally have a more significant impact on our performance than does inflation.

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 March 31, 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 March 31, 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 March 31, 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.

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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 March 31, 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 October 21, 2020, the Board of Directors of the Company authorized a stock repurchase program for the repurchase of up to 664,969 shares, or approximately 5% of the Company’s then outstanding common shares.  This repurchase program will expire on November 16, 2021, unless completed sooner. The following table sets forth information with respect to our repurchases of our outstanding common shares during the three months ended March 31, 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
January 1, 2021 - January 31, 202144,491 $13.63 44,491 514,858 
February 1, 2021 - February 28, 202142,705 13.08 42,705 472,153 
March 1, 2021 - March 31, 202155,568 13.92 55,568 416,585 
142,764 $13.58 142,764 416,585 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
Nothing to report.
ITEM 4.  MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.  OTHER INFORMATION
Nothing to report.

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ITEM 6.  EXHIBITS
Exhibit
101.0The following materials for the quarter ended March 31, 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
104Cover Page Interactive Data File (embedded within the Inline XBRL document).


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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: May 14, 2021By:/s/ Garry D. Kleer
Garry D. Kleer
Chairman, President and CEO
(Duly Authorized Officer)
Date: May 14, 2021By:/s/ Donald A. Benziger
Donald A. Benziger
Executive Vice President and CFO
(Principal Financial and Accounting Officer)


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