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Item 2. Management’s Discussion and Analysis

2025-05-09 compared with 2024-11-13 · 126 added, 208 removed, 197 unchanged (63% of the section changed)

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Management’s discussion and analysis of financial condition of the Richmond Mutual Bancorporation, Inc.

(the “Company”) at September 30, 2024, and the consolidated results of operations for the three and nine month periods ended September 30, 2024, compared to the same periods in 2023, is intended to assist in understanding the financial condition and results of operations of the Company.

(the “Company”) at March 31, 2025, and the consolidated results of operations for the three month period ended March 31, 2025, compared to the same period in 2024, 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.

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• our ability to pay dividends on our common stock;

• the potential for new or increased tariffs, trade restrictions, or geopolitical tensions that could affect economic activity or specific industry sectors;

• other economic, competitive, governmental, regulatory, and technical factors affecting our operations, pricing, products and services;

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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 $189.5 million at September 30, 2024.

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 $194.5 million at March 31, 2025.

Our results of operations are primarily dependent on net interest income.

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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 September 30, 2024, on a consolidated basis, we had $1.5 billion in assets, $1.1 billion in loans and leases, net of allowance, $1.1 billion in deposits and $140.0 million in stockholders’ equity.

At September 30, 2024, First Bank Richmond’s total risk-based capital ratio was 14.35%, exceeding the 10.0% requirement for a well-capitalized institution.

For the nine months ended September 30, 2024, net income was $6.9 million, compared with net income of $7.5 million for the nine months ended September 30, 2023.

At March 31, 2025, on a consolidated basis, we had $1.5 billion in assets, $1.2 billion in loans and leases, net of allowance, $1.1 billion in deposits, and $130.9 million in stockholders’ equity.

At March 31, 2025, First Bank Richmond’s total risk-based capital ratio was 14.04%, exceeding the 10.0% requirement for a well-capitalized institution.

For the three months ended March 31, 2025, net income was $2.0 million, compared with net income of $2.4 million for the three months ended March 31, 2024.

Critical Accounting Estimates

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We have reviewed our critical accounting estimates with the audit committee of our Board of Directors.

There have been no significant changes during the nine months ended September 30, 2024 to the critical accounting estimates reported in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Form 10-K.

There have been no significant changes during the three months ended March 31, 2025 to the critical accounting estimates reported in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2024 Form 10-K.

See "Critical Accounting Estimates" included in Part II, Item 7 of our 2024 Form 10-K for a further discussion of our Critical Accounting Estimates.

Comparison of Financial Condition at September 30, 2024 and December 31, 2023

Total assets increased $31.5 million, or 2.2%, to $1.5 billion at September 30, 2024 from December 31, 2023.

The increase was primarily the result of a $50.9 million, or 4.7%, increase in loans and leases, net of allowance for credit losses, to $1.1 billion, partially offset by a $16.3 million, or 5.7%, decrease in investment securities to $271.3 million at September 30, 2024.

Comparison of Financial Condition at March 31, 2025 and December 31, 2024

Total assets increased $17.9 million, or 1.2%, to $1.5 billion at March 31, 2025 from December 31, 2024.

The increase was primarily the result of a $17.0 million, or 1.5%, increase in loans and leases, net of allowance for credit losses, to $1.2 billion, partially offset by a $2.7 million, or 1.0%, decrease in investment securities to $259.0 million at March 31, 2025.

Investment Securities.

Investment securities available for sale totaled $267.3 million and $282.7 million, while investment securities held to maturity totaled $4.1 million and $4.9 million at September 30, 2024 and December 31, 2023, respectively.

The $15.4 million, or 5.5%, decrease in investment securities available for sale was primarily due to maturities and principal repayments of $16.4 million and $6.9 million in sales of securities, partially offset by a $5.2 million upward mark-to-market adjustment on the investment portfolio due to the decline in market interest rates at the end of the current quarter.

Investment securities available for sale totaled $256.1 million and $258.2 million, while investment securities held to maturity totaled $2.9 million and $3.5 million at March 31, 2025 and December 31, 2024, respectively.

The $2.1 million, or 0.8%, decrease in investment securities available for sale was primarily due to maturities and principal repayments of $4.5 million, partially offset by a $1.6 million upward mark-to-market adjustment on the investment portfolio and purchases of securities of $1.0 million.

The decrease in investment securities held to maturity was the result of scheduled principal repayments and maturities.

The proceeds received from the maturities, repayments, and sales of securities were used to fund loan growth.

The proceeds received from the maturities and repayments were primarily used to fund loan growth.

Loans and Leases.

Loans and leases, net of allowance for credit losses on loans and leases, increased $50.9 million, or 4.7%, to $1.1 billion at September 30, 2024 from December 31, 2023.

The increase in loans and leases was attributable to increases in multi-family loans, commercial and industrial loans, residential mortgage loans, and commercial real estate loans of $45.0 million, $11.2 million, $10.8 million and $6.8 million, respectively.

At September 30, 2024, loans held for sale totaled $220,000, compared to $794,000 at December 31, 2023.

Nonaccrual loans and leases totaled $5.1 million at September 30, 2024, compared to $6.3 million at December 31, 2023.

The decrease in nonaccrual loans reflects a $1.2 million decline in nonaccrual commercial and industrial loans which were paid-off during the period.

Accruing loans and leases past due 90 days or more totaled $1.6 million at September 30, 2024, compared to $1.7 million at December 31, 2023.

Nonperforming loans and leases, consisting of nonaccrual loans and

leases and accruing loans and leases 90 days or more past due, totaled $6.7 million, or 0.58% of total loans and leases, at September 30, 2024, compared to $8.0 million, or 0.72% of total loans and leases, at December 31, 2023.

Loans and leases, net of allowance for credit losses on loans and leases, increased $17.0 million, or 1.5%, to $1.2 billion at March 31, 2025 from December 31, 2024.

The increase in loans and leases was attributable to increases in multi-family, commercial real estate, and commercial and industrial loans of $25.6 million, $15.8 million, and $10.2 million, respectively.

These increases were partially offset by a $32.6 million decrease in construction and development loans.

At March 31, 2025, loans held for sale totaled $388,000, compared to $1.1 million at December 31, 2024.

Nonaccrual loans and leases totaled $5.3 million at March 31, 2025, compared to $5.1 million at December 31, 2024.

The increase in nonaccrual loans and leases reflects a $250,000 increase in nonaccrual direct financing leases.

Accruing loans

and leases past due 90 days or more totaled $1.7 million at both March 31, 2025 and December 31, 2024.

Nonperforming loans and leases, consisting of nonaccrual loans and leases and accruing loans and leases 90 days or more past due, totaled $7.0 million, or 0.59% of total loans and leases, at March 31, 2025, compared to $6.8 million, or 0.58% of total loans and leases, at December 31, 2024.

Allowance for Credit Losses.

The allowance for credit losses on loans and leases increased $110,000, or 0.7%, to $15.8 million at September 30, 2024 from December 31, 2023.

At September 30, 2024, the allowance for credit losses on loans and leases totaled 1.36% of total loans and leases outstanding.

The allowance for credit losses on loans and leases increased $287,000, or 1.8%, to $16.1 million at March 31, 2025 from December 31, 2024.

At March 31, 2025, the allowance for credit losses on loans and leases totaled 1.35% of total loans and leases outstanding.

The increase in the allowance was primarily due to changes in portfolio composition, primarily growth in commercial real estate, multi-family, and commercial and industrial loans, which generally carry higher reserve requirements relative to other segments.

In addition, updated economic forecasts, including expectations for slowing GDP growth and rising unemployment, contributed to a more cautious provisioning approach.

At December 31, 2024, the allowance for credit losses on loans and leases totaled $15.8 million, or 1.34% of total loans and leases outstanding.

Net charge-offs during the first nine months of 2024 were $1.2 million, compared to net charge-offs of $436,000 during the first nine months of 2023.

Net charge-offs during the first three months of 2025 totaled $395,000, and were primarily attributable to direct financing leases, compared to net charge-offs of $324,000 during the first three months of 2024.

Management regularly analyzes conditions within its geographic markets and evaluates its loan and lease portfolio.

The Company evaluated its exposure to potential loan and lease losses as of September 30, 2024, which evaluation included consideration of a potential recession due to inflation, stock market volatility, and overall geopolitical tensions.

The Company evaluated its exposure to potential loan and lease losses as of March 31, 2025, which evaluation included consideration of a potential recession due to inflation, stock market volatility, and overall geopolitical tensions.

Credit metrics are being reviewed and stress testing is being performed on the loan portfolio on an ongoing basis.

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Other Assets .

Other assets decreased $3.2 million, or 12.8%, to $21.6 million at September 30, 2024 from $24.8 million at December 31, 2023, primarily caused by a decrease in our deferred tax asset due to the upward mark-to-market adjustment on the investment portfolio.

Total deposits increased $48.0 million, or 4.6%, to $1.1 billion at September 30, 2024 from December 31, 2023.

The increase in deposits primarily was due to an increase in non-brokered time deposits of $41.6 million, which were used to fund loan demand, and savings and money-market accounts of $27.0 million.

These increases were partially offset by a decrease in demand deposit accounts of $31.4 million.

Brokered deposits totaled $279.6 million, or 25.7% of total deposits, at September 30, 2024, compared to $268.8 million, or 25.8% of total deposits, at December 31, 2023.

At September 30, 2024, noninterest-bearing deposits totaled $98.5 million, or 9.0% of total deposits, compared to $114.4 million, or 11.0% of total deposits, at December 31, 2023.

Other assets decreased $843,000, or 3.7%, to $21.6 million at March 31, 2025 from $22.5 million at December 31, 2024.

The decrease was primarily caused by a reduction in the Company's deferred tax asset, which resulted from an upward mark-to-market adjustment on the available-for-sale investment portfolio due to a reduction in market rates of interest, thereby reducing unrealized losses previously reflected in accumulated other comprehensive loss ("AOCL").

Total deposits increased $11.7 million, or 1.1%, to $1.1 billion at March 31, 2025 from December 31, 2024.

The increase in deposits primarily was due to an increase in brokered time deposits of $7.2 million, which were used to fund loan demand, retail (non-brokered) time deposits of $4.2 million, and interest-bearing demand deposits of $6.9 million.

These increases were partially offset by a decrease in noninterest-bearing accounts of $6.8 million.

Brokered deposits totaled $264.8 million, or 23.9% of total deposits, at March 31, 2025, compared to $257.6 million, or 23.5% of total deposits, at December 31, 2024.

At March 31, 2025, noninterest-bearing deposits totaled $103.4 million, or 9.3% of total deposits, compared to $110.1 million, or 10.1% of total deposits, at December 31, 2024.

Management attributes the shift in funds from transaction accounts to retail certificates of deposit to customers taking advantage of higher rates being paid on time deposits as a result of interest rate hikes enacted by the Federal Reserve.

As of September 30, 2024, approximately $224.6 million of our deposit portfolio, or 20.6% of total deposits, excluding collateralized public deposits, was uninsured.

As of March 31, 2025, approximately $243.0 million of our deposit portfolio, or 22.0% of total deposits, excluding collateralized public deposits, was uninsured.

The uninsured amounts are estimated based on the methodologies and assumptions used for First Bank Richmond's regulatory reporting requirements.

Total borrowings, consisting solely of FHLB advances, decreased $19.0 million, or 7.0%, to $252.0 million at September 30, 2024, compared to $271.0 million at December 31, 2023.

The decrease in borrowing was mainly driven by an increase in deposits during the period, which reduced our need for additional borrowing.

Stockholders’ Equity.

Stockholders’ equity totaled $140.0 million at September 30, 2024, an increase of $5.2 million, or 3.8%, from December 31, 2023.

The increase in stockholders' equity from year-end 2023 resulted from net income of $6.9 million and a decrease in accumulated other comprehensive loss ("AOCL") of $4.1 million, partially offset by the payment of $4.3 million in dividends to Company stockholders, and the repurchase of $3.1 million of Company common stock.

At December 31, 2023, the available for sale portfolio had a net unrealized loss of $54.5 million compared to a net unrealized loss of $49.3 million at September 30, 2024.

The AOCL impact to equity, after tax affecting the unrealized loss, was $39.0 million at September 30, 2024 compared to $43.0 million at December 31, 2023.

The Company repurchased 261,234 shares of Company common stock at an average price of $11.85 per share for a total of $3.1 million during the first nine months of 2024.

The Company's equity to asset ratio was 9.38% at September 30, 2024.

At September 30, 2024, the Bank's Tier 1 capital to total assets ratio was 10.73% and the Bank's capital was well in excess of all regulatory requirements.

Comparison of Results of Operations for the Three Months Ended September 30, 2024 and 2023.

Net income for the three months ended September 30, 2024 was $2.5 million, a $523,000 or 26.8% increase from net income of $1.9 million for the three months ended September 30, 2023.

Diluted earnings per share were $0.24 for the third quarter of 2024, compared to $0.19 diluted earnings per share for the third quarter of 2023.

The increase in net income primarily was the result of a $305,000 increase in net interest income, a reversal of the provision for credit losses of $99,000 in the third quarter of 2024, compared to a provision for credit losses of $50,000 for the quarter ended September 30, 2023, and a $168,000 increase in noninterest income, partially offset by a $96,000 increase in the provision for income taxes.

Interest Income.

Interest income increased $2.8 million, or 16.4%, to $20.3 million during the quarter ended September 30, 2024, compared to $17.4 million during the quarter ended September 30, 2023.

Interest income on loans and leases increased $2.8 million, or 18.3%, to $18.1 million for the quarter ended September 30, 2024, from $15.3 million for the comparable quarter in 2023, due to an increase in the average balance of loans and leases of $84.3 million, and an increase of 56 basis points in the average yield earned on loans and leases.

The average outstanding loan and lease balance was $1.2 billion for the quarter ended September 30, 2024, compared to $1.1 billion for the quarter ended September 30, 2023.

The average yield on loans and leases was 6.27% for the quarter ended September 30, 2024, compared to 5.71% for the comparable quarter in 2023.

Interest income on investment securities, excluding FHLB stock, decreased $102,000, or 5.7%, for the third quarter of 2024 from the comparable quarter in 2023.

The decrease was due to a $12.7 million decrease in the average balance, primarily as a result of proceeds received from sales, maturities and paydowns on securities being used to fund loan growth, and a three basis point decrease in the average yield earned on investment securities.

The average yield on investment securities, excluding FHLB stock, decreased to 2.51% for the third quarter of 2024, compared to 2.54% for the third quarter of 2023.

The average balance of investment securities, excluding FHLB stock, decreased to $270.9 million for the quarter ended September 30, 2024, compared to $283.6 million for the quarter ended September 30, 2023.

Dividends on FHLB stock increased $63,000, or 26.4%, during the quarter ended September 30, 2024, from the comparable quarter in 2023, resulting in an average yield on FHLB stock of 8.69% for the three months ended September 30, 2024, compared to 8.75% for the three months ended September 30, 2023.

Interest income on cash and cash equivalents increased $86,000, or 84.3%, during the quarter ended September 30, 2024, from the comparable quarter in 2023, due to an 81 basis point increase in the average yield and a $5.5 million increase in the average balance of cash and cash equivalents.

Interest Expense.

Interest expense increased $2.5 million, or 30.7%, to $10.8 million for the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023.

Interest expense on deposits increased $2.0 million, or 31.9%, to $8.3 million for the quarter ended September 30, 2024, from the comparable quarter in 2023.

The increase in interest expense on deposits primarily was attributable to a $61.8 million increase in the average balance of, and a 64 basis point increase in the average rate paid on, interest-bearing deposits.

The average rate paid on interest-bearing deposits was 3.33% for the quarter ended September 30, 2024, compared to 2.69% for the quarter ended September 30, 2023.

The average balance of interest-bearing deposits was $1.0 billion for the quarter ended September 30, 2024, compared to $939.2 million in the comparable quarter in 2023.

Interest expense on FHLB borrowings increased $529,000, or 26.9%, to $2.5 million in the third quarter of 2024 compared to $2.0 million for the same quarter in 2023, due to increases in the average rate paid on FHLB borrowings of 58 basis points and the average balance of such borrowings of $20.0 million.

The average rate paid on FHLB borrowings was 4.08% for the quarter ended September 30, 2024, compared to 3.50% for the third quarter of 2023.

The average balance of FHLB borrowings totaled $244.8 million during the quarter ended September 30, 2024, compared to $224.8 million for the quarter ended September 30, 2023.

Net Interest Income.

Net interest income before the (reversal of)/provision for credit losses increased $305,000, or 3.3%, to $9.4 million for the third quarter of 2024, compared to $9.1 million for the third quarter of 2023.

This increase was due to an $80.0 million increase in average interest earning assets, partially offset by a 13 basis point decrease in the average interest rate spread.

Net interest margin (annualized) was 2.60% for the three months ended September 30, 2024, compared to 2.66% for the three months ended September 30, 2023.

The decrease in net interest margin primarily was due to the rate paid on interest-bearing liabilities increasing faster than the yield on interest-earning assets.

Between March 2022 and January 2024, in response to continuing elevated inflation, the Federal Open Market Committee of the Federal Reserve hiked interest rates a total of 11 times, to a range of 5.25% to 5.50% until September 18, 2024 when the rates were reduced to the range of 4.75% to 5.00%.

While interest income benefited from the repricing impact of the higher interest rate environment on earning asset yields, the benefits were offset by the higher cost of interest-bearing deposit accounts and borrowings, which tend to be shorter in duration than our assets and reprice or reset faster than assets.

Average Balances, Interest and Average Yields/Cost.

The following table sets 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 September 30,

Outstanding Interest

(Dollars in thousands)

Interest-earning assets:

Loans and leases receivable $ 1,153,325 $ 18,071 6.27 % $ 1,069,049 $ 15,270 5.71 %

Securities 270,857 1,700 2.51 % 283,600 1,802 2.54 %

FHLB stock 13,907 302 8.69 % 10,923 239 8.75 %

Cash and cash equivalents and other 15,874 188 4.74 % 10,371 102 3.93 %

Total interest-earning assets 1,453,963 20,261 5.57 % 1,373,943 17,413 5.07 %

Non-earning assets 40,485 45,175

Total assets 1,494,448 1,419,118

Interest-bearing liabilities:

Savings and money market accounts 290,108 1,779 2.45 % 260,386 1,184 1.82 %

Interest-bearing checking accounts 140,028 431 1.23 % 146,084 283 0.77 %

Certificate accounts 570,820 6,121 4.29 % 532,721 4,851 3.64 %

Borrowings 244,793 2,497 4.08 % 224,750 1,968 3.50 %

Total interest-bearing liabilities 1,245,749 10,828 3.48 % 1,163,941 8,286 2.85 %

Noninterest-bearing demand deposits 101,239 112,109

Other liabilities 13,200 13,945

Total borrowings, consisting solely of FHLB advances, increased $9.0 million, or 3.4%, to $274.0 million at March 31, 2025, compared to $265.0 million at December 31, 2024.

The increased borrowings were used to fund loan growth.

Stockholders’ Equity.

Total liabilities and stockholders' equity 1,494,448 1,419,118

Net interest income $ 9,433 $ 9,127

Net earning assets $ 208,214 $ 210,002

Net interest rate spread (1)

2.09 % 2.22 %

Net interest margin (2)

2.60 % 2.66 %

Average interest-earning assets to average interest-bearing liabilities

11,671.00 % 118.04 %

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(1) Annualized.

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

(2) Annualized.

Net interest margin represents net interest income divided by average total interest-earning assets.

(Reversal of)/Provision for Credit Losses.

A reversal of the provision for credit losses of $99,000 was recognized during the three months ended September 30, 2024, compared to a provision for credit losses of $50,000 for the three months ended September 30, 2023.

Net charge-offs during the third quarter of 2024 were $464,000, compared to $299,000 in the third quarter of 2023.

The reversal of provision for credit losses during the quarter was due to the availability of increased details within certain loan categories, which allowed for more precise risk profiling.

Additionally, macroeconomic inputs, credit metrics, and refreshed loss driver data were updated to further refine our allowance calculation.

While we believe the steps we have taken and continue to take are necessary to effectively manage our portfolio, uncertainties relating to the level of our allowance for credit losses remain heightened as a result of continued concern about a potential recession due to inflation, stock market volatility, and overall geopolitical tensions.

Noninterest Income.

Noninterest income increased $168,000, or 14.5%, to $1.3 million for the quarter ended September 30, 2024, compared to the same quarter in 2023.

The increase in noninterest income resulted primarily from increases in net gains on loan and lease sales and service charges on deposit accounts, partially offset by a decrease in other income.

Net gains on loan and lease sales increased $122,000, or 135.8%, compared to the same quarter in 2023, due to increased mortgage banking activity.

Service fees on deposit accounts increased $51,000, or 18.5%, in the third quarter of 2024

from the comparable quarter in 2023, due to higher transaction activity and early withdraw penalty fees, coupled with year-over-year deposit growth.

Other income decreased $24,000, or 6.3%, to $354,000 for the quarter ended September 30, 2024, compared to $378,000 for the comparable quarter in 2023 due to fees earned from our participation in a loan hedging program with a correspondent bank in 2023.

Net gains on sales of securities available for sale totaled $11,000 for the three months ended September 30, 2024, while there were no sales of securities in the comparable quarter of 2023.

Loan and lease servicing fees increased $11,000, or 9.5%, for the quarter ended September 30, 2024 compared to the comparable quarter in 2023 due to increased loan participation income.

Card fee income decreased $2,000, or 0.8%, to $301,000 for the quarter ended September 30, 2024 compared to the same quarter in 2023.

Noninterest Expense.

Noninterest expense totaled $8.0 million for both the three months ended September 30, 2024 and the three months ended September 30, 2023.

Salaries and employee benefits increased $204,000, or 4.7%, to $4.6 million for the quarter ended September 30, 2024, from $4.4 million for the same quarter in 2023.

The increase in salaries and benefits was primarily driven by higher health insurance, as well as increased compensation costs.

Deposit insurance expense increased $100,000, or 35.7%, from the comparable quarter in 2023 primarily due to a change in the asset and deposit mix.

Legal and professional fees decreased $65,000, or 12.3%, to $463,000 from the comparable quarter in 2023 primarily due to reduced accounting services expenses.

Data processing fees increased $40,000, or 4.7%, to $894,000 in the third quarter of 2024 compared to the same quarter of 2023, primarily due to increased core provider expenses.

Other expenses decreased $236,000, or 20.4%, to $918,000 during the third quarter of 2024, compared to the same quarter of 2023, primarily due to reduced fraud losses and loan closing expenses.

Income Tax Expense.

The provision for income taxes increased $96,000 during the three months ended September 30, 2024, compared to the same period in 2023, due to a higher level of pre-tax income.

The effective tax rate for the third quarter of 2024 was 13.0% compared to 12.3% for the same quarter a year ago.

The increase in the effective tax rate was a result of a higher level of pre-tax income, reducing the favorable impact of tax-exempt interest and deductions.

Comparison of Results of Operations for the Nine Months Ended September 30, 2024 and 2023.

Net income for the nine months ended September 30, 2024 was $6.9 million, a $644,000 or 8.5% decrease from net income of $7.5 million for the nine months ended September 30, 2023.

Diluted earnings per share were $0.68 for the first nine months of 2024, compared to $0.72 diluted earnings per share for the first nine months of 2023.

The decrease in net income was the result of a $1.4 million increase in noninterest expense and a $127,000 increase in the provision for credit losses, partially offset by a $510,000 increase in net interest income, a $134,000 increase in noninterest income, and a $254,000 decrease in the provision for income taxes.

Stockholders’ equity totaled $130.9 million at March 31, 2025, a decrease of $1.9 million, or 1.5%, from December 31, 2024.

The decrease in stockholders' equity resulted from the payment of $1.5 million in dividends to Company stockholders and the repurchase of $4.2 million of Company common stock, partially offset by net income of $2.0 million and a decrease in AOCL of $1.3 million.

The decrease in AOCL was a result of improved fair values in the Company's available for sale investment portfolio, resulting from a reduction in market rates of interest.

At December 31, 2024, the available for sale portfolio had a net unrealized loss of $58.0 million compared to a net unrealized loss of $56.4 million at March 31, 2025.

The AOCL impact to equity, after tax affecting the unrealized loss, was $44.5 million at March 31, 2025 compared to $45.8 million at December 31, 2024.

The Company repurchased 324,696 shares of Company common stock at an average price of $13.04 per share for a total of $4.2 million during the first three months of 2025.

The Company's equity to asset ratio was 8.60% at March 31, 2025.

At March 31, 2025, the Bank's Tier 1 capital to total assets ratio was 10.68% 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, 2025 and 2024.

Net income for the three months ended March 31, 2025 was $2.0 million, a $401,000 or 16.9% decrease from net income of $2.4 million for the three months ended March 31, 2024.

Diluted earnings per share were $0.20 for the first quarter of 2025, compared to $0.23 diluted earnings per share for the first quarter of 2024.

The decrease in net income primarily was the result of a $548,000 increase in the provision for credit losses and a $315,000 increase in noninterest expense, partially offset by an increase in net interest income of $425,000 and an increase of $33,000 in noninterest income.

Interest Income.

Interest income increased $11.0 million, or 22.6%, to $59.9 million during the nine months ended September 30, 2024, compared to $48.8 million during the nine months ended September 30, 2023.

Interest income on loans and leases increased $10.6 million, or 24.8%, to $53.1 million for the nine months ended September 30, 2024, from $42.6 million for the comparable period in 2023, due to an increase in the average balance of loans and leases of $115.0 million, and an increase of 68 basis points in the average yield earned on loans and leases.

The average outstanding loan and lease balance was $1.1 billion for the first nine months of 2024, compared to $1.0 billion for the first nine months of 2023.

The average yield on loans and leases was 6.20% for the nine months ended September 30, 2024, compared to 5.52% for the comparable period in 2023.

Interest income on investment securities, excluding FHLB stock, decreased $176,000, or 3.3%, to $5.2 million from the comparable period in 2023, due to a decrease in the average balance of investment securities, partially offset by a five basis point increase in the average yield.

The average yield on investment securities, excluding FHLB stock, was 2.53% for the first nine months of 2024, compared to 2.48% for the first nine months of 2023.

The average balance of investment securities, excluding FHLB stock, was $275.9 million for the nine months ended September 30, 2024, compared to $290.8 million for the nine months ended September 30, 2023.

Dividends on FHLB stock increased $390,000, or 70.0%, during the nine months ended September 30, 2024, from the comparable period in 2023, resulting in an average yield on FHLB stock of 9.12% for the nine months ended September 30, 2024, compared to 7.16% for the nine months ended September 30, 2023.

Interest income on cash and cash equivalents increased $243,000, or 80.5%, during the nine months ended September 30, 2024, from the comparable period in 2023, due to a 99 basis point increase in the average yield and a $4.6 million increase in the average balance of cash and cash equivalents.

Interest income increased $1.4 million, or 7.0%, to $20.9 million during the quarter ended March 31, 2025, compared to $19.5 million during the quarter ended March 31, 2024.

Interest income on loans and leases increased $1.5 million, or 8.8%, to $18.8 million for the quarter ended March 31, 2025, from $17.3 million for the comparable quarter in 2024, due to an increase in the average balance of loans and leases of $55.1 million, and an increase of 23 basis points in the average yield earned on loans and leases as new loans and leases were originated at higher rates and existing variable rate loans in the portfolio adjusted upward due to the overall higher interest rate environment.

The average outstanding loan and lease balance was $1.2 billion for the quarter ended March 31, 2025, compared to $1.1 billion for the quarter ended March 31, 2024.

The average yield on loans and leases was 6.36% for the quarter ended March 31, 2025, compared to 6.13% for the comparable quarter in 2024.

Interest income on investment securities, excluding FHLB stock, decreased $144,000, or 8.0%, to $1.7 million for the first quarter of 2025 from the comparable quarter in 2024.

The decrease was due to a $21.9 million decrease in the average balance, primarily as a result of maturities and paydowns on securities being used to fund loan growth, and a one basis point decrease in the average yield earned on investment securities.

The average yield on investment securities, excluding FHLB stock, decreased to 2.52% for the first quarter of 2025, compared to 2.53% for the first quarter of 2024.

The average balance of investment securities, excluding FHLB stock, decreased to $262.1 million for the quarter ended March 31, 2025, compared to $284.0 million for the quarter ended March 31, 2024.

Dividends on FHLB stock decreased $13,000, or 4.0%, during the quarter ended March 31, 2025, from the comparable quarter in 2024, resulting in an average yield on FHLB stock of 8.95% for the three months ended March 31, 2025, compared to 9.44% for the three months ended March 31, 2024.

Interest income on cash and cash equivalents decreased $8,000, or 6.1%, to $131,000 during the quarter ended March 31, 2025, from the comparable quarter in 2024, due to a 31 basis point decrease in the average yield, partially offset by a $273,000 increase in the average balance of cash and cash equivalents.

Interest Expense.

Interest expense increased $10.5 million, or 51.3%, to $31.0 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

Interest expense on deposits increased $7.5 million, or 47.3%, to $23.4 million for the nine months ended September 30, 2024, from the comparable period in 2023.

increase in interest expense on deposits was attributable to a $51.6 million increase in the average balance of, and a 90 basis point increase in the average rate paid on, interest-bearing deposits.

The average rate paid on interest-bearing deposits was 3.19% for the nine months ended September 30, 2024, compared to 2.28% for the nine months ended September 30, 2023.

The average balance of interest-bearing deposits was $979.2 million for the nine months ended September 30, 2024, compared to $927.6 million in the comparable period in 2023.

Interest expense on FHLB borrowings increased $3.0 million, or 65.3%, to $7.6 million in the first nine months of 2024 compared to $4.6 million for the same period in 2023, due to increases in the average rate paid on, and average balance of, FHLB borrowings.

The average rate paid on FHLB borrowings was 3.91% for the nine months ended September 30, 2024, an increase of 94 basis points from 2.97% for the first nine months of 2023.

The average balance of FHLB borrowings totaled $259.9 million during the nine months ended September 30, 2024, up $53.0 million from $206.9 million for the nine months ended September 30, 2023.

Interest expense increased $933,000, or 9.6%, to $10.6 million for the quarter ended March 31, 2025, compared to the quarter ended March 31, 2024.

Interest expense on deposits increased $779,000, or 11.0%, to $7.8 million for the quarter ended March 31, 2025, from the comparable quarter in 2024.

The increase in interest expense on deposits primarily was attributable to a $44.2 million increase in the average balance of, and an 18 basis point increase in the average rate paid on, interest-bearing deposits.

The average rate paid on interest-bearing deposits was 3.17% for the quarter ended March 31, 2025, compared to 2.99% for the quarter ended March 31, 2024.

The average balance of interest-bearing deposits was $989.4 million for the quarter ended March 31, 2025, compared to $945.2 million in the comparable quarter in 2024.

The increase in interest-bearing deposit balances and rates reflects ongoing competitive pressures for deposits, as well as a continued shift in customer preferences from non-maturity deposit products into higher-yielding time deposits.

Interest expense on FHLB borrowings increased $154,000, or 5.9%, to $2.8 million in the first quarter of 2025 compared to $2.6 million for the same quarter in 2024, due to an increase in the average rate paid on FHLB borrowings of 26 basis points.

The average rate paid on FHLB borrowings was 4.03% for the quarter ended March 31, 2025, compared to 3.77% for the first quarter of 2024.

The average balance of FHLB borrowings totaled $274.7 million during the quarter ended March 31, 2025, compared to $277.2 million for the quarter ended March 31, 2024.

Management continues to actively evaluate funding mix and pricing strategies to balance interest expense with overall liquidity needs.

This includes a focus on deepening core deposit relationships, selectively reducing higher-cost deposits, and managing wholesale borrowings to optimize the cost of funds.

Net Interest Income.

Net interest income before the provision for credit losses increased $510,000, or 1.8%, to $28.8 million for the first nine months of 2024, compared to $28.3 million for the first nine months of 2023.

This increase was due to a $3.6 million increase in average net earning assets, partially offset by a 28 basis point decrease in the average interest rate spread.

Net interest margin (annualized) was 2.66% for the nine months ended September 30, 2024, compared to 2.82% for the nine months ended September 30, 2023.

The decrease in net interest margin primarily was due to the rate paid on interest-bearing liabilities increasing faster than the yield on interest-earning assets.

Net interest income before the provision for credit losses increased $425,000, or 4.3%, to $10.3 million for the first quarter of 2025, compared to $9.8 million for the first quarter of 2024.

This increase was due to a six basis point increase in the average interest rate spread, partially offset by an $8.0 million decrease in average net earning assets.

The improved spread reflects a favorable shift in asset yields outpacing the increase in funding costs, as loans and investment securities repriced or were originated at higher market rates.

The modest decline in average net earning assets was primarily the result of lower average balances of investment securities, as management actively redeployed excess liquidity toward higher-yielding loan production.

Net interest margin (annualized) was 2.79% for the three months ended March 31, 2025, compared to 2.74% for the three months ended March 31, 2024.

The increase in net interest margin primarily was due to the yield on interest-earning assets increasing faster than the rate paid on interest-bearing liabilities.

This margin expansion was supported by growth in higher-yielding asset categories, particularly commercial and multi-family loans.

Average Balances, Interest and Average Yields/Cost.

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Loan fees are included in interest income on loans and are not material.

Nine Months Ended September 30,

Three Months Ended March 31,

Outstanding Interest

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Provision for Credit Losses.

The provision for credit losses for the nine months ended September 30, 2024 totaled $355,000, compared to $228,000 for the nine months ended September 30, 2023, a $127,000 or 55.6% increase.

The increased provision was due to an increase in the loan portfolio, as well as an increase in net charge-offs during the period.

Net charge-offs during the first nine months of 2024 were $1.2 million, compared to $436,000 in the first nine months of 2023.

A provision for credit losses of $731,000 was recognized during the three months ended March 31, 2025, compared to a provision for credit losses of $183,000 for the three months ended March 31, 2024.

Net charge-offs during the first quarter of 2025 were $395,000, compared to $324,000 in the first quarter of 2024.

The provision for credit losses during the quarter was primarily due to loan growth in the commercial real estate and commercial and industrial loan

portfolios, which generally carry higher estimated loss rates compared to other segments.

Additionally, the provision reflected replenishment of the allowance following charge-offs and was influenced by changes in the macroeconomic forecast, including a modest deterioration in projected economic indicators such as national GDP and unemployment rates.

While we believe the steps we have taken and continue to take are necessary to effectively manage our portfolio, uncertainties relating to the level of our allowance for credit losses remain heightened as a result of continued concern about a potential recession due to tariffs, inflation, stock market volatility, and overall geopolitical tensions.

Noninterest Income.

Noninterest income increased $134,000, or 3.9%, to $3.6 million for the nine months ended September 30, 2024, compared to the same period in 2023.

The increase in noninterest income resulted primarily from increases in service charges on deposit accounts and other income and, to a lesser extent, increases in net gains on loan and lease sales and loan and lease servicing fees, partially offset by net losses on sales of securities available for sale.

Service fees on deposit accounts increased $77,000, or 9.2%, in the first nine months of 2024 from the comparable period in 2023 due to higher transaction activity and account maintenance fees, coupled with year-over-year deposit growth.

Other income increased $58,000, or 6.1%, to $1.0 million for the nine months ended September 30, 2024, compared to $956,000 for the comparable period in 2023 due to increased wealth management income.

Net gains on loan and lease sales increased $22,000, or 5.4%,

compared to the same period in 2023, due to increased mortgage banking activity.

Loan and lease servicing fees increased $40,000, or 11.7%, for the nine months ended September 30, 2024 compared to the comparable period in 2023.

Net losses on sales of securities available for sale totaled $51,000 for the first nine months of 2024, while there were no sales of securities in the first nine months of 2023.

Noninterest income increased $33,000, or 3.0%, to $1.2 million for the quarter ended March 31, 2025, compared to the same quarter in 2024.

The increase resulted primarily from increases in other income and service charges on deposit accounts, partially offset by decreases in net gains on loan and lease sales and loan and lease servicing fees.

Other income increased $41,000, or 12.9%, to $360,000 for the quarter ended March 31, 2025, compared to $319,000 for the comparable quarter in 2024 due to increased wealth management income.

Service fees on deposit accounts increased $23,000, or 8.4%, in the first quarter of 2025 from the comparable quarter in 2024, due to year-over-year deposit growth.

Partially offsetting these increases were modest declines in net gains on loan and lease sales and loan and lease servicing fees, reflecting lower mortgage banking activity and a decrease in the servicing portfolio.

Card fee income also increased slightly, rising $8,000, or 2.9%, to $298,000.

Noninterest Expense.

Noninterest expense increased $1.4 million, or 6.2%, to $24.1 million for the nine months ended September 30, 2024, from $22.7 million for the same period in 2023.

Salaries and employee benefits increased $935,000, or 7.3%, to $13.8 million for the nine months ended September 30, 2024, from $12.9 million for the same period in 2023.

The increase in salaries and benefits was primarily driven by higher health insurance and compensation costs.

Deposit insurance expense increased $523,000, or 81.7%, from the comparable quarter in 2023 primarily due to a change in the asset and deposit mix.

Legal and professional fees increased $181,000, or 15.1%, to $1.4 million for the nine months ended September 30, 2024 compared to $1.2 million for the comparable period in 2023 due to other professional service expenses related to auditing and internal process enhancements.

Data processing fees increased $168,000, or 6.7%, to $2.7 million in the first nine months of 2024 compared to the same period of 2023, primarily due to increased software and core provider expenses.

Noninterest expense increased $315,000, or 3.9%, to $8.4 million for the three months ended March 31, 2025, compared to $8.1 million for the same period in 2024.

Salaries and employee benefits increased $138,000, or 3.0%, to $4.7 million, primarily due to annual merit increases.

Other expenses increased $118,000, or 12.1%, in the first quarter of 2025 compared to the same quarter in 2024, primarily due to one-time expenses associated with contract negotiations with our core service provider.

The renegotiated agreement is expected to produce meaningful cost savings over the term of the contract by reducing costs on existing services and adding new products aimed at improving operational efficiency and the customer experience, while reducing reliance on third-party vendors.

Legal and professional fees increased $98,000, or 22.7%, driven by elevated consulting and advisory services during the quarter.

Deposit insurance expense decreased $64,000, or 15.9%, primarily due to changes in the Company's asset and deposit mix.

Data processing fees decreased $21,000, or 2.3%, to $902,000, primarily due to lower core processing and software-related costs.

Income Tax Expense.

The provision for income taxes decreased $254,000 during the nine months ended September 30, 2024, compared to the same period in 2023, due to a lower level of pre-tax income.

The effective tax rate for the first nine months of 2024 was 12.9% compared to 14.5% for the same period a year ago.

The decrease in the effective tax rate was a result of lower pre-tax income, allowing a greater favorable impact of tax-exempt interest and deductions.

The provision for income taxes decreased $4,000 during the three months ended March 31, 2025, compared to the same period in 2024.

The effective tax rate for the first quarter of 2025 was 15.0% compared to 12.9% for the same quarter a year ago.

The increase in the effective tax rate was primarily due to the expiration and write-off of certain charitable contribution carryforwards.

Capital and Liquidity

Shareholders' equity totaled $140.0 million at September 30, 2024 and $134.9 million at December 31, 2023.

In addition to net income of $6.9 million, other sources of capital during the first nine months of 2024 included $476,000 related to the allocation of ESOP shares, $1.1 million related to stock-based compensation, and a $4.1 million reduction in AOCL.

Uses of capital during the first nine months of 2024 included $4.3 million of dividends paid on common stock and $3.1 million of stock repurchases.

We paid a regular quarterly dividend of $0.14 per common share during both the third quarter of 2024 and 2023.

Shareholders' equity totaled $130.9 million at March 31, 2025 and $132.9 million at December 31, 2024.

In addition to net income of $2.0 million, other sources of capital during the first three months of 2025 included $178,000 related to the allocation of ESOP shares, $363,000 related to stock-based compensation, and a $1.3 million reduction in AOCL.

Uses of capital during the first three months of 2025 included $1.5 million of dividends paid on common stock and $4.2 million of stock repurchases.

We paid a regular quarterly dividend of $0.15 per common share during the first quarter of 2025, compared to $0.14 per common share during the first quarter of 2024.

We currently expect to continue our 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 2024 at the current dividend rate of $0.14 per share, our average total dividend paid each quarter would be approximately $1.5 million based on the number of our currently outstanding shares at September 30, 2024.

Assuming continued payment during 2025 at the current dividend rate of $0.15 per share, our average total dividend paid each quarter would be approximately $1.6 million based on the number of our currently outstanding shares at March 31, 2025.

Stock Repurchase Plans.

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On May 16, 2024, the Company announced that the Board of Directors approved a further extension of the Company's existing stock repurchase program, setting a new expiration date of June 6, 2025.

As of September 30, 2024, approximately 606,802 shares remained available for repurchase under its existing stock repurchase program.

As of March 31, 2025, approximately 148,248 shares remained available for repurchase under the existing stock

repurchase program.

The repurchase program does not obligate the Company to purchase any particular number of shares.

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These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs.

Our liquid assets in the form of cash and cash equivalents and investments available for sale totaled $287.1 million at September 30, 2024.

Certificates of deposit scheduled to mature in less than one year from September 30, 2024 totaled $349.2 million.

Our liquid assets in the form of cash and cash equivalents and investments available for sale totaled $283.4 million at March 31, 2025.

Certificates of deposit scheduled to mature in less than one year from March 31, 2025 totaled $418.6 million.

Historically, the Bank has been able to retain a significant amount of its deposits as they mature.

As of September 30, 2024, we had approximately $8.1 million held in an interest-bearing account at the Federal Reserve.

As of March 31, 2025, we had approximately $13.6 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 September 30, 2024, based upon available, pledgeable collateral, our total remaining borrowing capacity with the FHLB was approximately $120.7 million.

Furthermore, at September 30, 2024, we had approximately $179.8 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 September 30, 2024, management was not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations.

As of March 31, 2025, based upon available, pledgeable collateral, our total remaining borrowing capacity with the FHLB was approximately $101.1 million.

Furthermore, at March 31, 2025, we had approximately $177.7 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, 2025, management was 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.

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cash flows from operating activities, investing activities, and financing activities.

Net cash provided by operating activities for the nine months ended September 30, 2024 was $8.0 million, compared to $8.3 million for the nine months ended September 30, 2023.

During the nine months ended September 30, 2024, net cash used in investing activities was $30.3 million, which consisted primarily of a $49.3 million increase in loans receivable, compared to $100.6 million of cash used in investing activities for the nine months ended September 30, 2023.

Net cash provided by financing activities for the nine months ended September 30, 2024 was $21.7 million, which was comprised primarily of a $48.0 million increase in deposits, compared to $97.0 million provided by financing activities during the nine months ended September 30, 2023.

Net cash provided by operating activities was $2.2 million for both the three months ended March 31, 2025 and March 31, 2024.

During the three months ended March 31, 2025, net cash used in investing activities was $12.0 million, which consisted primarily of a $16.0 million increase in loans receivable, compared to $30.2 million of cash used in investing activities for the three months ended March 31, 2024.

Net cash provided by financing activities for the three months ended March 31, 2025 was $15.1 million, which was comprised primarily of an $11.7 million increase in deposits, compared to $28.1 million provided by financing activities during the three months ended March 31, 2024.

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 2024 Form 10-K other than set forth above.

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Banking regulations may limit the amount of dividends that may be paid to us by First Bank Richmond.

At September 30, 2024, Richmond Mutual Bancorporation, on an unconsolidated basis, had $6.7 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs.

At March 31, 2025, Richmond Mutual Bancorporation, on an unconsolidated basis, had $2.2 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs.

Regulatory Capital Requirements.

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The FDIC may require us to have additional capital above the specific regulatory levels if it believes we are subject to increased risk due to asset problems, high interest rate risk and other risks.

At September 30, 2024, First Bank Richmond’s regulatory capital exceeded the FDIC regulatory requirements, and First Bank Richmond was well-capitalized under regulatory prompt corrective action standards.

At March 31, 2025, 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.

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(Dollars in thousands)

As of September 30, 2024

As of March 31, 2025

Total risk-based capital (to risk weighted assets) $ 181,867 14.0 % $ 103,634 8.0 % $ 129,543 10.0 %

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Tier 1 leverage (core) capital (to adjusted tangible assets) 165,471 10.7 61,579 4.0 76,974 5.0

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

At September 30, 2024, the Bank’s CET1 capital exceeded the required capital conservation buffer.

Failure to maintain the required buffer could result in limitations on the Bank's ability to pay dividends and discretionary bonuses and the Company's ability to repurchase shares based on specified percentages of eligible retained income.

At March 31, 2025, the Bank’s capital exceeded the 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 September 30, 2024, it would have exceeded all regulatory capital requirements.

If Richmond Mutual Bancorporation was subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at March 31, 2025, it would have exceeded all regulatory capital requirements.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis