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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023

or
oTRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number: 001-38956
RICHMOND MUTUAL BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
Maryland
36-4926041
(State or other jurisdiction of incorporation of organization)
(I.R.S. Employer Identification No.)
31 North 9th StreetRichmondIndiana 47374
(Address of principal executive offices; Zip Code)
(765962-2581
(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 11,244,669 shares of Registrant’s common stock, par value of $0.01 per share, issued and outstanding as of November 13, 2023.




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




PART I. FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS

Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Balance Sheets

September 30,
2023
December 31,
2022
(Unaudited)
Assets
Cash and due from banks$9,002,604 $7,782,348 
Interest-earning demand deposits11,649,837 8,139,745 
Cash and cash equivalents20,652,441 15,922,093 
Interest-earning time deposits245,000 490,000 
Investment securities - available for sale264,228,841 284,899,665 
Investment securities - held to maturity5,134,112 6,672,233 
Loans held for sale568,250 473,700 
Loans and leases, net of allowance for credit losses of $15,495,975 and $12,413,035, respectively
1,066,892,390 961,690,677 
Premises and equipment, net13,341,928 13,668,496 
Federal Home Loan Bank stock11,297,100 9,947,300 
Interest receivable5,315,687 4,710,481 
Mortgage-servicing rights1,965,479 2,011,889 
Cash surrender value of life insurance3,742,245 3,674,499 
Other assets29,529,562 24,459,108 
Total assets$1,422,913,035 $1,328,620,141 
Liabilities
Noninterest-bearing deposits115,632,216 106,414,812 
Interest-bearing deposits938,276,593 898,845,958 
Total deposits1,053,908,809 1,005,260,770 
Federal Home Loan Bank advances238,000,000 180,000,000 
Advances by borrowers for taxes and insurance668,318 560,196 
Interest payable3,672,897 1,369,351 
Other liabilities8,031,116 8,451,521 
Total liabilities1,304,281,140 1,195,641,838 
Commitments and Contingent Liabilities  
Stockholders' Equity
Common stock, $0.01 par value
Authorized - 90,000,000 shares
Issued and outstanding - 11,300,075 shares and 11,784,246 shares at September 30, 2023 and December 31, 2022, respectively
113,001 117,842 
Additional paid-in capital101,883,204 106,088,897 
Retained earnings88,001,390 88,715,782 
Unearned employee stock ownership plan (ESOP)(11,641,555)(12,193,043)
Accumulated other comprehensive loss(59,724,145)(49,751,175)
Total stockholders' equity118,631,895 132,978,303 
Total liabilities and stockholders' equity$1,422,913,035 $1,328,620,141 
See Notes to Condensed Consolidated Statements.

1


Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Interest Income
Loans and leases$15,270,405 $11,302,066 $42,561,814 $32,250,396 
Investment securities2,040,973 1,832,459 5,965,374 5,234,954 
Other102,152 35,588 301,728 74,696 
Total interest income17,413,530 13,170,113 48,828,916 37,560,046 
Interest Expense
Deposits6,317,915 1,798,748 15,888,485 4,322,229 
Borrowings1,968,247 858,592 4,609,001 2,122,778 
Total interest expense8,286,162 2,657,340 20,497,486 6,445,007 
Net Interest Income9,127,368 10,512,773 28,331,430 31,115,039 
Provision for credit losses49,700 200,000 228,016 600,000 
Net Interest Income After Provision for Credit Losses9,077,668 10,312,773 28,103,414 30,515,039 
Noninterest Income
Service charges on deposit accounts274,653 259,948 831,431 742,905 
Card fee income303,815 298,191 904,539 877,974 
Loan and lease servicing fees111,480 235,973 341,195 441,912 
Net gains on loan and lease sales89,510 116,155 399,111 580,919 
Other income377,660 273,376 955,688 830,924 
Total noninterest income1,157,118 1,183,643 3,431,964 3,474,634 
Noninterest Expenses
Salaries and employee benefits4,377,159 4,710,284 12,891,376 13,676,443 
Net occupancy expenses337,348 336,270 1,005,142 1,047,582 
Equipment expenses275,318 317,814 872,852 951,781 
Data processing fees853,791 743,526 2,512,242 1,970,350 
Deposit insurance expense280,000 86,000 640,000 248,000 
Printing and office supplies49,825 45,155 122,404 140,222 
Legal and professional fees528,045 376,323 1,195,520 1,059,685 
Advertising expense94,707 85,050 261,179 281,045 
Bank service charges50,268 42,495 153,683 103,253 
Real estate owned expense12,112 14,248 35,935 22,534 
Other expenses1,153,819 965,508 3,019,254 2,712,418 
Total noninterest expenses8,012,392 7,722,673 22,709,587 22,213,313 
Income Before Income Tax Expense2,222,394 3,773,743 8,825,791 11,776,360 
Provision for income taxes273,637 615,515 1,280,861 2,115,198 
Net Income$1,948,757 $3,158,228 $7,544,930 $9,661,162 
Earnings Per Share
Basic$0.19 $0.30 $0.72 $0.89 
Diluted$0.19 $0.29 $0.72 $0.87 
See Notes to Condensed Consolidated Statements.

2


Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023202220232022
Net Income$1,948,757 $3,158,228 $7,544,930 $9,661,162 
Other Comprehensive Loss
Unrealized loss on available-for-sale securities, net of tax of $(3,063,330), $(4,245,908), $(2,651,043), and $(14,353,958), respectively.
(11,523,955)(15,972,703)(9,972,970)(53,998,222)
(11,523,955)(15,972,703)(9,972,970)(53,998,222)
Comprehensive Loss$(9,575,198)$(12,814,475)$(2,428,040)$(44,337,060)
See Notes to Condensed Consolidated Statements.

3


Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)

Three Months Ended September 30, 2023
Common StockAdditional
Paid-in
Capital
Retained
Earnings
Unearned
ESOP
Shares
Accumulated
Other
Comprehensive
Loss
Total
Shares
Outstanding
Amount
Balances, June 30, 202311,448,621 $114,486 $103,216,869 $87,523,266 $(11,825,384)$(48,200,190)$130,829,047 
Net income— — — 1,948,757 — — 1,948,757 
Other comprehensive loss— — — — — (11,523,955)(11,523,955)
ESOP shares earned— — (29,955)— 183,829 — 153,874 
Stock based compensation— — 386,768 — — — 386,768 
Common stock dividends ($0.14 per share)
— — — (1,470,633)— — (1,470,633)
Repurchase of common stock(148,546)(1,485)(1,690,478)— — — (1,691,963)
Balances, September 30, 202311,300,075 $113,001 $101,883,204 $88,001,390 $(11,641,555)$(59,724,145)$118,631,895 

Nine Months Ended September 30, 2023
Common StockAdditional
Paid-in
Capital
Retained
Earnings
Unearned
ESOP
Shares
Accumulated
Other
Comprehensive
Loss
Total
Shares
Outstanding
Amount
Balances, December 31, 202211,784,246 $117,842 $106,088,897 $88,715,782 $(12,193,043)$(49,751,175)$132,978,303 
Net income— — — 7,544,930 — — 7,544,930 
Other comprehensive income— — — — — (9,972,970)(9,972,970)
ESOP shares earned— — (86,153)— 551,488 — 465,335 
Impact of ASU 2016-13 adoption— — — (3,785,168)— — (3,785,168)
Stock based compensation— — 1,149,789 — — — 1,149,789 
Common stock dividends ($0.42 per share)
— — — (4,474,154)— — (4,474,154)
Repurchase of common stock(484,171)(4,841)(5,269,329)— — — (5,274,170)
Balances, September 30, 202311,300,075 $113,001 $101,883,204 $88,001,390 $(11,641,555)$(59,724,145)$118,631,895 

Three Months Ended September 30, 2022
Common StockAdditional
Paid-in
Capital
Retained
Earnings
Unearned
ESOP
Shares
Accumulated
Other
Comprehensive
Loss
Total
Shares
Outstanding
Amount
Balances, June 30, 202211,848,113 $118,481 $106,200,912 $84,423,594 $(12,560,701)$(39,237,530)$138,944,756 
Net income— — — 3,158,228 — — 3,158,228 
Other comprehensive loss— — — — — (15,972,703)(15,972,703)
ESOP shares earned— — 3,986 — 183,829 — 187,815 
Stock based compensation— — 387,840 — — — 387,840 
Common stock dividends ($0.10 per share)
— — — (1,086,112)— — (1,086,112)
Repurchase of common stock(45,689)(457)(647,012)— — — (647,469)
Balances, September 30, 202211,802,424 $118,024 $105,945,726 $86,495,710 $(12,376,872)$(55,210,233)$124,972,355 

4


Nine Months Ended September 30, 2022
Common StockAdditional
Paid-in
Capital
Retained
Earnings
Unearned
ESOP
Shares
Accumulated
Other
Comprehensive
Loss
Total
Shares
Outstanding
Amount
Balances, December 31, 202112,400,195 $124,002 $114,339,810 $80,157,893 $(12,928,359)$(1,212,011)$180,481,335 
Net income— — — 9,661,162 — — 9,661,162 
Other comprehensive loss— — — — — (53,998,222)(53,998,222)
ESOP shares earned— — 70,053 — 551,487 — 621,540 
Stock based compensation— — 1,150,898 — — — 1,150,898 
Common stock dividends ($0.30 per share)
— — — (3,323,345)— — (3,323,345)
Repurchase of common stock(597,771)(5,978)(9,615,035)— — — (9,621,013)
Balances, September 30, 202211,802,424 $118,024 $105,945,726 $86,495,710 $(12,376,872)$(55,210,233)$124,972,355 

See Notes to Condensed Consolidated Statements.

5


Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
20232022
Operating Activities
Net income$7,544,930 $9,661,162 
Items not requiring (providing) cash
Provision for credit losses228,016 600,000 
Depreciation and amortization752,056 798,950 
Deferred income tax(26,656)(191,231)
Stock based compensation1,149,789 1,150,898 
Investment securities amortization, net854,478 1,209,698 
Net gains on loan and lease sales(399,111)(580,919)
(Gain) Loss on sale of real estate owned(698)847 
Gain on sale of premises and equipment(1,800) 
Accretion of loan origination fees(771,833)(1,276,232)
Amortization of mortgage-servicing rights161,024 177,063 
ESOP shares expense465,335 621,540 
Increase in cash surrender value of life insurance(67,746)(32,905)
Loans originated for sale(15,524,749)(26,627,670)
Proceeds on loans sold15,619,299 26,148,170 
Net change in
Interest receivable(605,206)232,231 
Other assets(560,748)1,762,400 
Other liabilities(2,794,381)523,197 
Interest payable2,303,546 418,152 
Net cash provided by operating activities8,325,545 14,595,351 
Investing Activities
Net change in interest-bearing time deposits245,000  
Purchases of securities available for sale(9,555,258)(19,441,154)
Proceeds from maturities and paydowns of securities available for sale16,751,355 27,668,608 
Proceeds from maturities and paydowns of securities held to maturity1,534,358 1,672,451 
Net change in loans(108,229,672)(80,718,636)
Proceeds from sales of real estate owned424,671 84,652 
Purchases of premises and equipment(425,488)(227,506)
Proceeds from sale of premises and equipment1,800  
(Purchase) Proceeds from sale of FHLB stock (1,349,800)90,100 
Net cash used in investing activities(100,603,034)(70,871,485)
Financing Activities
Net change in
Demand and savings deposits(33,185,130)18,906,312 
Certificates of deposit81,833,169 39,558,641 
Advances by borrowers for taxes and insurance108,122 68,955 
Proceeds from FHLB advances481,500,000 207,000,000 
Repayment of FHLB advances(423,500,000)(200,000,000)
Repurchase of common stock(5,274,170)(9,621,013)
Dividends paid(4,474,154)(3,323,345)
Net cash provided by financing activities97,007,837 52,589,550 
Net Change in Cash and Cash Equivalents4,730,348 (3,686,584)
Cash and Cash Equivalents, Beginning of Period15,922,093 23,038,145 
Cash and Cash Equivalents, End of Period$20,652,441 $19,351,561 
Additional Cash Flows and Supplementary Information
Interest paid$18,193,940 $6,026,855 
Transfers from loans to other real estate owned1,002,981 126,000 
See Notes to Condensed Consolidated Statements.

6


Richmond Mutual Bancorporation, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Table Dollar Amounts in Thousands, Except Per Share Amounts)
Note 1: Basis of Presentation
The accompanying financial information is unaudited and has been prepared from the consolidated financial statements of Richmond Mutual Bancorporation, Inc., and its wholly owned direct and indirect subsidiaries, First Bank Richmond, First Insurance Management, Inc., FB Richmond Holdings, Inc. and FB Richmond Properties, Inc. References in this document to Richmond Mutual Bancorporation refer to Richmond Mutual Bancorporation, Inc. References to “we,” “us,” and “our” or the “Company” refers to Richmond Mutual Bancorporation and its wholly-owned direct and indirect subsidiaries, First Bank Richmond, First Insurance Management, Inc., FB Richmond Holdings, Inc., and FB Richmond Properties, Inc. unless the context otherwise requires.
First Bank Richmond is an Indiana state-chartered commercial bank headquartered in Richmond, Indiana and the wholly owned banking subsidiary of Richmond Mutual Bancorporation. First Bank Richmond provides full banking services through its seven full- and one limited-service offices located in Cambridge City (1), Centerville (1), Richmond (5) and Shelbyville (1), Indiana, its five full-service offices located in Piqua (2), Sidney (2) and Troy (1), Ohio, and its loan production office in Columbus, Ohio. Administrative, trust and wealth management services are conducted through First Bank Richmond's Corporate Office/Financial Center located in Richmond, Indiana. As an Indiana-chartered commercial bank, First Bank Richmond is subject to regulation by the Indiana Department of Financial Institutions ("IDFI") and the Federal Deposit Insurance Corporation ("FDIC").
First Insurance Management, Inc., a wholly-owned subsidiary of the Company which was formed and began operations in June 2022, is a Nevada-based captive insurance company that insures against certain risks unique to the operations of the Company and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace. First Insurance Management, Inc. is subject to the regulations of the State of Nevada and undergoes periodic examinations by the Nevada Division of Insurance.
FB Richmond Holdings, Inc., a wholly-owned subsidiary of First Bank Richmond which was formed and began operations in April 2020, is a Nevada corporation that holds and manages substantially all of First Bank Richmond's investment portfolio. FB Richmond Holdings, Inc. has one active subsidiary, FB Richmond Properties, Inc., a Delaware corporation which holds loans on behalf of the Bank.
The accompanying unaudited condensed consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include information or note disclosures necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. Accordingly, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 ("2022 Form 10-K") filed with the Securities and Exchange Commission (“SEC”) on March 31, 2023 (SEC File No. 001-38956). However, in the opinion of management, all adjustments which are necessary for a fair presentation of the consolidated financial statements have been included. Those adjustments consist only of normal recurring adjustments. The results of operations for the period are not necessarily indicative of the results to be expected for the full year.
Use of Estimates in Preparation of Financial Statements
Financial statements prepared in accordance with generally accepted accounting principles in the United States ("GAAP") require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates.
Loans
For all loan classes, the accrual of interest is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection.  Past due status is based on contractual terms of the loan.  For all loan classes, the entire balance of the loan is considered past due if the minimum payment contractually required to be paid is not received by the

7


contractual due date.  For all loan classes, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.
The Company charges off residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss.  The Company adheres to timeframes established by applicable regulatory guidance, which provides for the charge-down of 1-4 family first and junior lien mortgages to the net realizable value, less costs to sell when the loan is 120 days past due, charge-off of unsecured open-end loans when the loan is 90 days past due, and charge down to the net realizable value when other secured loans are 90 days past due.  Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off.
For all classes, all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income.  The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.  Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal.  The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.
On occasion, the Company will provide modifications to loans and leases to borrowers experiencing financial difficulty, by providing payment delays, term extensions, or interest-rate reductions. In some cases, combinations of modifications may be made to the same loan or lease. If determined that the value of the modified loan or lease is less than the recorded investment in the loan, a charge-off is recognized to the allowance for credit losses on loans and leases.
Note 2: Accounting Pronouncements
The Jumpstart Our Business Startups Act (the "JOBS Act"), which was enacted in April 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year qualifies as an “emerging growth company.” The Company qualifies as and has elected to be an emerging growth company under the JOBS Act. An emerging growth company may elect to comply with new or amended accounting pronouncements in the same manner as a private company, but must make such election when the company is first required to file a registration statement. Such an election is irrevocable during the period a company is an emerging growth company. The Company has elected to comply with new or amended accounting pronouncements in the same manner as a private company.
In 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 became effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.
The Company adopted ASU No. 2016-13 on January 1, 2023. As a result of the change in methodology from the incurred loss methodology to the current expected credit loss methodology ("CECL"), the Company recorded a one-time cumulative-effect

8


adjustment of $2.0 million from retained earnings, net of tax, into the allowance for credit losses on loans and leases. The allowance increased $2.7 million, or 21.5%, on January 1, 2023 from December 31, 2022 as a result of adoption.
Additionally, as a part of the CECL adoption, the Company established an allowance for credit losses on unfunded commitments by recording a one-time adjustment of $1.8 million from retained earnings, net of tax, into the allowance for credit losses on unfunded commitments. As of January 1, 2023, this allowance totaled $2.4 million, as compared to no allowance at December 31, 2022. This allowance is reported in other liabilities on the Condensed Consolidated Balance Sheets.
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 became effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, upon the Company’s adoption of the CECL amendments in ASU 2016-13.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU applies to contracts, hedging relationships and other transactions that reference the London Interbank Offer Rate ("LIBOR") or other rate references expected to be discontinued because of reference rate reform. The ASU permits an entity to make necessary modifications to eligible contracts or transactions without requiring contract remeasurement or reassessment of a previous accounting determination. In December of 2022, the FASB issued ASU No. 2022-06 which extended the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The guidance ensures the relief in Topic 848 covers the period of time during which a significant number of modifications may take place and the ASU defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Company does not expect the adoption of ASU No. 2020-04 to have a material impact on its consolidated financial statements.
Note 3: Investment Securities
The amortized cost and approximate fair values, together with gross unrealized gains and losses, of investment securities are as follows:
September 30, 2023
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Available for sale
U.S. treasury securities$3,295 $ $44 $3,251 
SBA Pools5,643  712 4,931 
Federal agencies15,000  2,501 12,499 
State and municipal obligations168,862  42,407 126,455 
Mortgage-backed securities - government-sponsored enterprises (GSE) residential135,531  27,173 108,358 
Corporate obligations11,500  2,765 8,735 
339,831  75,602 264,229 
Held to maturity
State and municipal obligations5,134 9 252 4,891 
5,134 9 252 4,891 
Total investment securities$344,965 $9 $75,854 $269,120 


9


December 31, 2022
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Available for sale
U.S. treasury securities$3,487 $ $27 $3,460 
SBA Pools6,768 1 634 6,135 
Federal agencies15,000  2,352 12,648 
State and municipal obligations171,495 4 34,457 137,042 
Mortgage-backed securities - government-sponsored enterprises (GSE) residential139,626  23,644 115,982 
Corporate obligations11,500  1,867 9,633 
347,876 5 62,981 284,900 
Held to maturity
State and municipal obligations6,672 17 112 6,577 
6,672 17 112 6,577 
Total investment securities$354,548 $22 $63,093 $291,477 
The amortized cost and fair value of investment securities at September 30, 2023, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Available for SaleHeld to Maturity
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Within one year$5,087 $5,017 $631 $619 
One to five years20,113 18,017 2,997 2,884 
Five to ten years38,291 32,522 796 775 
After ten years140,809 100,315 710 613 
204,300 155,871 5,134 4,891 
Mortgage-backed securities –GSE residential135,531 108,358   
Totals$339,831 $264,229 $5,134 $4,891 
Investment securities with a carrying value of $155,982,000 and $134,302,000 were pledged at September 30, 2023 and December 31, 2022, 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 and nine months ended September 30, 2023 and 2022.
Certain investments in debt securities, as reflected in the table below, are reported in the condensed consolidated financial statements and notes at an amount less than their historical cost.  Total fair value of these investments at September 30, 2023 and December 31, 2022 was $268,401,000 and $288,846,000, respectively, which is approximately 100% and 99% of the Company’s aggregated available-for-sale and held-to-maturity investment portfolio at those dates, respectively. These declines primarily resulted from changes in market interest rates since their purchase.
The Company does not consider available-for-sale securities with unrealized losses to be experiencing credit losses at September 30, 2023. Management considers it more likely than not that the Company will not be required to sell these securities before recovery of the amortized cost basis, which may be the maturity dates of the securities.
Held to maturity securities are financial assets measured at amortized cost. With the adoption of CECL, held to maturity securities are required to have an established allowance for credit losses that represents the portion of the amortized cost basis of a financial asset that is not expected to be collectable. The Company estimates expected credit losses on a collective basis by security type, with consideration given to historical information, credit ratings, and the statistical probability of future losses.

10


The Company monitors the credit quality of securities held to maturity through the use of credit ratings quarterly. As of September 30, 2023, there was no allowance for credit losses recognized on the Company's securities held to maturity portfolio.
The following table summarizes the amortized cost of held to maturity securities by credit quality indicator as of September 30, 2023:
State and municipal obligations
AA+$734 
AA690 
AA-585 
A+814 
BBB+81 
Not rated2,230 
$5,134 
The Company has elected to exclude accrued interest receivable from the calculation of the allowance for credit losses.
The following tables show the Company’s investment securities by gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2023 and December 31, 2022:
Description of
Securities
September 30, 2023
Less Than 12 Months12 Months or MoreTotal
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Available-for-sale
U.S. Treasury Securities$3,251 $44 $ $ $3,251 $44 
SBA Pools  4,506 712 4,506 712 
Federal agencies  12,499 2,501 12,499 2,501 
State and municipal obligations3,456 145 122,999 42,262 126,455 42,407 
Mortgage-backed securities - GSE residential5,811 240 102,547 26,933 108,358 27,173 
Corporate obligations  8,735 2,765 8,735 2,765 
Total available-for-sale12,518 429 251,286 75,173 263,804 75,602 
Held-to-maturity
State and municipal obligations2,178 78 2,419 174 4,597 252 
Total impaired securities$14,696 $507 $253,705 $75,347 $268,401 $75,854 


11


Description of
Securities
December 31, 2022
Less Than 12 Months12 Months or MoreTotal
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Available-for-sale
U.S. Treasury securities$3,460 $27 $ $ $3,460 $27 
SBA Pools1,237 145 4,234 489 5,471 634 
Federal agencies  12,648 2,352 12,648 2,352 
State and municipal obligations76,986 11,825 59,257 22,632 136,243 34,457 
Mortgage-backed securities - GSE residential32,446 3,440 83,537 20,204 115,983 23,644 
Corporate obligations7,044 1,456 2,589 411 9,633 1,867 
Total available-for-sale121,173 16,893 162,265 46,088 283,438 62,981 
Held-to-maturity
State and municipal obligations4,995 108 413 4 5,408 112 
Total impaired securities$126,168 $17,001 $162,678 $46,092 $288,846 $63,093 
Federal Agency Obligations.  The unrealized losses on the Company’s investments in direct obligations of U.S. federal agencies were caused by interest rate changes.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments.  The Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity.
SBA Pools and Mortgage-Backed Securities - GSE Residential.  The unrealized losses on the Company’s investment in mortgage-backed securities and SBA pools were caused by interest rate changes.  The Company expects to recover the amortized cost basis over the term of the securities. The decline in fair value is attributable to changes in interest rates and not credit quality, and the Company does not intend to sell the securities. It is not more likely than not the Company will be required to sell the securities before recovery of their amortized cost basis, which may be maturity.
State, Municipal, and Corporate Obligations.  The unrealized losses on the Company’s investments in securities of state, municipal, and corporate obligations were caused by interest rate changes.  The contractual terms of those securities do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments.  The Company does not intend to sell the securities and it is not more likely than not the Company will be required to sell the securities before recovery of their amortized cost basis, which may be maturity.
The Company expects the fair value of the securities as described above to recover as the securities approach their maturity or reset date.

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Note 4: Loans, Leases and Allowance
The following table shows the composition of the loan and lease portfolio at September 30, 2023 and December 31, 2022:
September 30,
2023
December 31,
2022
Commercial mortgage$345,714 $298,087 
Commercial and industrial111,450 100,420 
Construction and development140,651 139,923 
Multi-family135,409 124,914 
Residential mortgage160,488 146,129 
Home equity lines of credit10,776 11,010 
Direct financing leases154,520 133,469 
Consumer24,176 21,048 
1,083,184 975,000 
Less
Allowance for credit losses on loans and leases15,496 12,413 
Deferred loan fees796 896 
$1,066,892 $961,691 
The Company rates all loans and leases by credit quality using the following designations:
Grade 1 – Exceptional
Exceptional loans and leases are top-quality loans to individuals whose financial credentials are well known to the Company. These loans and leases have excellent sources of repayment, are well documented and/or virtually free of risk (i.e., CD secured loans).
Grade 2 – Quality Loans and Leases
These loans and leases have excellent sources of repayment with no identifiable risk of collection, and they conform in all respects to Company policy and IDFI and FDIC regulations.  Documentation exceptions are minimal or are in the process of being corrected and are not of a type that could subsequently expose the Company to risk of loss.
Grade 3 – Acceptable Loans
This category is for “average” quality loans and leases.  These loans and leases have adequate sources of repayment with little identifiable risk of collection and they conform to Company policy and IDFI/FDIC regulations.
Grade 4 – Acceptable but Monitored
Loans and leases in this category may have a greater than average risk due to financial weakness or uncertainty but do not appear to require classification as special mention or substandard loans.  Loans and leases rated “4” need to be monitored on a regular basis to ascertain that the reasons for placing them in this category do not advance or worsen.
Grade 5 – Special Mention
Loans and leases in this category have potential weaknesses that deserve management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or in the Company’s credit position at some future date.  Special Mention loans and leases are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.  This special mention rating is designed to identify a specific level of risk and concern about an asset’s quality.  Although a special mention loan or lease has a higher probability of default than a pass rated loan or lease, its default is not imminent.
Grade 6 – Substandard

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Loans and leases in this category are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans and leases so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Substandard loans and leases have a high probability of payment default, or they have other well-defined weaknesses.  Such loans and leases have a distinct potential for loss; however, an individual loan’s or lease’s potential for loss does not have to be distinct for the loan or lease to be rated substandard.
The following are examples of situations that might cause a loan or lease to be graded a “6”:
Cash flow deficiencies (losses) jeopardize future loan or lease payments.
Sale of non-collateral assets has become a primary source of loan or lease repayment.
The relationship has deteriorated to the point that sale of collateral is now the Company’s primary source of repayment, unless this was the original source of loan or lease repayment.
The borrower is bankrupt or for any other reason future repayment is dependent on court action.
Grade 7 – Doubtful
A loan or lease classified as doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly questionable and improbable.  A doubtful loan or lease has a high probability of total or substantial loss.  Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. Because of high probability of loss, nonaccrual accounting treatment will be required for doubtful loans and leases.
Grade 8 – Loss
Loans and leases classified loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan or lease has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan or lease even though partial recovery may be effected in the future.
No material changes have been made to the risk characteristics discussed above contained in the Company's 2022 Form 10-K.











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The following tables present the credit risk profile of the Company’s loan and lease portfolio based on rating category, payment activity, and origination year as of September 30, 2023 and rating category as of December 31, 2022:
20232022202120202019PriorRevolving loans amortized cost basisTotal
As of September 30, 2023:
Commercial mortgage
Pass$29,817 $82,657 $70,570 $38,397 $46,265 $64,276 $12,326 $344,308 
Substandard     1,406  1,406 
Total Commercial mortgage29,817 82,657 70,570 38,397 46,265 65,682 12,326 345,714 
Current period gross charge-offs        
Commercial and industrial
Pass31,311 12,682 13,998 5,493 1,856 10,586 29,706 105,632 
Substandard 26 109 20  873 4,790 5,818 
Total Commercial and industrial31,311 12,708 14,107 5,513 1,856 11,459 34,496 111,450 
Current period gross charge-offs 58      58 
Construction and development
Pass19,024 49,700 26,536 70 116 920 39,385 135,751 
Substandard    4,900   4,900 
Total Construction and development19,024 49,700 26,536 70 5,016