Richmond Mutual Bancorporation, Inc. - Quarter Report: 2022 March (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended March 31, 2022


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

For the transition period from _______ to ________

Commission file number: 001-38956

RICHMOND MUTUAL BANCORPORATION, INC.

(Exact name of registrant as specified in its charter)


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

31 North 9th Street, Richmond, Indiana 47374

(Address of principal executive offices; Zip Code)

(765) 962-2581

(Registrant's telephone number, including area code)

None

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

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


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

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

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

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

Large accelerated filer

[ ]

Accelerated filer

[ ]

Non-accelerated filer

[X]

Smaller reporting company

[X]

Emerging growth company

[X]

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

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

There were 11,954,656 shares of Registrant’s common stock, par value of $0.01 per share, issued and outstanding as of May 13, 2022.

RICHMOND MUTUAL BANCORPORATION, INC. AND SUBSIDIARY

10-Q

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION


		Page
Item 1.	Condensed Consolidated Balance Sheets at March 31 , 202 2 (Unaudited) and December 31, 2021	1
	Condensed Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31 , 202 2 and 2021	2
	Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the Three Months Ended March 31 , 202 2 and 2021	3
	Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the Three Months Ended March 31 , 202 2 and 2021	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31 , 202 2 and 2021	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
Item 4.	Controls and Procedures	37

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5	Other Information	39
Item 6.	Exhibits	40

Signatures		41

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

Richmond Mutual Bancorporation, Inc.

Condensed Consolidated Balance Sheets


	March 31, 2022		December 31, 2021
	(Unaudited)
Assets
Cash and due from banks	$	8,065,393	$	8,473,558
Interest-bearing demand deposits	11,510,573		14,564,587
Cash and cash equivalents	19,575,966		23,038,145
Investment securities - available for sale	326,835,054		357,537,845
Investment securities - held to maturity	8,146,327		9,040,825
Loans held for sale	583,000		557,500
Loans and leases, net of allowance for losses of $12,317,000 and $12,108,000, respectively	849,987,070		832,846,017
Premises and equipment, net	14,145,653		14,347,088
Federal Home Loan Bank stock	9,780,900		9,992,400
Interest receivable	4,081,814		4,192,827
Mortgage-servicing rights	1,572,386		1,646,509
Cash surrender value of life insurance	3,640,799		3,619,140
Other assets	17,763,603		10,821,445

Total assets	$	1,256,112,572	$	1,267,639,741

Liabilities
Noninterest-bearing deposits	113,661,721		114,302,794
Interest-bearing deposits	795,833,541		785,872,606
Total deposits	909,495,262		900,175,400
Federal Home Loan Bank advances	182,000,000		180,000,000
Advances by borrowers for taxes and insurance	586,547		531,030
Interest payable	289,840		258,032
Other liabilities	6,398,208		6,193,944
Total liabilities	1,098,769,857		1,087,158,406

Commitments and Contingent Liabilities	—		—

Stockholders' Equity
Common stock, $0.01 par value
Authorized - 90,000,000 shares
Issued and outstanding - 12,310,004 shares and 12,400,195 shares at March 31, 2022 and December 31, 2021, respectively	123,100		124,002
Additional paid-in capital	113,263,417		114,339,810
Retained earnings	82,037,495		80,157,893
Unearned employee stock ownership plan (ESOP)	(12,744,530)		(12,928,359)
Accumulated other comprehensive loss	(25,336,767)		(1,212,011)
Total stockholders' equity	157,342,715		180,481,335

Total liabilities and stockholders' equity	$	1,256,112,572	$	1,267,639,741

See Notes to Condensed Consolidated Statements.

Richmond Mutual Bancorporation, Inc.

Condensed Consolidated Statements of Income

(Unaudited)


	Three Months Ended March 31,
		2022		2021
Interest Income
Loans and leases		$	10,265,959	$	9,867,278
Investment securities		1,668,651		1,009,239
Other		7,478		6,904
Total interest income		11,942,088		10,883,421
Interest Expense
Deposits		1,248,651		1,187,272
Borrowings		639,823		693,951
Total interest expense		1,888,474		1,881,223
Net Interest Income		10,053,614		9,002,198
Provision for losses on loans and leases		200,000		400,000
Net Interest Income After Provision for Losses on Loans and Leases		9,853,614		8,602,198
Noninterest Income
Service charges on deposit accounts		234,545		194,439
Card fee income		277,770		242,515
Loan and lease servicing fees		27,868		(105,450)

Net gains on loan and lease sales		242,986		964,817
Other income		332,193		231,290
Total noninterest income		1,115,362		1,527,611
Noninterest Expenses
Salaries and employee benefits		4,451,297		4,445,732
Net occupancy expenses		363,533		330,640
Equipment expenses		310,555		336,564
Data processing fees		658,915		526,173
Deposit insurance expense		81,000		71,000
Printing and office supplies		40,284		31,414
Legal and professional fees		347,500		346,518
Advertising expense		92,192		84,044
Bank service charges		29,801		30,751
Real estate owned expense		2,501		2,332
Loss on sale of real estate owned		—		1,278
Other expenses		956,241		771,210
Total noninterest expenses		7,333,819		6,977,656
Income Before Income Tax Expense		3,635,157		3,152,153
Provision for income taxes (includes $0 and $0, respectively, related to income tax expense from reclassification of items)		617,565		589,667
Net Income		$	3,017,592	$	2,562,486
Earnings Per Share
Basic		$	0.27	$	0.22
Diluted		$	0.26	$	0.22

See Notes to Condensed Consolidated Statements.

Richmond Mutual Bancorporation, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)


	Three Months Ended March 31,
		2022		2021

Net Income		$	3,017,592	$	2,562,486

Other Comprehensive Loss
Unrealized loss on available-for-sale securities, net of tax benefit of $6,412,910, and $972,966, respectively.		(24,124,756)		(3,660,206)

		(24,124,756)		(3,660,206)

Comprehensive Loss		$	(21,107,164)	$	(1,097,720)

See Notes to Condensed Consolidated Statements.

Richmond Mutual Bancorporation, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)


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

Balances, December 31, 2021	12,400,195	$	124,002	$	114,339,810	$	80,157,893	$	(12,928,359)	$	(1,212,011)	$	180,481,335
Net income	—	—		—		3,017,592		—		—		3,017,592
Other comprehensive loss	—	—		—		—		—		(24,124,756)		(24,124,756)
ESOP shares earned	—	—		42,292		—		183,829		—		226,121

Stock based compensation	—	—		379,421		—		—		—		379,421

Common stock dividends ($0.10 per share)	—	—		—		(1,137,990)		—		—		(1,137,990)

Repurchase of common stock	(90,191)	(902)		(1,498,106)		—		—		—		(1,499,008)
Balances, March 31, 2022	12,310,004	$	123,100	$	113,263,417	$	82,037,495	$	(12,744,530)	$	(25,336,767)	$	157,342,715


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

Balances, December 31, 2020	13,193,760	$	131,938	$	124,246,425	$	78,290,113	$	(13,664,373)	$	3,708,605	$	192,712,708
Net income	—	—		—		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, 2021	13,050,996	$	130,510	$	122,814,920	$	80,005,652	$	(13,479,847)	$	48,399	$	189,519,634

See Notes to Condensed Consolidated Statements.

Richmond Mutual Bancorporation, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended March 31,
	2022		2021
Operating Activities
Net income	$	3,017,592	$	2,562,486
Items not requiring (providing) cash
Provision for loan losses	200,000		400,000
Depreciation and amortization	265,213		293,402
Deferred income tax	(72,711)		(93,250)
Stock based compensation	379,421		507,624
Investment securities amortization, net	451,165		712,845

Net gains on loan and lease sales	(242,986)		(964,817)
Loss on sale of real estate owned	—		1,278
Accretion of loan origination fees	(460,332)		(881,097)
Amortization of mortgage-servicing rights	40,748		128,288
ESOP shares expense	226,121		182,705
Increase in cash surrender value of life insurance	(21,659)		(21,361)
Loans originated for sale	(10,784,144)		(27,868,042)
Proceeds on loans sold	10,809,644		26,770,692
Net change in
Interest receivable	111,013		499,613
Other assets	(274,611)		(500,776)
Other liabilities	204,264		(4,151,093)
Interest payable	31,808		(14,225)
Net cash provided by (used in) operating activities	3,880,546		(2,435,728)

Investing Activities
Purchases of securities available for sale	(12,357,092)		(37,779,114)
Proceeds from maturities and paydowns of securities available for sale	12,061,563		18,783,517

Proceeds from maturities and paydowns of securities held to maturity	891,488		2,010,016
Net change in loans	(16,824,787)		(25,020,579)
Proceeds from sales of real estate owned	—		30,270
Purchases of premises and equipment	(63,778)		(119,581)
Proceeds from sale of FHLB stock	211,500		—
Net cash used in investing activities	(16,081,106)		(42,095,471)

Financing Activities
Net change in
Demand and savings deposits	23,120,244		50,062,196
Certificates of deposit	(13,800,382)		13,966,055
Advances by borrowers for taxes and insurance	55,517		43,386
Proceeds from FHLB advances	15,000,000		—
Repayment of FHLB advances	(13,000,000)		—
Repurchase of common stock	(1,499,008)		(1,938,736)

Dividends paid	(1,137,990)		(846,947)
Net cash provided by financing activities	8,738,381		61,285,954

Net Change in Cash and Cash Equivalents	(3,462,179)		16,754,755
Cash and Cash Equivalents, Beginning of Period	23,038,145		48,768,457
Cash and Cash Equivalents, End of Period	$	19,575,966	$	65,523,212
Additional Cash Flows and Supplementary Information
Interest paid	$	1,856,666	$	1,895,448
Transfers from loans to other real estate owned	58,500		—

See Notes to Condensed Consolidated Statements.

Richmond Mutual Bancorporation, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Table Dollar Amounts in Thousands, Except Per Share Amounts)

Note 1: Basis of Presentation

The accompanying financial information is unaudited and has been prepared from the consolidated financial statements of Richmond Mutual Bancorporation, Inc., and its wholly owned direct and indirect subsidiaries, First Bank Richmond and FB Richmond Holdings, Inc. References in this document to Richmond Mutual Bancorporation refer to Richmond Mutual Bancorporation, Inc. References to “we,” “us,” and “our” or the “Company” refers to Richmond Mutual Bancorporation and its wholly-owned direct and indirect subsidiaries, First Bank Richmond and FB Richmond Holdings, Inc., unless the context otherwise requires.

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, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 30, 2022 (SEC File No. 001-38956). However, in the opinion of management, all adjustments which are necessary for a fair presentation of the consolidated financial statements have been included. Those adjustments consist only of normal recurring adjustments. The results of operations for the period are not necessarily indicative of the results to be expected for the full year.

Loans

For all loan classes, the accrual of interest is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. For all loan classes, the entire balance of the loan is considered past due if the minimum payment contractually required to be paid is not received by the contractual due date. For all loan classes, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

The Company charges off residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance, which provides for the charge-down of 1-4 family first and junior lien mortgages to the net realizable value, less costs to sell when the loan is 120 days past due, charge-off of unsecured open-end loans when the loan is 90 days past due, and charge down to the net realizable value when other secured loans are 90 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off.

For all classes, all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

When cash payments are received on impaired loans in each loan class, the Company records the payment as interest income unless collection of the remaining recorded principal amount is doubtful, at which time payments are used to reduce the principal balance of the loan. Troubled debt restructured loans recognize interest income on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms, no principal reduction has been granted and the loan has demonstrated the ability to perform in accordance with the renegotiated terms for a period of at least six months.

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 U.S. 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 2022.

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, 2022 the Company had no loans outstanding that were modified under the CARES Act guidance.

The CARES Act also approved the Paycheck Protection Program ("PPP"), administered by the Small Business Administration ("SBA") with funding provided by financial institutions. The 2021 Consolidated Appropriations Act approved a new round of PPP loans in 2021. The PPP provides loans to eligible businesses through financial institutions like First Bank Richmond, 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 if the borrower's loan is not forgiven and is then not repaid by the member. 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 originated approximately $38.2 million in PPP loans during 2021, of which approximately $6.0 million were outstanding at March 31, 2022.

The Jumpstart Our Business Startups Act (the "JOBS Act"), 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”. 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 No. 2019-04 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 credit loss ("CECL") methodology on the loan and investment portfolios to identify the necessary modifications in accordance with ASU 2016-13. A CECL implementation team consisting of management from multiple areas of the Company have been involved in evaluating loss estimation methods and application of these methods to the specific segments and subsegments of the loan portfolio. Management has been actively monitoring FASB developments and evaluating the use of the different methods allowed. Due to continuing development of our methodology, additional time is required to quantify the effect of CECL on the Company's Consolidated Financial Statements. The Company continues to refine its modeling and will finalize a method or methods of adoption in time for the effective date.

In March 2022 the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The ASU eliminates the accounting guidance for troubled debt restructured loans (“TDRs”) by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, the ASU requires public business entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. This ASU will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, upon the Company’s adoption of the amendments in ASU 2016-13, which is commonly referred to as the current expected credit loss methodology.

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 Company does not expect the adoption of ASU No. 2020-04 to have a material impact on its consolidated financial statements.

In October 2020, the FASB issued ASU No. 2020-08, “Receivables – Nonrefundable Fees and Other Costs”. ASU No. 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 No. 2020-08 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of ASU No. 2020-08 did not have a material impact on the Company's consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU No. 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 No. 2019-12 are effective for public business entities with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted ASU No. 2019-12 on January 1, 2021. The adoption of ASU No. 2019-12 did not have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU contains some technical adjustments related to the fair value disclosure requirements of public companies. Included in this ASU is the additional disclosure requirement of unrealized gains and losses for the period in recurring level 3 fair value disclosures and the range and weighted average of significant unobservable inputs, among other technical changes. The Company adopted ASU No. 2018-13 on January 1, 2020. The adoption of ASU No. 2018-13 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 are 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 became effective for annual periods and interim periods within those annual periods beginning after December 15, 2021. The Company adopted the amendments to ASU No. 2016-02 on January 1, 2022. The adoption of the amendments did not have a material impact on the Company's consolidated financial statements.

Note 3: Investment Securities

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


	March 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale

SBA Pools	$	8,232	$	—	$	342	$	7,890
Federal agencies	15,000		—		1,154		13,846
State and municipal obligations	168,866		65		19,334		149,597
Mortgage-backed securities - government-sponsored enterprises (GSE) residential	156,309		6		11,021		145,294
Corporate obligations	10,500		—		292		10,208

	358,907		71		32,143		326,835
Held to maturity
State and municipal obligations	8,146		40		19		8,167
	8,146		40		19		8,167

Total investment securities	$	367,053	$	111	$	32,162	$	335,002


	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale

SBA Pools	$	8,691	$	29	$	107	$	8,613
Federal agencies	15,000		—		274		14,726
State and municipal obligations	166,489		2,261		1,298		167,452
Mortgage-backed securities - government-sponsored enterprises (GSE) residential	164,629		712		2,831		162,510
Corporate obligations	4,250		2		28		4,224
Equity securities	13		—		—		13
	359,072		3,004		4,538		357,538
Held to maturity
State and municipal obligations	9,041		147		2		9,186
	9,041		147		2		9,186

Total investment securities	$	368,113	$	3,151	$	4,540	$	366,724

The amortized cost and fair value of securities at March 31, 2022, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value

Within one year	$	1,159	$	1,161	$	1,196	$	1,199
One to five years	8,668		8,564		4,862		4,868
Five to ten years	44,608		42,636		1,198		1,209
After ten years	148,163		129,180		890		891
	202,598		181,541		8,146		8,167
Mortgage-backed securities –GSE residential	156,309		145,294		—		—


Totals	$	358,907	$	326,835	$	8,146	$	8,167

Securities with a carrying value of $120,074,000 and $136,463,000 were pledged at March 31, 2022 and December 31, 2021, respectively, to secure certain deposits and for other purposes as permitted or required by law.

There were no sales of securities available for sale for the three months ended March 31, 2022 and 2021.

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, 2022 and December 31, 2021 was $315,723,000 and $223,842,000, respectively, which is approximately 94% and 61% 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, 2022 and December 31, 2021:


Description of Securities	March 31, 2022
	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available-for-sale
SBA Pools	$	2,486	$	110	$	4,582	$	232	$	7,068	$	342
Federal agencies	9,292		708		4,554		446		13,846		1,154
State and municipal obligations	120,755		15,366		20,615		3,968		141,370		19,334
Mortgage-backed securities - GSE residential	123,280		8,535		20,548		2,486		143,828		11,021
Corporate obligations	8,458		292		—		—		8,458		292
Total available-for-sale	264,271		25,011		50,299		7,132		314,570		32,143

Held-to-maturity
State and municipal obligations	1,153		19		—		—		1,153		19

Total temporarily impaired securities	$	265,424	$	25,030	$	50,299	$	7,132	$	315,723	$	32,162


Description of Securities	December 31, 2021
	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Available-for-sale

SBA Pools	$	2,838	$	81	$	3,214	$	26	$	6,052	$	107
Federal agencies	14,726		274		—		—		14,726		274
State and municipal obligations	74,235		1,044		7,809		254		82,044		1,298
Mortgage-backed securities - GSE residential	111,104		2,576		6,523		255		117,627		2,831
Corporate obligations	2,972		28		—		—		2,972		28
Total available-for-sale	205,875		4,003		17,546		535		223,421		4,538

Held-to-maturity
State and municipal obligations	421		2		—		—		421		2

Total temporarily impaired securities	$	206,296	$	4,005	$	17,546	$	535	$	223,842	$	4,540

Federal Agency Obligations. The unrealized losses on the Company’s investments in direct obligations of U.S. federal agencies were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. 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, 2022.

SBA Pools and Mortgage-Backed Securities - GSE Residential. The unrealized losses on the Company’s investment in mortgage-backed securities and SBA pools were caused by interest rate changes and illiquidity. The Company expects to recover the amortized cost basis over the term of the securities. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2022.

State, Municipal, and Corporate 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, 2022.

Note 4: Loans, Leases and Allowance

The following table shows the composition of the loan and lease portfolio at March 31, 2022 and December 31, 2021:


	March 31, 2022		December 31, 2021

Commercial mortgage	$	257,755	$	261,202
Commercial and industrial	96,609		99,682
Construction and development	102,123		93,678
Multi-family	116,439		107,421
Residential mortgage	135,155		134,155
Home equity	8,393		7,146
Direct financing leases	130,451		126,762
Consumer	16,130		15,905
	863,055		845,951
Less
Allowance for loan and lease losses	12,317		12,108
Deferred loan fees	751		997

	$	849,987	$	832,846

The following tables present the activity in the allowance for loan and lease losses for the three months ended March 31, 2022 and 2021:


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












Three Months Ended March 31, 2022:
Commercial mortgage	$	4,742	$	(19)	$	—	$	7	$	4,730
Commercial and industrial	1,639		(97)		—		15		1,557
Construction and development	2,286		148		—		—		2,434
Multi-family	1,875		157		—		—		2,032
Residential mortgage	263		(6)		—		6		263
Home equity	29		6		—		—		35
Leases	1,079		(15)		(10)		10		1,064
Consumer	195		26		(24)		5		202
Total	$	12,108	$	200	$	(34)	$	43	$	12,317


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












Three Months Ended March 31, 2021:
Commercial mortgage	$	4,628	$	(208)	$	—	$	6	$	4,426
Commercial and industrial	2,270		(50)		—		18		2,238
Construction and development	1,068		660		—		—		1,728
Multi-family	1,039		3		—		—		1,042
Residential mortgage	324		(2)		—		6		328
Home equity	18		1		—		—		19
Leases	1,054		75		(194)		94		1,029
Consumer	185		(79)		(11)		54		149
Total	$	10,586	$	400	$	(205)	$	178	$	10,959

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, 2022 and December 31, 2021:


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

As of March 31, 2022:
Commercial mortgage	$	—	$	4,730	$	4,730	$	116	$	257,639	$	257,755
Commercial and industrial	298		1,259		1,557		978		95,631		96,609
Construction and development	750		1,684		2,434		4,900		97,223		102,123
Multi-family	—		2,032		2,032		—		116,439		116,439
Residential mortgage	—		263		263		117		135,038		135,155
Home equity	—		35		35		—		8,393		8,393
Leases	—		1,064		1,064		—		130,451		130,451
Consumer	—		202		202		—		16,130		16,130
Total	$	1,048	$	11,269	$	12,317	$	6,111	$	856,944	$	863,055


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

As of December 31, 2021:
Commercial mortgage	$	—	$	4,742	$	4,742	$	128	$	261,074	$	261,202
Commercial and industrial	299		1,340		1,639		995		98,687		99,682
Construction and development	750		1,536		2,286		4,900		88,778		93,678
Multi-family	—		1,875		1,875		—		107,421		107,421
Residential mortgage	—		263		263		119		134,036		134,155
Home equity	—		29		29		—		7,146		7,146
Leases	—		1,079		1,079		—		126,762		126,762
Consumer	—		195		195		—		15,905		15,905
Total	$	1,049	$	11,059	$	12,108	$	6,142	$	839,809	$	845,951

The Company rates all loans and leases by credit quality using the following designations:

Grade 1 – Exceptional

Exceptional loans and leases are top-quality loans to individuals whose financial credentials are well known to the Company. These loans and leases have excellent sources of repayment, are well documented and/or virtually free of risk (i.e., CD secured loans).

Grade 2 – Quality Loans and Leases

These loans and leases have excellent sources of repayment with no identifiable risk of collection, and they conform in all respects to Company policy and Indiana Department of Financial Institutions (“IDFI”) and Federal Deposit Insurance Corporation (“FDIC”) regulations. Documentation exceptions are minimal or are in the process of being corrected and are not of a type that could subsequently expose the Company to risk of loss.

Grade 3 – Acceptable Loans

This category is for “average” quality loans and leases. These loans and leases have adequate sources of repayment with little identifiable risk of collection and they conform to Company policy and IDFI/FDIC regulations.

Grade 4 – Acceptable but Monitored

Loans and leases in this category may have a greater than average risk due to financial weakness or uncertainty but do not appear to require classification as special mention or substandard loans. Loans and leases rated “4” need to be monitored on a regular basis to ascertain that the reasons for placing them in this category do not advance or worsen.

Grade 5 – Special Mention

Loans and leases in this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or in the Company’s credit position at some future date. Special Mention loans and leases are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. This special mention rating is designed to identify a specific level of risk and concern about an asset’s quality. Although a special mention loan or leases has a higher probability of default than a pass rated loan or lease, its default is not imminent.

Grade 6 – Substandard

Loans and leases in this category are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans and leases so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Substandard loans and leases have a high probability of payment default, or they have other well-defined weaknesses. Such loans and leases have a distinct potential for loss; however, an individual loan’s or lease’s potential for loss does not have to be distinct for the loan or lease to be rated substandard.

The following are examples of situations that might cause a loan or lease to be graded a “6”:

•Cash flow deficiencies (losses) jeopardize future loan or lease payments.

•Sale of non-collateral assets has become a primary source of loan or lease repayment.

•The relationship has deteriorated to the point that sale of collateral is now the Company’s primary source of repayment, unless this was the original source of loan or lease repayment.

•The borrower is bankrupt or for any other reason future repayment is dependent on court action.

Grade 7 – Doubtful

A loan or lease classified as doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly questionable and improbable. A doubtful loan or lease has a high probability of total or substantial loss. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. Because of high probability of loss, nonaccrual accounting treatment will be required for doubtful loans and leases.

Grade 8 – Loss

Loans and leases classified loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan or lease has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan or lease even though partial recovery may be effected in the future.

No material changes have been made to the risk characteristics pertaining to the loan and lease portfolio contained in the Company's 2021 Form 10-K.

The following tables present the credit risk profile of the Company’s loan and lease portfolio based on rating category and payment activity as of March 31, 2022 and December 31, 2021:


	Pass		Special Mention		Substandard		Doubtful		Loss		Total

As of March 31, 2022:
Commercial mortgage	$	252,647	$	4,992	$	116	$	—	$	—	$	257,755
Commercial and industrial	88,227		7,032		1,350		—		—		96,609
Construction and development	97,223		—		4,900		—		—		102,123
Multi-family	116,439		—		—		—		—		116,439
Residential mortgage	133,294		—		1,861		—		—		135,155
Home equity	8,327		—		66		—		—		8,393
Leases	130,308		—		97		46		—		130,451
Consumer	16,112		—		18		—		—		16,130
Total	$	842,577	$	12,024	$	8,408	$	46	$	—	$	863,055


	Pass		Special Mention		Substandard		Doubtful		Loss		Total

As of December 31, 2021:
Commercial mortgage	$	256,043	$	5,031	$	128	$	—	$	—	$	261,202
Commercial and industrial	91,082		7,191		1,409		—		—		99,682
Construction and development	88,778		—		4,900		—		—		93,678
Multi-family	107,421		—		—		—		—		107,421
Residential mortgage	132,223		—		1,932		—		—		134,155
Home equity	7,097		—		49		—		—		7,146
Leases	126,707		—		13		42		—		126,762
Consumer	15,883		—		22		—		—		15,905
Total	$	825,234	$	12,222	$	8,453	$	42	$	—	$	845,951

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, 2022 and December 31, 2021:


	March 31, 2022
	Delinquent Loans and Leases								Current		Total Portfolio Loans and Leases		Total Loans and Leases > 90 Days Accruing
	30-59 Days Past Due		60-89 Days Past Due		90 Days and Over		Total Past Due

Commercial mortgage	$	27	$	418	$	116	$	561	$	257,194	$	257,755	$	—
Commercial and industrial	387		570		367		1,324		95,285		96,609		—
Construction and development	96		—		4,900		4,996		97,127		102,123		—
Multi-family	—		—		—		—		116,439		116,439		—
Residential mortgage	647		360		1,861		2,868		132,287		135,155		1,745
Home equity	120		—		31		151		8,242		8,393		31
Leases	86		152		—		238		130,213		130,451		—
Consumer	88		59		18		165		15,965		16,130		18

Totals	$	1,451	$	1,559	$	7,293	$	10,303	$	852,752	$	863,055	$	1,794


	December 31, 2021
	Delinquent Loans and Leases								Current		Total Portfolio Loans and Leases		Total Loans and Leases > 90 Days Accruing
	30-59 Days Past Due		60-89 Days Past Due		90 Days and Over		Total Past Due

Commercial mortgage	$	29	$	—	$	128	$	157	$	261,045	$	261,202	$	—
Commercial and industrial	33		579		366		978		98,704		99,682		—
Construction and development	55		96		4,900		5,051		88,627		93,678		—
Multi-family	—		—		—		—		107,421		107,421		—
Residential mortgage	710		174		1,932		2,816		131,339		134,155		1,813
Home equity	131		—		12		143		7,003		7,146		12
Leases	144		82		—		226		126,536		126,762		—
Consumer	59		30		22		111		15,794		15,905		22

Totals	$	1,161	$	961	$	7,360	$	9,482	$	836,469	$	845,951	$	1,847

The following tables present the Company’s impaired loans and specific valuation allowance at March 31, 2022 and December 31, 2021:


	March 31, 2022
	Recorded Balance		Unpaid Principal Balance		Specific Allowance

Impaired loans without a specific valuation allowance
Commercial mortgage	$	116	$	199	$	—
Commercial and industrial	366		566		—
Residential mortgage	117		243		—
	$	599	$	1,008	$	—

Impaired loans with a specific valuation allowance

Commercial and industrial	$	612	$	648	$	298
Construction and development	4,900		4,900		750

	$	5,512	$	5,548	$	1,048

Total impaired loans
Commercial mortgage	$	116	$	199	$	—
Commercial and industrial	978		1,214		298
Construction and development	4,900		4,900		750
Residential mortgage	117		243		—
Total impaired loans	$	6,111	$	6,556	$	1,048


	December 31, 2021
	Recorded Balance		Unpaid Principal Balance		Specific Allowance

Impaired loans without a specific valuation allowance
Commercial mortgage	$	128	$	199	$	—
Commercial and industrial	367		566		—
Residential mortgage	119		244		—
	$	614	$	1,009	$	—

Impaired loans with a specific valuation allowance

Commercial and industrial	$	628	$	658	$	299
Construction and development	4,900		4,900		750
	$	5,528	$	5,558	$	1,049

Total impaired loans
Commercial mortgage	$	128	$	199	$	—
Commercial and industrial	995		1,224		299
Construction and development	4,900		4,900		750
Residential mortgage	119		244		—
Total impaired loans	$	6,142	$	6,567	$	1,049

The following tables present the Company’s average investment in impaired loans and leases, and interest income recognized for the three months ended March 31, 2022 and 2021:


	Average Investment in Impaired Loans and Leases		Interest Income Recognized

Three Months Ended March 31, 2022:
Total impaired loans
Commercial mortgage	$	122	$	12
Commercial and industrial	987		7
Construction and development	4,900		—
Residential mortgage	118		1
Total impaired loans and leases	$	6,127	$	20


	Average Investment in Impaired Loans and Leases		Interest Income Recognized

Three Months Ended March 31, 2021:
Total impaired loans
Commercial mortgage	$	76	$	—
Commercial and industrial	1,086		10
Construction and development	2,450		—
Residential mortgage	180		2
Total impaired loans and leases	$	3,792	$	12

The following table presents the Company’s nonaccrual loans and leases at March 31, 2022 and December 31, 2021:


	March 31, 2022		December 31, 2021

Commercial mortgage	$	116	$	128
Commercial and industrial	978		995
Construction	4,900		4,900
Residential mortgage	117		119
Leases	46		42

	$	6,157	$	6,184

During the three months ended March 31, 2022 and 2021, there were no newly classified TDRs. For the three months ended March 31, 2022 and 2021, the Company recorded no charge-offs related to TDRs. As of March 31, 2022 and December 31, 2021, TDRs had a related allowance of $48,000 and $49,000, respectively. During the three months ended March 31, 2022, there were no TDRs for which there was a payment default within the first 12 months of the modification.

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

In March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic. As of March 31, 2022, the Company had no loan and lease modifications outstanding related to the COVID-19 pandemic in accordance with the CARES Act.

At March 31, 2022 and December 31, 2021, the balance of real estate owned included $86,000 and $27,000, respectively, of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property. At March 31, 2022 and December 31, 2021, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceeds were in process was $885,000 and $885,000, respectively.

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


	March 31, 2022		December 31, 2021

Total minimum lease payments to be received	$	143,600	$	140,214
Initial direct costs	7,870		7,035
	151,470		147,249
Less: Unearned income	(21,019)		(20,487)

Net investment in direct finance leases	$	130,451	$	126,762

There were no leases serviced by the Company for the benefit of others at March 31, 2022 and December 31, 2021. Certain leases have been sold from time to time by the Company with partial recourse. The Company estimates and records its obligation based upon historical loss percentages. At both March 31, 2022 and December 31, 2021, the Company did not have any recorded recourse obligations on leases sold.

The following table summarizes the future minimum lease payments receivable subsequent to March 31, 2022:


2022	$	41,326
2023	43,736
2024	31,387
2025	18,375
2026	7,858
Thereafter	918

	$	143,600

Note 5: Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3 Unobservable inputs supported by little or no market activity that are significant to the fair value of the assets or liabilities

Recurring Measurements

The following tables present the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2022 and December 31, 2021:


			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, 2022
Available-for-sale securities

SBA Pools	$	7,890	$	—	$	7,890	$	—
Federal agencies	13,846		—		13,846		—
State and municipal obligations	149,597		—		149,597		—
Mortgage-backed securities - GSE residential	145,294		—		145,294		—
Corporate obligations	10,208		—		10,208		—

	$	326,835	$	—	$	326,835	$	—


			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, 2021
Available-for-sale securities

SBA Pools	$	8,613	$	—	$	8,613	$	—
Federal agencies	14,726		—		14,726		—
State and municipal obligations	167,452		—		167,452		—
Mortgage-backed securities - GSE residential	162,510		—		162,510		—
Corporate obligations	4,224		—		4,224		—
Equity securities	13		13		—		—
	$	357,538	$	13	$	357,525	$	—

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, 2022.

Available-for-Sale Securities

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

Nonrecurring Measurements

The following table presents the fair value measurement of assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2022 and December 31, 2021:


			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, 2022
Impaired loans, collateral dependent	$	314	$	—	$	—	$	314
Mortgage-servicing rights	1,572		—		—		1,572

December 31, 2021
Impaired loans, collateral dependent	$	4,587	$	—	$	—	$	4,587
Mortgage-servicing rights	1,647		—		—		1,647

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

Collateral-Dependent Impaired Loans, Net of ALLL

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

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

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

Mortgage-Servicing Rights

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

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

Unobservable (Level 3) Inputs

The following tables present the fair value measurement of assets recognized in the accompanying consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2022 and December 31, 2021:

Fair Value at March 31,
2022

Valuation
Technique

Unobservable
Inputs

Range

Collateral-dependent impaired loans

314

Appraisal

Marketability discount

0 - 42%

Mortgage-servicing rights

1,572

Discounted cash flow

Discount rate

10%

Fair Value at December 31,
2021

Valuation
Technique

Unobservable
Inputs

Range

Collateral-dependent impaired loans

4,587

Appraisal

Marketability discount

0 - 39%

Mortgage-servicing rights

1,647

Discounted cash flow

Discount rate

10%

Fair Value of Financial Instruments

The following tables present estimated fair values of the Company’s financial instruments at March 31, 2022 and December 31, 2021:


			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, 2022
Financial assets
Cash and cash equivalents	$	19,576	$	19,576	$	—	$	—
Available-for-sale securities	326,835		—		326,835		—
Held-to-maturity securities	8,146		—		8,167		—
Loans held for sale	583		—		—		579
Loans and leases receivable, net	849,987		—		—		849,749
Federal Reserve and FHLB stock	9,781		—		9,781		—
Interest receivable	4,082		—		4,082		—
Financial liabilities
Deposits	909,495		—		907,798		—
FHLB advances	182,000		—		184,801		—
Interest payable	290		—		290		—


			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, 2021
Financial assets
Cash and cash equivalents	$	23,038	$	23,038	$	—	$	—
Available-for-sale securities	357,538		13		357,525		—
Held-to-maturity securities	9,041		—		9,186		—
Loans held for sale	558		—		—		555
Loans and leases receivable, net	832,846		—		—		833,975
Federal Reserve and FHLB stock	9,992		—		9,992		—
Interest receivable	4,193		—		4,193		—
Financial liabilities
Deposits	900,175		—		900,528		—
FHLB advances	180,000		—		185,065		—
Interest payable	258		—		258		—

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, 2022		Three Months Ended March 31, 2021

Net income	$	3,018	$	2,562
Shares outstanding for Basic EPS:
Average shares outstanding	12,347,125		13,124,015
Less: average restricted stock award shares not vested	348,395		431,501
Less: average unearned ESOP Shares	951,205		1,005,311
Shares outstanding for Basic EPS	11,047,525		11,687,203

Additional Dilutive Shares	426,940		176,705

Shares outstanding for Diluted EPS	11,474,465		11,863,908

Basic Earnings Per Share	$	0.27	$	0.22
Diluted Earnings Per Share	$	0.26	$	0.22

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 $53,000 and $52,000 for the three months ended March 31, 2022 and 2021, respectively.

Employee Stock Ownership Plan

As part of the reorganization and related stock offering, the Company established an Employee Stock Ownership Plan, or ESOP, covering substantially all employees. The ESOP acquired 1,082,130 shares of Company common stock at an average price of $13.59 per share on the open market with funds provided by a loan from the Company. Dividends on unallocated shares used to repay the loan for the Company are recorded as a reduction of the loan or accrued interest, as applicable. Dividends on allocated shares paid to participants are reported as compensation expense. Unearned ESOP shares which have not yet been allocated to ESOP participants are excluded from the computation of average shares outstanding for earnings per share calculation. Accordingly, $12,744,530 and $12,928,359 of common stock acquired by the ESOP was shown as a reduction of stockholders’ equity at March 31, 2022 and December 31, 2021, respectively. Shares are released to participants proportionately as the loan is repaid.

ESOP expense for the three months ended March 31, 2022 and 2021 was $226,000 and $183,000, respectively.


	March 31, 2022		December 31, 2021

Earned ESOP shares	144,302		130,775
Unearned ESOP shares	937,828		951,355
Total ESOP shares	1,082,130		1,082,130

Quoted per share price	$	17.06	$	16.05
Fair value of earned shares	$	2,462	$	2,099
Fair value of unearned shares	$	15,999	$	15,269

Richmond Mutual Bancorporation, Inc. 2020 Equity Incentive Plan

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

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

The following table summarizes the restricted stock awards activity in the 2020 EIP during the three months ended March 31, 2022.


	Three Months Ended March 31, 2022
	Number of Restricted Shares	Weighted Average Grant Date Fair Value

Non-vested, beginning of period	348,395	$	10.56
Granted	—	—
Vested	—	—
Forfeited	—	—
Non-vested, March 31, 2022	348,395	10.56

Total compensation cost recognized in the income statement for restricted stock awards during the three months ended March 31, 2022 was $226,000, and the related tax benefit recognized was $48,000. As of March 31, 2022, unrecognized compensation expense related to restricted stock awards was $3.0 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 value of a share of the Company's common stock on the date of grant, to eligible participants. On April 1, 2021, the Company awarded options to purchase 8,000 shares of common stock under the 2020 EIP with an exercise price of $13.86 per share, the fair value of a share of the Company's common stock on the date of the grant, to eligible participants. These options awarded vest in five equal annual installments with the first vesting occurring on June 30, 2021. Forfeited options may be awarded to other eligible recipients in future grants until the 2020 EIP terminates in September 2030.

The following table summarizes the stock option activity in the 2020 EIP during the three months ended March 31, 2022.


	Three Months Ended March 31, 2022
	Number of Shares	Weighted-Average Exercise Price

Balance at beginning of period	1,050,961	$	10.56
Granted	—	—
Exercised	—	—
Forfeited/expired	—	—
Balance, March 31, 2022	1,050,961	10.56
Exercisable at end of period	200,503	$	10.56

The fair value of options granted is estimated on the date of the grant using a Black Scholes model with the following assumptions:


	April 1, 2021
Dividend yields	1.90	%
Volatility factors of expected market price of common stock	26.98	%
Risk-free interest rates	1.16	%
Expected life of options	6.1 years

A summary of the status of the Company stock option shares as of March 31, 2022 is presented below.


	Shares	Weighted Average Grant Date Fair Value

Non-vested, beginning of year	850,458	$	2.91
Vested	—	—
Granted	—	—
Forfeited	—	—
Non-vested, March 31, 2022	850,458	$	2.91

Total compensation cost recognized in the income statement for option-based payment arrangements for the three months ended March 31, 2022 was $153,000, and the related tax benefit recognized was $17,000. As of March 31, 2022, unrecognized compensation expense related to the stock option awards was $2.0 million.

Note 8: Subsequent Event

Subsequent to March 31, 2022 through May 13, 2022 the Company purchased 355,348 shares of the Company's common stock pursuant to the existing stock repurchase program, leaving 554,014 shares available for future repurchase.

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

General

Management’s discussion and analysis of financial condition of the Richmond Mutual Bancorporation, Inc. (the “Company”) at March 31, 2022, and the consolidated results of operations for the three month period ended March 31, 2022, compared to the same period in 2021, 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 direct and indirect subsidiaries, First Bank Richmond, which we sometimes refer to as the “Bank” and FB Richmond Holdings, Inc., 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:

•potential adverse impacts to economic conditions in the Company's local market areas, other markets where the Company has lending relationships, or other aspects of the Company's business operations or financial markets, generally, resulting from the novel coronavirus disease 2019 (“COVID-19") pandemic and any governmental or societal responses thereto;

•changes in economic conditions, either nationally or in our market area;

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

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

•our ability to access cost-effective funding;

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

•demand for loans and deposits in our market area;

•our ability to implement and change our business strategies;

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

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

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

•adverse changes in the securities or secondary mortgage markets;

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

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

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

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

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

•our ability to retain key employees;

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

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

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

•changes in consumer spending, borrowing and savings habits;

•changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission ("SEC") or the Public Company Accounting Oversight Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods;

•legislative or regulatory changes that adversely affect our business, including as a result of COVID-19, 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; 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, 2021 (“2021 Form 10-K”).

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

Overview

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

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

First Bank Richmond provides full banking services through its seven full- and one limited-service offices located in Cambridge City (1), Centerville (1), Richmond (5) and Shelbyville (1), Indiana, its five full-service offices located in Piqua (2), Sidney (2) and Troy (1), Ohio, and its loan production office in Columbus, Ohio. Administrative, trust and wealth management services are conducted through First Bank Richmond’s Corporate Office/Financial Center located in Richmond, Indiana. As an Indiana-chartered commercial bank, First Bank Richmond is subject to regulation by the IDFI and the Federal Deposit Insurance Corporation (“FDIC”).

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

First Bank Richmond generates commercial, mortgage and consumer loans and leases and receives deposits from customers located primarily in Wayne and Shelby Counties, in Indiana and Shelby, Miami and Franklin (no deposits) Counties, in Ohio. We sometimes refer to these counties as our primary market area. First Bank Richmond’s loans are generally secured by specific items of collateral including real property, consumer assets and business assets. Our leasing operation consists of direct investments in equipment that we lease (referred to as direct finance leases) to small businesses located throughout the United States. Our lease portfolio consists of various kinds of equipment, generally technology-related, such as computer systems, medical equipment and general manufacturing, industrial, construction and transportation equipment. We seek leasing transactions where we believe the equipment leased is integral to the lessee's business. We also provide trust and wealth management services, including serving as executor and trustee under wills and deeds and as guardian and custodian of employee benefits, and manage private investment accounts for individuals and institutions. Total wealth management assets under management and administration were $149.4 million at March 31, 2022.

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.

At March 31, 2022, on a consolidated basis, we had $1.3 billion in assets, $850.0 million in loans and leases, net of allowance, $909.5 million in deposits and $157.3 million in stockholders’ equity. At March 31, 2022, First Bank Richmond’s total risk-based capital ratio was 16.81%, exceeding the 10.0% requirement for a well-capitalized institution. For the three months ended March 31, 2022, net income was $3.0 million, compared with net income of $2.6 million for the three months ended March 31, 2021.

Critical Accounting Policies

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

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

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

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

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

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

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

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

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

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

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

COVID-19 Impact to the Company

The Company is actively monitoring and responding to the effects of the rapidly-changing COVID 19 pandemic. The Company maintains its commitment to supporting its community and customers during the COVID-19 pandemic and remains focused on keeping its employees safe and the Bank running effectively to serve its customers. As of March 31, 2022, all banking branches are open with normal hours and substantially all employees have returned to their routine working environments. The Bank will continue to monitor branch access and occupancy levels in relation to cases and close contact scenarios and follow governmental restrictions and public health authority guidelines.

Comparison of Financial Condition at March 31, 2022 and December 31, 2021

General. Total assets decreased $11.5 million, or 0.9%, to $1.3 billion at March 31, 2022 from December 31, 2021. The decrease was primarily the result of a $31.6 million, or 8.6%, decrease in investment securities to $335.0 million and a $3.5 million, or 15.0% decrease in cash and cash equivalents to $19.6 million at March 31, 2022. These decreases were partially offset by increases of $17.1 million, or 2.1%, in loans and leases, net of allowance, to $850.0 million and $6.9 million, or 64.2%, in other assets to $17.8 million at March 31, 2022.

Investment Securities. Investment securities available-for-sale decreased $30.7 million, or 8.6%, to $326.8 million, while investment securities held-to-maturity decreased $894,000, or 9.9%, to $8.1 million at March 31, 2022 compared to December 31, 2021. The decrease in investment securities available-for-sale was primarily the result of a portion of the

maturing securities and payments on securities being used to fund growth in the loan and lease portfolio, as well as greater mark-to-market adjustments to the portfolio due to increases in unrealized losses. The decrease in investment securities held-to-maturity was the result of scheduled principal repayments and maturities.

Loans and Leases. Our loan and lease portfolio, net of allowance for loan and lease losses, increased $17.1 million, or 2.1%, to $850.0 million at March 31, 2022 from $832.8 million at December 31, 2021. The increase in loans and leases was attributable to increases in multi-family loans of $9.0 million, construction and development loans of $8.4 million and leases of $3.7 million, partially offset by declines in commercial mortgage loans of $3.4 million and commercial and industrial loans of $3.1 million. The decline in commercial and industrial loans was due to a decrease in PPP loans of $3.4 million to $6.0 million at March 31, 2022, resulting from PPP loan forgiveness by the SBA. Loans held for sale totaled $583,000 and $558,000 at March 31, 2022 and December 31, 2021, respectively.

Nonperforming loans and leases, consisting of nonaccrual loans and leases and accruing loans and leases more than 90 days past due, totaled $8.0 million or 0.92% of total loans and leases at March 31, 2022, compared to $8.0 million or 0.95% of total loans and leases at December 31, 2021. Accruing loans and leases past due more than 90 days totaled $1.8 million at both dates.

At March 31, 2022, troubled debt restructurings ("TDRs") totaled $442,000, compared to $456,000 at December 31, 2021. 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, 2022, the Company had no outstanding loan and lease modifications qualifying under the CARES Act related to the COVID-19 pandemic.

Allowance for Loan and Lease Losses. The allowance for loan and lease losses increased $209,000, or 1.7%, to $12.3 million at March 31, 2022 from $12.1 million at December 31, 2021. At both March 31, 2022 and December 31, 2021 the allowance for loan and lease losses totaled 1.43% of total loans and leases outstanding. Net recoveries during the first quarter of 2022 were $9,000, compared to net charge-offs of $27,000 during the first quarter of 2021. The allowance for loan and lease losses to non-performing loans and leases was 154.9% at March 31, 2022, compared to 150.8% at December 31, 2021.

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, 2022, which evaluation included consideration of potential credit losses due to economic conditions driven by any lingering impact of the COVID-19 pandemic. Any lingering impact of the pandemic on the Company’s deposit and loan customers is still not fully known at this time. Credit metrics are being reviewed and stress testing is being performed on the loan portfolio on an ongoing basis. Potentially higher risk segments of the portfolio, such as hotels and restaurants, are being closely monitored.

Other Assets. Other assets increased $6.9 million, or 64.2%, to $17.8 million at March 31, 2022 from $10.8 million at December 31, 2021, primarily as a result of a $6.4 million increase in deferred tax assets due to the mark-to-market adjustment on the available-for-sale investment portfolio.

Deposits. Total deposits increased $9.3 million, or 1.0%, to $909.5 million at March 31, 2022, from $900.2 million at December 31, 2021. The increase in deposits primarily was due to an increase in savings and money market accounts of $21.2 million, partially offset by a decrease in time deposits of $13.8 million. Management attributes the shift in funds to customers anticipating potentially higher rates being paid on time deposits in 2022 in connection with the expected interest rate hikes by the Federal Reserve this year. Brokered deposits decreased $1.7 million to $120.1 million, or 13.2% of total deposits, at March 31, 2022, compared to $121.8 million, or 13.5% of total deposits, at December 31, 2021. At March 31, 2022, noninterest-bearing deposits totaled $113.7 million, or 12.5% of total deposits, compared to $114.3 million or 12.7% of total deposits at December 31, 2021.

Borrowings. Total borrowings, consisting solely of FHLB advances, increased $2.0 million to $182.0 million at March 31, 2022, compared to $180.0 million at December 31, 2021, which together with the increase in deposits, were used to fund loan growth.

Stockholders’ Equity. Stockholders’ equity totaled $157.3 million at March 31, 2022, a decrease of $23.1 million, or 12.8%, from December 31, 2021. The decrease in stockholders' equity from year-end 2021 resulted from an accumulated other comprehensive loss of $24.1 million due to a greater mark-to-market adjustment to the investment portfolio as a result of higher interest rates, the payment of $1.1 million in dividends to Company stockholders, and the repurchase of $1.5 million of

Company common stock, partially offset by net income of $3.0 million. The Company repurchased 90,191 shares of Company common stock at an average price of $16.62 per share for a total of $1.5 million during the first three months of 2022. The Company’s equity to asset ratio was 12.5% at March 31, 2022. At March 31, 2022, the Bank’s Tier 1 capital to total assets ratio was 12.6% 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, 2022 and 2021.

General. Net income for the three months ended March 31, 2022 was $3.0 million, a $455,000 or 17.8% increase from net income of $2.6 million for the three months ended March 31, 2021. The $3.0 million in earnings equaled $0.26 diluted earnings per share for the first quarter of 2022, compared to $0.22 diluted earnings per share for the first quarter of 2021. The increase in net income was primarily the result of a $1.1 million increase in net interest income and a $200,000 decrease in the provision for loan losses, partially offset by a $412,000 decrease in noninterest income and a $356,000 increase in noninterest expense.

Interest Income. Interest income increased $1.1 million, or 9.7%, to $11.9 million during the quarter ended March 31, 2022, compared to $10.9 million during the quarter ended March 31, 2021. Interest income on loans and leases increased $399,000, or 4.0%, to $10.3 million for the quarter ended March 31, 2022, from $9.9 million for the comparable quarter in 2021, due to higher average balances in the loan and lease portfolio, partially offset by a decrease in the average loan and lease yield of 34 basis points. The average outstanding loan and lease balances were $849.9 million for the quarter ended March 31, 2022, compared to $763.8 million for the quarter ended March 31, 2021. The average yield on loans and leases was 4.83% for the quarter ended March 31, 2022, compared to 5.17% for the comparable quarter in 2021. Interest income also included $174,000 in fees earned related to PPP loans in the quarter ended March 31, 2022 compared to $773,000 during the same quarter in 2021. As of March 31, 2022, total unrecognized fees on PPP loans were $210,000. For the three months ended March 31, 2022, average PPP loans were $7.8 million and the average yield was 9.92%. The impact of PPP loans on loan yields will change during any period based on the volume of prepayments or amounts forgiven by the SBA as certain criteria are met, but will cease completely after the maturity of the loans.

Interest income on investment securities, including FHLB stock, increased $659,000, or 65.3%, to $1.7 million during the quarter ended March 31, 2022, compared to the same quarter in 2021. The increase in interest income on investment securities from the comparable period in 2021 was due to an increase in the average balances of $93.4 million and a 34 basis point increase in the average yield earned on investment securities. The average balance of investment securities, including FHLB stock, was $363.2 million for the quarter ended March 31, 2022, compared to $269.8 million for the quarter ended March 31, 2021. The average yield on investment securities, including FHLB stock, was 1.84% for the first quarter of 2022, compared to 1.50% for the first quarter of 2021.

Interest Expense. Interest expense remained relatively flat at $1.9 million for the quarter ended March 31, 2022, compared to the quarter ended March 31, 2021. Interest expense on deposits increased $61,000, or 5.2%, to $1.2 million for the quarter ended March 31, 2022, from the comparable quarter in 2021. The increase in interest expense on deposits primarily was attributable to a $179.0 million increase in average interest-bearing deposit balances, partially offset by a 43 basis point decrease in the average rate paid on certificate of deposit accounts. The average rate paid on interest-bearing deposits was 0.63% for the quarter ended March 31, 2022, compared to 0.77% for the quarter ended March 31, 2021. The average balance of interest-bearing deposits increased to $793.4 million, or 29.1%, in the quarter ended March 31, 2022, compared to $614.4 million in the comparable quarter in 2021. Interest expense on FHLB borrowings decreased $54,000, or 7.8%, to $640,000 in the first quarter of 2022 compared to $694,000 for the same quarter in 2021, due to a 23 basis point decline in the average rate paid on borrowings to 1.40% during the three months ended March 31, 2022, from 1.63% for the comparable quarter in 2021, partially offset by a $13.5 million increase in the average outstanding balance of borrowings during the current quarter compared to the same period in 2021.

Net Interest Income. Net interest income before the provision for loan and lease losses increased $1.1 million, or 11.7%, to $10.1 million in the first quarter of 2022, compared to $9.0 million for the first quarter of 2021. This increase was due to an increase in average interest-earning assets, partially offset by a two basis point decrease in the average interest rate spread during the first quarter of 2022 compared to the comparable quarter in 2021. Net interest margin (annualized) was 3.26% for the three months ended March 31, 2022, compared to 3.38% for the three months ended March 31, 2021. The decrease in net interest margin was primarily due to the yield on interest-earning assets dropping faster than the rate paid on interest-bearing liabilities. The average yield on PPP loans, including the recognition of deferred fees, resulted in a positive impact to the yield on loans and leases of five basis points during the quarter ended March 31, 2022, compared to a positive impact of 17 basis points to the yield on loans and leases in the comparable quarter in 2021.

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 daily 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,
	2022							2021
	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	$	849,936		$	10,266	4.83	%	$	763,751		$	9,867	5.17	%
Securities	353,285			1,586		1.80	%	260,763			940		1.44	%
FHLB stock	9,908			83		3.35	%	9,050			69		3.05	%
Cash and cash equivalents and other	18,704			7		0.15	%	31,595			7		0.09	%
Total interest-earning assets	1,231,833			11,942		3.88	%	1,065,159			10,883		4.09	%

Interest-bearing liabilities:
Savings and money market accounts	264,822			336		0.51	%	223,560			278		0.50	%
Interest-bearing checking accounts	165,619			98		0.24	%	142,457			81		0.23	%
Certificate accounts	362,945			814		0.90	%	248,360			828		1.33	%
Borrowings	183,500			640		1.40	%	170,000			694		1.63	%
Total interest-bearing liabilities	976,886			1,888		0.77	%	784,377			1,881		0.96	%

Net interest income				$	10,054						$	9,002
Net earning assets	$	254,947						$	280,782

Net interest rate spread(1)						3.11	%						3.13	%
Net interest margin(2)						3.26	%						3.38	%
Average interest-earning assets to average interest-bearing liabilities	126.10		%					135.80		%

_____________

(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, 2022 totaled $200,000 compared to $400,000 for the three months ended March 31, 2021, a $200,000 or 50.0% decrease. The decrease was primarily due to improvement in the overall economy from the effects of the COVID-19 pandemic and the positive effects of the government's response to the pandemic on the Bank's loan portfolio, partially offset by the increase in the loan portfolio. Net recoveries during the first quarter of 2022 were $9,000, compared to net charge-offs of $27,000 in the first quarter of 2021. While we believe the steps we have taken and continue to take are necessary to effectively manage our portfolio and assist our clients through the ongoing uncertainty surrounding the duration and impact of the COVID-19 pandemic, uncertainties relating to our allowance for loan losses are heightened as a result of any possible continuing effects of the COVID-19 pandemic.

Noninterest Income. Noninterest income decreased $412,000 or 27.0%, to $1.1 million for the quarter ended March 31, 2022, compared to $1.5 million for the comparable quarter in 2021. The decrease in noninterest income resulted primarily from a $722,000 or 74.8% decrease in net gains on loan and lease sales to $243,000 during the first quarter of 2022, compared to $965,000 during the first quarter of 2021. The decrease in net gains on loan and lease sales was due to declining mortgage banking activity primarily resulting from lower refinancing activity and a lower supply of houses for sale in the Bank's market area. During the three months ended March 31, 2022, the Company sold $10.6 million of loans compared to the sale of $25.8 million of loans during the three months ended March 31, 2021. Card fee income increased $35,000, or 14.5%, to $278,000 in

the first quarter of 2022 from $243,000 in the first quarter of 2021 due to increased debit card usage. Loan and lease servicing income increased $133,000, to a gain of $28,000 for the first quarter of 2022 compared to a loss of $105,000 for the comparable quarter in 2021, as the Company recorded an impairment of $111,000 to the value of its mortgage servicing rights in the first quarter of 2022, compared to an impairment of $158,000 in the first quarter of 2021. Service fees on deposit accounts increased $40,000, or 20.6%, to $235,000 for the quarter ended March 31, 2022, compared to $194,000 for the quarter ended March 31, 2021. The increase in service fees on deposit accounts during the first quarter of 2022 compared to the first quarter of 2021 was primarily the result of increased overdraft fees, many of which were waived in the first quarter of 2021.

Noninterest Expense. Noninterest expense increased $356,000, or 5.1%, to $7.3 million for the three months ended March 31, 2022, from $7.0 million for the same period in 2021. Salaries and employee benefits were relatively steady at $4.5 million for the quarter ended March 31, 2022, compared to the same quarter in 2021. Data processing fees increased $133,000, or 25.2%, to $659,000 in the first quarter of 2022 compared to the same quarter of 2021, primarily due to the upgrading of our digital banking products. Other expenses increased $185,000, or 24.0%, to $956,000 in the first quarter of 2022 compared to the same quarter of 2021 primarily due to increased loan expenses, franchise tax expense, and expenses related to employee professional development.

Income Tax Expense. Income tax expense increased $28,000 during the three months ended March 31, 2022, compared to the same period in 2021 due to a higher level of pre-tax income, partially offset by a lower effective tax rate. The effective tax rate for the first quarter of 2022 was 17.0% compared to 18.7% for the same quarter a year ago.

Capital and Liquidity

Capital. Shareholders' equity totaled $157.3 million at March 31, 2022 and $180.5 million at December 31, 2021. In addition to net income of $3.0 million, other sources of capital during the first quarter of 2022 included $226,000 related to the allocation of ESOP shares during the year and $379,000 related to stock-based compensation. Uses of capital during the first three months of 2022 included $1.1 million of dividends paid on common stock, other comprehensive loss, net of tax, of $24.1 million and $1.5 million of stock repurchases. The decrease in the accumulated other comprehensive income/loss component of shareholders' equity was caused by changes to the unrealized gains and losses on available-for-sale securities.

We paid a regular quarterly dividend of $0.10 per common share during the first quarter of 2022, and regular quarterly dividends of $0.07 per common share and a special dividend of $0.50 per common share during 2021. We currently expect to continue the current practice of paying regular quarterly cash dividends on common stock subject to the Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice. Assuming continued payment during 2022 at the current dividend rate of $0.10 per share, our average total dividend paid each quarter would be approximately $1.2 million based on the number of our current outstanding shares (which assumes no increases or decreases in the number of shares, except in connection with the anticipated vesting of currently outstanding equity awards).

Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans. In general, stock-repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. On May 19, 2021, the Board of Directors authorized a third stock repurchase program for up to 1,263,841 shares, or approximately 10% of its outstanding shares. This repurchase program commenced on July 3, 2021, and will expire on July 3, 2022 unless completed sooner. The repurchase program does not obligate the Company to purchase any particular number of shares. See Part II, Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds.

Liquidity. Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds. The objective of our liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund our operations and to meet obligations and other commitments on a timely basis and at a reasonable cost. We seek to achieve this objective and ensure that funding needs are met by maintaining an appropriate level of liquid funds through asset/liability management, which includes managing the mix and time to maturity of financial assets and financial liabilities on our balance sheet. Our liquidity position is enhanced by our ability to raise additional funds as needed in the wholesale markets.

Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will mature in the near future. Liquid assets generally include cash, interest-bearing deposits in banks, securities available for sale, maturities and cash flow from securities held to maturity, sales of fixed rate residential mortgage loans in the secondary market, and federal funds

sold and resell agreements. Liability liquidity generally is provided by access to funding sources which include core deposits and advances from the FHLB and other borrowing relationships with third party financial institutions.

Our liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs.

As of March 31, 2022, we had approximately $10.9 million held in an interest-bearing account at the Federal Reserve. We also have the ability to borrow funds as a member of the FHLB. As of March 31, 2022, based upon available, pledgeable collateral, our total remaining borrowing capacity with the FHLB was approximately $70.0 million. Furthermore, at March 31, 2022, we had approximately $204.5 million in securities that were unencumbered by a pledge and could be used to support additional borrowings through repurchase agreements or the Federal Reserve discount window, as needed. As of March 31, 2022, management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities for the three months ended March 31, 2022 was $3.9 million, compared to $2.4 million used in operating activities for the three months ended March 31, 2021. During the three months ended March 31, 2022, net cash used in investing activities was $16.1 million, which consisted primarily of net change in loans receivable, compared to $42.1 million of cash used in investing activities for the three months ended March 31, 2021. Net cash provided by financing activities for the three months ended March 31, 2022 was $8.7 million, which was comprised primarily of net change in deposits, compared to $61.3 million provided by financing activities during the three months ended March 31, 2021. Management believes the capital sources are adequate to meet all reasonably foreseeable short-term and long-term cash requirements and there has not been a material change in our liquidity and capital resources since the information disclosed in our 2021 Form 10-K other than set forth above.

Richmond Mutual Bancorporation is a separate legal entity from First Bank Richmond and must provide for its own liquidity. In addition to its own operating expenses, Richmond Mutual Bancorporation is responsible for paying for any stock repurchases, dividends declared to its stockholders and other general corporate expenses. Since Richmond Mutual Bancorporation is a holding company and does not conduct operations, its primary sources of liquidity are interest on investment securities purchased with proceeds from our initial public offering, dividends upstreamed from First Bank Richmond and borrowings from outside sources. Banking regulations may limit the amount of dividends that may be to us paid by First Bank Richmond. At March 31, 2022, Richmond Mutual Bancorporation, on an unconsolidated basis, had $18.2 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs.

Regulatory Capital Requirements. 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, 2022, First Bank Richmond’s regulatory capital exceeded the FDIC regulatory requirements, and First Bank Richmond was well-capitalized under regulatory prompt corrective action standards. Consistent with our goals to operate a sound and profitable organization, our policy is for First Bank Richmond to maintain well-capitalized status.


	Actual				Required for Adequate Capital				To Be Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
As of March 31, 2022
Total risk-based capital (to risk weighted assets)	$	173,358	16.8	%	$	82,488	8.0	%	$	103,110	10.0	%
Tier 1 risk-based capital (to risk weighted assets)	161,041		15.6		61,866		6.0		82,488		8.0
Common equity tier 1 capital (to risk weighted assets)	161,041		15.6		46,399		4.5		67,021		6.5
Tier 1 leverage (core) capital (to adjusted tangible assets)	161,041		12.6		50,948		4.0		63,685		5.0

As of December 31, 2021
Total risk-based capital (to risk weighted assets)	$	169,589	17.3	%	$	78,590	8.0	%	$	98,238	10.0	%
Tier 1 risk-based capital (to risk weighted assets)	157,481		16.0		58,943		6.0		78,590		8.0
Common equity tier 1 capital (to risk weighted assets)	157,481		16.0		44,207		4.5		63,855		6.5
Tier 1 leverage (core) capital (to adjusted tangible assets)	157,481		12.5		50,284		4.0		62,855		5.0

Pursuant to the capital regulations of the FDIC and the other federal banking agencies, First Bank Richmond must maintain a capital conservation buffer consisting of additional common equity tier 1 (“CET1”) capital greater than 2.5% of risk-weighted assets above the required minimum levels of risk-based CET1 capital, tier 1 capital and total capital in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses. At March 31, 2022, 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 Federal Reserve Board 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, 2022, it would have exceeded all regulatory capital requirements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There has not been any material change in the market risk disclosures contained in our 2021 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure 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, 2022, 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, 2022, 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, 2022, 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.

(b) Changes in Internal Control Over Financial Reporting.

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Act) that occurred during the three months ended March 31, 2022, that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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, 2022, 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 2021 Form 10-K.

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

(a)Not applicable

(b)Not applicable

(c)On May 19, 2021, the Board of Directors authorized a third stock repurchase program for up to 1,263,841 shares, or approximately 10% of its outstanding shares. This repurchase program commenced on July 3, 2021, and will expire on July 3, 2022 unless completed sooner. The following table sets forth information with respect to our repurchases of our outstanding common shares during the three months ended March 31, 2022:


	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, 2022 - January 31, 2022	53,955	$	16.26	53,955	945,598
February 1, 2022 - February 28, 2022	13,011	16.66		13,011	932,587
March 1, 2022 - March 31, 2022	23,225	17.44		23,225	909,362
	90,191	16.63		90,191

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Nothing to report.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Nothing to report.

ITEM 6. EXHIBITS

Exhibit


			3.1			Charter of Richmond Mutual Bancorporation, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1 (Commission File No. 333-230184))
			3.2			Bylaws of Richmond Mutual Bancorporation, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1 (Commission File No. 333-230184))
			4.0			Form of Common Stock Certificate of Richmond Mutual Bancorporation, Inc. (incorporated by reference to Exhibit 4.0 of the Company’s Registration Statement on Form S-1 (Commission File No. 333-230184))
			10.1+			Form of Non-Qualified Deferred Compensation Plan for Garry Kleer (incorporated by reference to Exhibit 10.1 of the Company's Registration Statement on Form S-1 (Commission File No. 333-230184))
			10.2+			Richmond Mutual Bancorporation, Inc. 2020 Equity Incentive Plan (included as Appendix A to the Registrant’s definitive proxy statement filed with the SEC on July 28, 2020 (File No. 001-38956) and incorporated herein by reference).
			10.3+			Form of Incentive Stock Option Award Agreement under the 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s Registration Statement on Form S-8 (Commission File No. 333-248862)).
			10.4+			Form of Non-qualified Stock Option Award Agreement under the 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 of the Company’s Registration Statement on Form S-8 (Commission File No. 333-248862)).
			10.5+			Form of Restricted Stock Award Agreement under the 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 of the Company’s Registration Statement on Form S-8 (Commission File No. 333-248862)).
			31.1			Rule 13a-14(a) Certifications (Chief Executive Officer)
			31.2			Rule 13a-14(a) Certifications (Chief Financial Officer)
			32.0			Section 1350 Certifications
			101.0			The following materials for the quarter ended March 31, 2022, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements
			104			Cover Page Interactive Data File (embedded within the Inline XBRL document).

+ Indicates management contract or compensatory plan or arrangement.

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 13, 2022	By:	/s/ Garry D. Kleer
		Garry D. Kleer
		Chairman, President and CEO
		(Duly Authorized Officer)

Date: May 13, 2022	By:	/s/ Donald A. Benziger
		Donald A. Benziger
		Executive Vice President and CFO
		(Principal Financial and Accounting Officer)