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Item 2. Management’s Discussion and Analysis

2023-08-10 compared with 2023-05-15 · 207 added, 110 removed, 232 unchanged (58% 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 March 31, 2023, and the consolidated results of operations for the three month period ended March 31, 2023, compared to the same period in 2022, is intended to assist in understanding the financial condition and results of operations of the Company.

(the “Company”) at June 30, 2023, and the consolidated results of operations for the three and six month periods ended June 30, 2023, compared to the same periods in 2022, is intended to assist in understanding the financial condition and results of operations of the Company.

The information contained in this section should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto appearing in Part I, Item 1, of this Form 10-Q.

The terms “we,” “our,” “us,” or the “Company” refer to Richmond Mutual Bancorporation, Inc.

and its consolidated direct and indirect subsidiaries, First Bank Richmond, which we sometimes refer to as the “Bank” and FB Richmond Holdings, Inc., unless the context otherwise requires.

and its consolidated direct and indirect subsidiaries, including First Bank Richmond, which we sometimes refer to as the “Bank,” unless the context otherwise requires.

Cautionary Note Regarding Forward-Looking Statements

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

• potential adverse impacts to economic conditions in the Company's local market areas, other markets where the Company has lending relationships, or other aspects of the Company's business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession, the failure of the U.S.

Congress to increase the debt ceiling, or slowed economic growth caused by increasing political instability from acts of war including Russia's invasion of Ukraine, as well as increasing prices and supply chain disruptions, and any governmental or societal responses to recent bank failures or new COVID-19 variants;

• higher inflation and the impact of current and future monetary policies of the Federal Reserve in response thereto;

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

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

• the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment;

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

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Substantially all of the Company's business is conducted through First Bank Richmond.

The Company is regulated by the Board of Governors of the Federal Reserve System (the “FRB”) and the Indiana Department of Financial Institutions ("IDFI").

The Company is regulated by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the Indiana Department of Financial Institutions ("IDFI").

The Company's corporate office is located at 31 North 9th Street, Richmond, Indiana, and its telephone number is (765) 962-2581.

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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 $138.0 million at March 31, 2023.

Total wealth management assets under management and administration were $150.2 million at June 30, 2023.

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

Net interest income is the difference between interest income, which is the income that is earned on loans and investments, and interest expense, which is the interest that is paid on deposits and borrowings.

Net interest income is the difference between interest income, which is the income that is earned on loans and investments, and interest expense, which is the interest that is paid on

deposits and borrowings.

Other significant sources of pre-tax income are service charges (mostly from service charges on deposit accounts and loan servicing fees), and fees from sale of residential mortgage loans originated for sale in the secondary market.

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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 March 31, 2023, on a consolidated basis, we had $1.4 billion in assets, $989.1 million in loans and leases, net of allowance, $1.0 billion in deposits and $136.1 million in stockholders’ equity.

At March 31, 2023, First Bank Richmond’s total risk-based capital ratio was 14.39%, exceeding the 10.0% requirement for a well-capitalized institution.

For the three months ended March 31, 2023, net income was $2.9 million, compared with net income of $3.0 million for the three months ended March 31, 2022.

At June 30, 2023, on a consolidated basis, we had $1.4 billion in assets, $1.0 billion in loans and leases, net of allowance, $1.0 billion in deposits and $130.8 million in stockholders’ equity.

At June 30, 2023, First Bank Richmond’s total risk-based capital ratio was 14.0%, exceeding the 10.0% requirement for a well-capitalized institution.

For the six months ended June 30, 2023, net income was $5.6 million, compared with net income of $6.5 million for the six months ended June 30, 2022.

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 three months ended March 31, 2023 to the critical accounting estimates reported in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Form 10-K, with the exception of the adoption on January 1, 2023 of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), commonly referred to as Current Expected Credit Loss, or CECL, as discussed below.

There have been no significant changes during the six months ended June 30, 2023 to the critical accounting estimates reported in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Form 10-K, with the exception of the adoption on January 1, 2023 of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), commonly referred to as Current Expected Credit Loss, or CECL, as discussed below.

See "Critical Accounting Estimates" included in Part II, Item 7 of our 2022 Form 10-K for a further discussion of our Critical Accounting Estimates.

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The determination of the allowance is inherently subjective, as it requires significant estimates, including the amounts and timing of expected future cash flows on similarly-risked loans in their respective segments, the amounts and timing of expected future cash flows on collateral-dependent loans, movement through risk-ratings, economic forecasts, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors, all of which may be susceptible to significant change.

At January 1, 2023, we established an allowance for credit losses on off-balance sheet commitments as part of our transition to CECL.

At January 1, 2023, we established an allowance for credit losses on unfunded commitments as part of our transition to CECL.

This allowance is held and monitored separately from our allowance for credit losses on loans and leases and is periodically adjusted.

Significant estimates are used to determine the allowance, including expected future losses of the loan and lease portfolio, changes in composition, information about specific borrower situations and risk-rating adjustments, probability of funding, economic conditions and other factors, all of which may be susceptible to significant change.

A provision for credit losses for off-balance sheet commitments is charged to operations periodically upon evaluation of the necessary balance in the allowance.

A provision for credit losses for unfunded commitments is charged to operations periodically upon evaluation of the necessary balance in the allowance.

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.

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 follows the requirements of ASC 326 in determining the potential reserve needed on its held to maturity portfolio.

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

Comparison of Financial Condition at March 31, 2023 and December 31, 2022

Total assets increased $33.6 million, or 2.5%, to $1.4 billion at March 31, 2023 from December 31, 2022.

The increase was primarily the result of a $27.4 million, or 2.9%, increase in loans and leases, net of allowance for credit losses, to $989.1 million, a $5.9 million, or 2.0%, increase in investment securities to $297.5 million and a $1.5 million, or 9.2%, increase in cash and cash equivalents to $17.4 million at March 31, 2023.

These increases were partially offset by a decrease of $747,000, or 3.1%, in other assets to $23.7 million at March 31, 2023.

Comparison of Financial Condition at June 30, 2023 and December 31, 2022

Total assets increased $80.6 million, or 6.1%, to $1.4 billion at June 30, 2023 from December 31, 2022.

The increase was primarily the result of an $81.3 million, or 8.5%, increase in loans and leases, net of allowance for credit losses, to $1.0 billion at June 30, 2023, partially offset by a decrease of $4.5 million, or 1.5%, in investment securities to $287.1 million at June 30, 2023.

Investment Securities.

Investment securities available-for-sale increased $6.8 million, or 2.4%, to $291.7 million, while investment securities held-to-maturity decreased $920,000, or 13.8%, to $5.8 million at March 31, 2023, compared to December 31, 2022.

The increase in investment securities available-for-sale was primarily due to purchases of $7.1 million and a $7.8 million mark-to-market adjustment on the investment portfolio, partially offset by maturities and paydowns of approximately $7.8 million.

Investment securities available-for-sale decreased $3.6 million, or 1.2%, to $281.3 million, while investment securities held-to-maturity decreased $921,000, or 13.8%, to $5.8 million at June 30, 2023, compared to December 31, 2022.

The decrease in investment securities available-for-sale was primarily due to maturities and paydowns of $12.0 million, partially offset by purchases of securities available-for-sale of $7.1 million.

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

Loans and Leases.

Loans and leases, net of allowance for credit losses on loans and leases, increased $27.4 million, or 2.9%, to $989.1 million at March 31, 2023 from $961.7 million at December 31, 2022.

Loans and leases, net of allowance for credit losses on loans and leases, increased $81.3 million, or 8.5%, to $1.0 billion at June 30, 2023 from $961.7 million at December 31, 2022.

The increase in loans and leases was attributable to an increase in commercial real estate loans, direct financing leases and multi-family loans of $43.4 million, $18.7 million and $16.6 million, respectively.

At March 31, 2023, there were no loans held for sale, compared to $474,000 at December 31, 2022.

Nonperforming loans and leases, consisting of nonaccrual loans and leases and accruing loans and leases 90 days or more past due, totaled $8.6 million or 0.86% of total loans and leases at March 31, 2023, compared to $9.2 million or 0.94% of total loans and leases at December 31, 2022.

Accruing loans and leases past due 90 days or more totaled $3.0 million at March 31, 2023, compared to $3.2 million at December 31, 2022.

At March 31, 2023, troubled loan modifications totaled $60,000, compared to $428,000 at December 31, 2022, all of which were on nonaccrual status as of such dates.

At June 30, 2023, loans held for sale totaled $340,000, compared to $474,000 at December 31, 2022.

Nonperforming loans and leases, consisting of nonaccrual loans and leases and accruing loans and leases 90 days or more past due, totaled $8.5 million or 0.81% of total loans and leases at June 30, 2023, compared to $9.2 million or 0.94% of total loans and leases at December 31, 2022.

Accruing loans and leases past due 90 days or more totaled $2.9 million at June 30, 2023, compared to $3.2 million at December 31, 2022.

At June 30, 2023, troubled loan modifications totaled $59,000, compared to $428,000 at December 31, 2022, all of which were on nonaccrual status as of such dates.

Allowance for Credit Losses.

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As a result of the change in methodology from the incurred loss method to the CECL method, on January 1, 2023 the Company recorded a one-time adjustment from equity into the allowance for credit losses on loans and leases in the amount of $2.0 million, net of tax.

The allowance for credit losses on loans and leases totaled $15.5 million, or 1.54% of total loans and leases outstanding at March 31, 2023.

The allowance for credit losses on loans and leases totaled $15.4 million, or 1.45% of total loans and leases outstanding at June 30, 2023.

At December 31, 2022, prior to the adoption of CECL, the allowance for loan and lease losses totaled $12.4 million, or 1.27% of total loans and leases outstanding.

Additionally, as a part of CECL adoption, the Bank established an allowance for credit losses on off-balance sheet commitments by recording a one-time adjustment from equity of $1.8 million.

This allowance, which is reported in other liabilities on the Condensed Consolidated Balance Sheets, totaled $2.2 million at March 31, 2023.

Net recoveries during the first quarter of 2023 were $78,000 compared to net recoveries of $9,000 during the comparable quarter of 2022.

Additionally, as a part of CECL adoption, the Bank established an allowance for credit losses on unfunded commitments by recording a one-time adjustment from equity of $1.8 million.

This allowance, which is reported in other liabilities on the Condensed Consolidated Balance Sheets, totaled $2.1 million at June 30, 2023.

Net charge-offs during the first half of 2023 were $137,000 compared to net charge-offs of $127,000 during the first half of 2022.

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

The Company evaluated its exposure to potential loan and lease losses as of March 31, 2023, which evaluation included consideration of a potential recession due to inflation, rising interest rates, stock market volatility, and the Russia-Ukraine conflict.

The Company evaluated its exposure to potential loan and lease losses as of June 30, 2023, which evaluation included consideration of a potential recession due to inflation, rising interest rates, stock market volatility, and the Russia-Ukraine conflict.

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 $747,000, or 3.1%, to $23.7 million at March 31, 2023 from $24.5 million at December 31, 2022, primarily as a result of a decrease in deferred tax assets due to the mark-to-market adjustment on the investment portfolio.

Total deposits increased $24.8 million, or 2.5%, to $1.0 billion at March 31, 2023, from $1.0 billion at December 31, 2022.

The increase in deposits primarily was due to an increase in brokered time deposits of $33.3 million and other time deposits of $15.4 million, partially offset by a decrease in demand deposit accounts of $18.2 million.

Other assets increased $1.2 million, or 5.0%, to $25.7 million at June 30, 2023 from $24.5 million at December 31, 2022, primarily as a result of an increase in deferred tax assets due to the one-time adjustment for CECL in the first quarter of 2023.

Total deposits increased $34.3 million, or 3.4%, to $1.0 billion at June 30, 2023, compared to December 31, 2022.

The increase in deposits primarily was due to an increase in brokered time deposits of $33.1 million and other time deposits of $23.6 million, partially offset by a decrease in savings and money market accounts of $13.0 million.

Management attributes the shift in funds to customers taking advantage of higher rates being paid on time deposits in 2023 as a result of interest rate hikes enacted by the Federal Reserve.

Brokered deposits increased $33.3 million to $291.1 million, or 28.3% of total deposits, at March 31, 2023, compared to $257.9 million, or 25.7% of total deposits, at December 31, 2022.

At March 31, 2023, noninterest-bearing deposits totaled $96.8 million, or 9.4% of total deposits, compared to $106.4 million or 10.6% of total deposits at December 31, 2022.

As of March 31, 2023, approximately $197.7 million of our deposit portfolio or 19.2% of total deposits, excluding collateralized public deposits, was uninsured.

Brokered deposits increased $33.1 million to $291.0 million, or 28.0% of total deposits, at June 30, 2023, compared to $257.9 million, or 25.7% of total deposits, at December 31, 2022.

At June 30, 2023, noninterest-bearing deposits totaled $104.7 million or 10.1% of total deposits, compared to $106.4 million or 10.6% of total deposits at December 31, 2022.

As of June 30, 2023, approximately $206.9 million of our deposit portfolio or 19.9% 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, increased $3.5 million to $183.5 million at March 31, 2023, compared to $180.0 million at December 31, 2022, which together with the increase in deposits were used to fund loan growth.

Total borrowings, consisting solely of FHLB advances, increased $46.0 million to $226.0 million at June 30, 2023, compared to $180.0 million at December 31, 2022, which together with the increase in deposits were used to fund loan growth.

Stockholders’ Equity.

Stockholders’ equity totaled $136.1 million at March 31, 2023, an increase of $3.2 million, or 2.4%, from December 31, 2022.

The increase in stockholders' equity from year-end 2022 resulted from $2.9 million in net income and a $6.2 million reduction in accumulated other comprehensive loss due to improvement in the fair market value of

the available for sale investment portfolio, partially offset by the payment of $1.5 million in dividends to Company stockholders, the repurchase of $1.2 million of Company common stock and the one-time adjustment to retained earnings of $3.8 million related to the adoption of CECL during the current quarter.

The Company repurchased 98,553 shares of Company common stock at an average price of $11.68 per share for a total of $1.2 million during the first three months of 2023.

The Company’s equity to asset ratio was 9.99% at March 31, 2023.

At March 31, 2023, the Bank’s Tier 1 capital to total assets ratio was 10.9% 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, 2023 and 2022.

Net income for the three months ended March 31, 2023 was $2.9 million, a $114,000 or 3.8% decrease from net income of $3.0 million for the three months ended March 31, 2022.

The $2.9 million in earnings equaled $0.27 diluted earnings per share for the first quarter of 2023, compared to $0.26 diluted earnings per share for the first quarter of 2022.

The decrease in net income was the result of decreases in net interest income of $183,000 and noninterest income of $19,000, and an increase in noninterest expense of $27,000, partially offset by decreases in the provision for credit losses of $30,000 and the provision for income taxes of $85,000.

Stockholders’ equity totaled $130.8 million at June 30, 2023, a decrease of $2.1 million or 1.6% from December 31, 2022.

The decrease in stockholders' equity from year-end 2022 resulted from the repurchase of $3.6 million of Company common stock, the payment of $3.0 million in dividends to Company stockholders and the one-time

adjustment to retained earnings of $3.8 million for the adoption of CECL during the previous quarter, partially offset by $5.6 million in net income and a $1.5 million reduction in accumulated other comprehensive loss due to improvement in the fair market value of the available-for-sale investment portfolio.

The Company repurchased 335,625 shares of Company common stock at an average price of $10.67 per share for a total of $3.6 million during the first six months of 2023.

The Company’s equity to asset ratio was 9.28% at June 30, 2023.

At June 30, 2023, the Bank’s Tier 1 capital to total assets ratio was 10.8% and the Bank’s capital was well in excess of all regulatory requirements.

Comparison of Results of Operations for the Three Months Ended June 30, 2023 and 2022.

Net income for the three months ended June 30, 2023 was $2.7 million, a $793,000 or 22.8% decrease from net income of $3.5 million for the three months ended June 30, 2022.

Diluted earnings per share were $0.26 for the second quarter of 2023, compared to $0.31 diluted earnings per share for the second quarter of 2022.

The decrease in net income was the result of a decrease in net interest income of $1.2 million and an increase in noninterest expense of $178,000, partially offset by a decrease in the provision for credit losses of $192,000 and the provision for income taxes of $407,000.

Interest Income.

Interest income increased $3.3 million, or 27.2%, to $15.2 million during the quarter ended March 31, 2023, compared to $11.9 million during the quarter ended March 31, 2022.

Interest income on loans and leases increased $2.9 million, or 28.5%, to $13.2 million for the quarter ended March 31, 2023, from $10.3 million for the comparable quarter in 2022, due to an increase in the average balance of loans and leases of $134.3 million, and an increase of 53 basis points in the average yield earned on loans and leases.

The average outstanding loan and lease balance was $984.2 million for the quarter ended March 31, 2023, compared to $849.9 million for the quarter ended March 31, 2022.

The average yield on loans and leases was 5.36% for the quarter ended March 31, 2023, compared to 4.83% for the comparable quarter in 2022.

Interest income on investment securities, including FHLB stock, increased $265,000, or 15.9%, to $1.9 million during the quarter ended March 31, 2023, compared to the same quarter in 2022.

Interest income increased $3.8 million, or 30.3%, to $16.2 million during the quarter ended June 30, 2023, compared to $12.4 million during the quarter ended June 30, 2022.

Interest income on loans and leases increased $3.4 million, or 32.0%, to $14.1 million for the quarter ended June 30, 2023, from $10.7 million for the comparable quarter in 2022, due to an increase in the average balance of loans and leases of $153.4 million, and an increase of 60 basis points in the average yield earned on loans and leases.

The average outstanding loan and lease balance was $1.0 billion for the quarter ended June 30, 2023, compared to $875.8 million for the quarter ended June 30, 2022.

The average yield on loans and leases was 5.48% for the quarter ended June 30, 2023, compared to 4.88% for the comparable quarter in 2022.

Interest income on investment securities, including FHLB stock, increased $256,000, or 14.8%, to $2.0 million during the quarter ended June 30, 2023, compared to the same quarter in 2022.

The increase in interest income on investment securities from the comparable period in 2022 was due to a 53 basis point increase in the average yield earned on investment securities.

The average yield on investment securities, including FHLB stock, was 2.54% for the first quarter of 2023, compared to 1.84% for the first quarter of 2022.

The average balance of investment securities, including FHLB stock, was $305.0 million for the quarter ended March 31, 2023, compared to $363.2 million for the quarter ended March 31, 2022.

The average yield on investment securities, including FHLB stock, was 2.62% for the second quarter of 2023, compared to 2.08% for the second quarter of 2022.

The average balance of investment securities, including FHLB stock, was $304.2 million for the quarter ended June 30, 2023, compared to $332.9 million for the quarter ended June 30, 2022.

Interest Expense.

Interest expense increased $3.4 million to $5.3 million for the quarter ended March 31, 2023, compared to the quarter ended March 31, 2022.

Interest expense on deposits increased $2.8 million, or 222.5%, to $4.0 million for the quarter ended March 31, 2023, from the comparable quarter in 2022.

Interest expense increased $5.0 million, or 262.8%, to $6.9 million for the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022.

Interest expense on deposits increased $4.3 million, or 334.9%, to $5.5 million for the quarter ended June 30, 2023, from the comparable quarter in 2022.

The increase in interest expense on deposits primarily was attributable to a $115.8 million increase in the average balance of, and a 173 basis point increase in the average rate paid on, interest-bearing deposits.

The average rate paid on interest-bearing deposits was 1.79% for the quarter ended March 31, 2023, compared to 0.63% for the quarter ended March 31, 2022.

The average balance of interest-bearing deposits increased to $900.9 million, or 13.6%, in the quarter ended March 31, 2023, compared to $793.4 million in the comparable quarter in 2022.

Interest expense on FHLB borrowings increased $655,000, or 102.4%, to $1.3 million in the first quarter of 2023 compared to $640,000 for the same quarter in 2022, primarily due to an increase in the average rate paid on FHLB borrowings.

The average rate paid on FHLB borrowings was 2.61% for the quarter ended March 31, 2023, compared to 1.40% for the first quarter of 2022.

The average balance of FHLB borrowings totaled $198.5 million during the quarter ended March 31, 2023, compared to $183.5 million for the quarter ended March 31, 2022.

The average rate paid on interest-bearing deposits was 2.35% for the quarter ended June 30, 2023, compared to 0.62% for the quarter ended June 30, 2022.

The average balance of interest-bearing deposits increased $115.8 million, or 14.0%, to $942.2 million in the quarter ended June 30, 2023, compared to $826.3 million in the comparable quarter in 2022.

Interest expense on FHLB advances increased $721,000, or 115.5%, to $1.3 million in the second quarter of 2023 compared to $624,000 for the same quarter in 2022, due to an increase in the average rate paid on and, to a lesser extent, the average balance of FHLB advances.

The average rate paid on FHLB borrowings was 2.73% for the quarter ended June 30, 2023, compared to 1.47% for the second quarter of 2022.

The average balance of FHLB borrowings totaled $197.1 million during the quarter ended June 30, 2023, compared to $170.3 million for the quarter ended June 30, 2022.

Net Interest Income.

Net interest income before the provision for credit losses decreased $183,000, or 1.8%, to $9.9 million in the first quarter of 2023, compared to $10.1 million for the first quarter of 2022.

Net interest income before the provision for credit losses decreased $1.2 million, or 11.5%, to $9.3 million in the second quarter of 2023, compared to $10.5 million for the second quarter of 2022.

This decrease was due to a 91 basis point decrease in the average interest rate spread, partially offset by a $122.1 million increase in average interest earning assets.

Net interest margin (annualized) was 3.04% for the three months ended March 31, 2023, compared to 3.26% for the three months ended March 31, 2022.

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

Net interest margin (annualized) was 2.77% for the three months ended June 30, 2023, compared to 3.45% for the three months ended June 30, 2022.

The decrease in net interest margin was primarily due to the higher rate paid on interest-bearing liabilities which tend to be shorter in duration than our assets and re-price or reset faster than assets.

Since March 2022, in response to inflation, the Federal Open Market Committee ("FOMC") of the Federal Reserve System has increased the target range for the federal funds rate by 500 basis points, including 25 basis points during the second quarter of 2023, to a range of 5.00% to 5.25%.

Subsequent to June 30, 2023, the FOMC increased the target range for the federal funds rate by an additional 25 basis points.

Average Balances, Interest and Average Yields/Cost.

The following tables set forth for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities.

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.

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

Three Months Ended March 31,

Three Months Ended June 30,

Outstanding Interest

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Provision for Credit Losses.

The provision for credit losses for the three months ended March 31, 2023 totaled $170,000, compared to a $200,000 provision for loan and lease losses for the three months ended March 31, 2022, a $30,000 or 14.9% decrease.

As a result of the adoption of CECL on January 1, 2023, the provision for credit losses calculated prior to that date was determined using the previously applied incurred loss methodology rather than the current expected credit losses methodology, and as a result the amounts are not directly comparable.

Net recoveries during the first quarter of 2023 were $78,000 compared to net recoveries of $9,000 in the first quarter of 2022.

The provision for credit losses for the three months ended June 30, 2023 totaled $8,000, compared to a $200,000 provision for loan and lease losses for the three months ended June 30, 2022, a $198,000 or 95.9% decrease.

As a result of the adoption of CECL on January 1, 2023, the provision for credit losses calculated prior to that date was determined using the previously applied incurred loss methodology rather than the CECL methodology, and as a result the amounts are not directly comparable.

Net charge-offs during the second quarter of 2023 were $215,000 compared to net charge-offs of $136,000 in the second quarter of 2022.

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, rising interest rates, stock market volatility and the Russia-Ukraine conflict.

Noninterest Income.

Noninterest income decreased $19,000 or 1.7%, to $1.1 million for the quarter ended March 31, 2023, compared to the comparable quarter in 2022.

The decrease in noninterest income resulted primarily from an $87,000 or 36.0% decrease in net gains on loan and lease sales to $156,000 during the first quarter of 2023, compared to $243,000 during the first quarter of 2022.

Noninterest income increased $2,000, or 0.1%, to $1.2 million for the quarter ended June 30, 2023, compared to the same quarter in 2022.

The increase in noninterest income resulted primarily from an increase in other

income of $99,000, or 43.8%, to $325,000 and an increase in service charges on deposit accounts of $27,000, or 11.0%, to $276,000.

The increase in other income was due to fees earned from our participation in a loan hedging program with a correspondent bank, along with increased wealth management income.

The increase in service fees on deposit accounts during the second quarter of 2023 compared to the second quarter of 2022 was primarily due to increased early withdrawal fees.

Net gains on loan and lease sales decreased $68,000, or 30.5%, to $154,000 for the quarter ended June 30, 2023 as compared to the comparable quarter in 2022.

The decrease in net gains on loan and lease sales was due to increased mortgage rates causing decreased mortgage banking activity.

During the three months ended March 31, 2023, the Company sold $5.5 million of loans

compared to the sale of $10.6 million of loans during the three months ended March 31, 2022.

Card fee income increased $9,000, or 3.4%, to $287,000 in the first quarter of 2023 from $278,000 in the first quarter of 2022 due to increased card usage.

Loan and lease servicing income increased $92,000, to a gain of $120,000 for the first quarter of 2023 compared to a gain of $28,000 for the comparable quarter in 2022, as there was no impairment to the value of mortgage servicing rights recorded in the first quarter of 2023, compared to an impairment of $111,000 in the first quarter of 2022.

Service fees on deposit accounts increased $46,000, or 19.8%, to $281,000 for the quarter ended March 31, 2023, compared to $235,000 for the quarter ended March 31, 2022.

The increase in service fees on deposit accounts during the first quarter of 2023 compared to the first quarter of 2022 was primarily due to an increase in early withdrawal penalty fees, as customers withdrew funds to take advantage of higher interest rates.

Other income decreased $81,000, or 24.5%, for the first quarter of 2023 compared to the same quarter in 2022 primarily due to a commercial loan letter of credit fee of $58,000 recorded in the first quarter of 2022 which was not replicated during the current quarter.

During the three months ended June 30, 2023, the Company sold $5.8 million of loans compared to the sale of $9.9 million of loans during the three months ended June 30, 2022.

Card fee income increased $11,000, or 3.8%, to $313,000 in the second quarter of 2023 from $302,000 in the second quarter of 2022 due to increased card usage.

Loan and lease servicing income decreased $68,000, to $110,000 for the second quarter of 2023 compared to $178,000 for the comparable quarter in 2022 due to a recovery of $76,000 recognized in the second quarter of 2022.

Noninterest Expense.

Noninterest expense increased $27,000, or 0.4%, to $7.4 million for the three months ended March 31, 2023, from $7.3 million for the same period in 2022.

Salaries and employee benefits decreased $209,000, or 4.7%, to $4.2 million for the quarter ended March 31, 2023, from $4.5 million for the same quarter in 2022.

The decrease in salaries and benefits in the first quarter of 2023 from the first quarter of 2022 was primarily due to decreased bonus expense.

Data processing fees increased $178,000, or 27.0%, to $837,000 in the first quarter of 2023 compared to the same quarter of 2022, primarily due to increased software and core provider expenses.

Deposit insurance expense increased $87,000, or 107.4% from the comparable quarter in 2022 primarily due to a change in the asset and deposit mix.

Noninterest expense increased $178,000, or 2.5%, to $7.3 million for the three months ended June 30, 2023, from $7.2 million for the same period in 2022.

Salaries and employee benefits decreased $243,000, or 5.4%, to $4.3 million for the quarter ended June 30, 2023, from $4.5 million for the same quarter in 2022.

The decrease in salaries and benefits in the second quarter of 2023 from the second quarter of 2022 was primarily due to decreased bonus expense.

Data processing fees increased $254,000, or 44.7%, to $822,000 in the second quarter of 2023 compared to the same quarter of 2022, primarily due to increased software and core provider expenses.

Deposit insurance expense increased $111,000, or 137.0% from the comparable quarter in 2022 primarily due to a change in the asset and deposit mix and an increase in the FDIC assessment rate in 2023.

Income Tax Expense.

Income tax expense decreased $85,000 during the three months ended March 31, 2023, compared to the same period in 2022 due to a lower level of pre-tax income.

The effective tax rate for the first quarter of 2023 was 15.5% compared to 17.0% for the same quarter a year ago.

Income tax expense decreased $407,000 during the three months ended June 30, 2023, compared to the same period in 2022, due to a lower level of pre-tax income.

The effective tax rate for the second quarter of 2023 was 15.0% compared to 20.2% for the same quarter a year ago.

The decrease in the effective tax rate was a result of the use of a captive insurance company, which allows the Company to assume more control over insurance risks and resulted in a more tax-efficient structure.

Comparison of Results of Operations for the Six Months Ended June 30, 2023 and 2022.

Net income for the six months ended June 30, 2023 was $5.6 million, a $907,000 or 13.9%, decrease from net income of $6.5 million for the six months ended June 30, 2022.

Diluted earnings per share were $0.53 for the first six months of 2023, compared to $0.58 diluted earnings per share for the first six months of 2022.

The decrease in net income was primarily the result of a $1.4 million decrease in net interest income, a $17,000 decrease in noninterest income, and a $206,000 increase in noninterest expense, partially offset by a $222,000 decrease in the provision for credit losses.

Interest Income.

Interest income increased $7.0 million, or 28.8%, to $31.4 million during the six months ended June 30, 2023, compared to $24.4 million during the six months ended June 30, 2022.

Interest income on loans and leases increased $6.3 million, or 30.3%, to $27.3 million for the six months ended June 30, 2023, from $20.9 million for the comparable period in 2022, due to a higher average balance of loans and leases and an increase in the average loan and lease yield of 56 basis points.

The average outstanding loan and lease balance was $1.0 billion for the first six months of 2023, compared to $862.9 million for the first six months of 2022.

The average yield on loans and leases was 5.42% for the six months ended June 30, 2023, compared to 4.86% for the comparable period in 2022.

Interest income on investment securities, including FHLB stock, increased $522,000, or 15.3%, to $3.9 million during the six months ended June 30, 2023, compared to the same period in 2022.

The increase in interest income on investment securities from the comparable period in 2022 was due to an increase of 62 basis points in the average yield earned on investment securities, partially offset by a decrease in the average balance of investment securities of $43.5 million.

The average yield on investment securities, including FHLB stock, was 2.58% for the first half of 2023, compared to 1.95% for the first half of 2022.

The average balance of investment securities, including FHLB stock, was $304.6 million for the six months ended June 30, 2023, compared to $348.1 million for the six months ended June 30, 2022.

Interest Expense.

Interest expense increased $8.4 million, or 222.4%, to $12.2 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

Interest expense on deposits increased $7.0 million, or 279.3%, to $9.6 million for the six months ended June 30, 2023, from the comparable period in 2022.

The increase in interest expense on deposits primarily was attributable to a $111.7 million increase in average interest-bearing deposit balances and a 190 basis point increase in the average rate paid on certificate of deposit accounts to 2.78% during the six months ended June 30, 2023, from 0.88% for the comparable period in 2022.

The average rate paid on interest-bearing deposits was 2.08% for the six months ended June 30, 2023, compared to 0.62% for the six months ended June 30, 2022.

The average balance of interest-bearing

deposits totaled $921.7 million in the six months ended June 30, 2023, compared to $810.0 million in the comparable period in 2022.

Interest expense on FHLB advances increased $1.4 million, or 108.9%, to $2.6 million in the first half of 2023 compared to $1.3 million for the same period in 2022, due to a 124 basis point increase in the average rate paid on advances to 2.67% during the six months ended June 30, 2022, from 1.43% for the comparable period in 2022, and a $21.0 million increase in the average balance of FHLB advances during the six months ended June 30, 2023 as compared to the first six months of 2022.

Net Interest Income.

Net interest income before the provision for credit losses decreased $1.4 million, or 6.8%, to $19.2 million in the first six months of 2023, compared to $20.6 million for the first six months of 2022.

This decrease was primarily due to a 63 basis point decrease in the average interest rate spread during the first six months of 2023 compared to the comparable period in 2022.

Net interest margin (annualized) was 2.90% for the six months ended June 30, 2023, compared to 3.36% for the six months ended June 30, 2022.

The decrease in net interest margin was primarily due to the increased rate paid on interest-bearing liabilities which tend to be shorter in duration than our assets and re-price or reset faster than assets.

Average Balances, Interest and Average Yields/Cost.

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.

Six Months Ended June 30,

Outstanding Interest

(Dollars in thousands)

Interest-earning assets:

Loans and leases receivable $ 1,006,806 $ 27,291 5.42 % $ 862,940 $ 20,948 4.86 %

Securities 294,510 3,606 2.45 % 338,289 3,242 1.92 %

FHLB stock 10,087 318 6.31 % 9,844 161 3.27 %

Cash and cash equivalents and other 11,114 200 3.60 % 16,970 39 0.46 %

Total interest-earning assets 1,322,517 31,415 4.75 % 1,228,043 24,390 3.97 %

Non-earning assets 43,909 38,818

Total assets 1,366,426 1,266,861

Interest-bearing liabilities:

Savings and money market accounts 283,840 2,353 1.66 % 280,313 725 0.52 %

Interest-bearing checking accounts 149,787 425 0.57 % 167,630 208 0.25 %

Certificate accounts 488,034 6,792 2.78 % 362,011 1,591 0.88 %

Borrowings 197,823 2,641 2.67 % 176,845 1,264 1.43 %

Total interest-bearing liabilities 1,119,484 12,211 2.18 % 986,799 3,788 0.77 %

Noninterest-bearing demand deposits 100,271 112,393

Other liabilities 13,660 7,450

Stockholders' equity 133,011 160,219

Total liabilities and stockholders' equity 1,366,426 1,266,861

Net interest income $ 19,204 $ 20,602

Net earning assets $ 203,033 $ 241,244

Net interest rate spread (1)

2.57 % 3.20 %

Net interest margin (2)

2.90 % 3.36 %

Average interest-earning assets to average interest-bearing liabilities

118.14 % 124.45 %

_____________

(1) Annualized.

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

(2) Annualized.

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

Provision for Credit Losses.

The provision for credit losses for the six months ended June 30, 2023 totaled $178,000, compared to a $400,000 provision for loan and lease losses for the six months ended June 30, 2022, a $222,000 or 55.4% decrease.

As a result of the adoption of CECL on January 1, 2023, the provision for credit losses calculated prior to that date was determined using the previously applied incurred loss methodology rather than the CECL methodology, and as a result the amounts are not directly comparable.

Net charge-offs during the first half of 2023 were $137,000 compared to net charge-offs of $127,000 in the first half of 2022.

Noninterest Income.

Noninterest income decreased $17,000, or 0.7%, to $2.3 million for the six months ended June 30, 2023, compared to the same period in 2022.

The decrease in noninterest income resulted primarily from a $155,000, or 33.4%, decrease in net gains on loan and lease sales to $310,000 during the first half of 2023, compared to $465,000 during the first half of 2022.

The decrease in net gains on loan and lease sales was due to increased mortgage rates causing decreased

mortgage banking activity.

During the six months ended June 30, 2023, the Company sold $11.3 million of loans compared to the sale of $20.5 million of loans during the six months ended June 30, 2022.

Card fee income increased $21,000, or 3.6%, to $601,000 in the first half of 2023 from $580,000 in the first half of 2022 due to increased debit card usage.

Loan and lease servicing income increased $24,000, or 11.5%, to $230,000 for the first half of 2023 compared to $206,000 for the comparable period in 2022.

Service fees on deposit accounts increased $74,000, or 15.3%, to $557,000 for the six months ended June 30, 2023, compared to $483,000 for the six months ended June 30, 2022.

The increase in service fees on deposit accounts during the first half of 2023 compared to the first half of 2022 was primarily the result of increased early withdrawal fees.

Noninterest Expense.

Noninterest expense increased $206,000, or 1.4%, to $14.7 million for the six months ended June 30, 2023, from $14.5 million for the same period in 2022.

Salaries and employee benefits decreased $452,000, or 5.0%, to $8.5 million for the six months ended June 30, 2023, compared to the same period in 2022 primarily due to decreased bonus expense.

Data processing fees increased $432,000, or 35.2%, to $1.7 million in the first six months of 2023 compared to the same period of 2022, primarily due to increased software and core provider expenses.

Deposit insurance expense increased $198,000, or 122.2%, to $360,000 in the first six months of 2023 compared to the same period of 2022, primarily due to a change in the asset and deposit mix and a higher FDIC assessment rate during 2023.

Other expenses increased $119,000, or 6.8%, to $1.9 million in the first half of 2023 compared to the same period of 2022 primarily due to increased expenses related to brokered deposits and employee related expenses.

Income Tax Expense.

Income tax expense decreased $492,000 during the six months ended June 30, 2023, compared to the same period in 2022 due to a lower level of pre-tax income.

The effective tax rate for the first half of 2023 was 15.3%, compared to 18.7% for the first half of 2022.

The decrease in the effective tax rate was the result of the use of a captive insurance company, which allows the Company to assume more control over insurance risks and resulted in a more tax-efficient structure.

Capital and Liquidity

Shareholders' equity totaled $136.1 million at March 31, 2023 and $133.0 million at December 31, 2022.

In addition to net income of $2.9 million, other sources of capital during the first quarter of 2023 included other comprehensive income, net of tax, of $6.2 million, $184,000 related to the allocation of ESOP shares during the year and $379,000 related to stock-based compensation.

Uses of capital during the first three months of 2023 included $1.5 million of dividends paid on common stock, $1.2 million of stock repurchases, and $3.8 million due to the one-time adjustment to retained earnings for the adoption of CECL.

Shareholders' equity totaled $130.8 million at June 30, 2023 and $133.0 million at December 31, 2022.

In addition to net income of $5.6 million, other sources of capital during the first six months of 2023 included other comprehensive income, net of tax, of $1.6 million, $311,000 related to the allocation of ESOP shares during the year and $763,000 related to stock-based compensation.

Uses of capital during the first six months of 2023 included $3.0 million of dividends paid on common stock, $3.6 million of stock repurchases, and $3.8 million due to the one-time adjustment to retained earnings for the adoption of CECL.

The increase in the accumulated other comprehensive income/loss component of shareholders' equity was caused by changes to the unrealized gains and losses on available-for-sale securities.

We paid a regular quarterly dividend of $0.14 per common share during the first quarter of 2023, and regular quarterly dividends of $0.10 per common share during 2022.

We paid a regular quarterly dividend of $0.14 per common share during the first half of 2023, and regular quarterly dividends of $0.10 per common share during 2022.

We currently expect to continue the current practice of paying regular quarterly cash dividends on common stock subject to the Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice.

Assuming continued payment during 2023 at the current dividend rate of $0.14 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, 2023.

Stock Repurchase Plans.

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Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards.

On July 21, 2022, the Company announced that the Board of Directors authorized a fourth stock repurchase program for up to 1,184,649 shares, or approximately 10% of its then outstanding shares.

The fourth stock repurchase program will expire in July 2023, unless completed sooner.

As of March 31, 2023, the Company had approximately 1,023,843 shares available for repurchase under its existing stock repurchase program.

On June 6, 2023, the Company announced that the Board of Directors approved an amendment to the Company's existing stock repurchase program authorizing the purchase of up to 321,386 shares of the Company’s issued and outstanding common stock in addition to the 827,554 shares remaining available for repurchase at that date under the existing program, and extending the stock repurchase program's expiration date to June 6, 2024, unless completed sooner.

As of June 30, 2023, the Company had approximately 1,108,157 shares available for repurchase under its existing stock repurchase program.

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

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The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds.

The objective of our liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund our operations and to meet obligations and other commitments on a timely basis and at a reasonable cost.

We seek to achieve this objective and ensure that funding needs are met by maintaining an appropriate level of liquid funds through asset/liability management, which

includes managing the mix and time to maturity of financial assets and financial liabilities on our balance sheet.

The objective

of our liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund our operations and to meet obligations and other commitments on a timely basis and at a reasonable cost.

We seek to achieve this objective and ensure that funding needs are met by maintaining an appropriate level of liquid funds through asset/liability management, which includes managing the mix and time to maturity of financial assets and financial liabilities on our balance sheet.

Our liquidity position is enhanced by our ability to raise additional funds as needed in the wholesale markets.

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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 $309.1 million at March 31, 2023.

Certificates of deposit that are scheduled to mature in less than one year from March 31, 2023 totaled $357.3 million.

Our liquid assets in the form of cash and cash equivalents, interest earning time deposits and investments available-for-sale totaled $299.3 million at June 30, 2023.

Certificates of deposit that are scheduled to mature in less than one year from June 30, 2023 totaled $350.8 million.

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

As of March 31, 2023, we had approximately $5.6 million held in an interest-bearing account at the Federal Reserve.

As of June 30, 2023, we had approximately $5.8 million held in an interest-bearing account at the Federal Reserve.

We also have the ability to borrow funds as a member of the FHLB.

As of March 31, 2023, based upon available, pledgeable collateral, our total remaining borrowing capacity with the FHLB was approximately $75.9 million.

Furthermore, at March 31, 2023, we had approximately $143.8 million in securities that were unencumbered by a pledge and could be used to support additional borrowings of up to $139.3 million through repurchase agreements or the Federal Reserve discount window, as needed.

As of March 31, 2023, 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 June 30, 2023, based upon available, pledgeable collateral, our total remaining borrowing capacity with the FHLB was approximately $51.6 million.

Furthermore, at June 30, 2023, we had approximately $119.9 million in securities that were unencumbered by a pledge and could be used to support additional borrowings of up to $116.9 million through repurchase agreements or the Federal Reserve discount window, as needed.

As of June 30, 2023, 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 three months ended March 31, 2023 was $3.6 million, compared to $3.9 million provided by operating activities for the three months ended March 31, 2022.

During the three months ended March 31, 2023, net cash used in investing activities was $27.9 million, which consisted primarily of net change in loans receivable, compared to $16.1 million of cash used in investing activities for the three months ended March 31, 2022.

Net cash provided by financing activities for the three months ended March 31, 2023 was $25.7 million, which was comprised primarily of net change in deposits, compared to $8.7 million provided by financing activities during the three months ended March 31, 2022.

Net cash provided by operating activities for the six months ended June 30, 2023 was $6.4 million, compared to $10.0 million provided by operating activities for the six months ended June 30, 2022.

During the six months ended June 30, 2023, net cash used in investing activities was $78.6 million, which consisted primarily of net change in loans receivable, compared to $52.5 million of cash used in investing activities for the six months ended June 30, 2022.

Net cash provided by financing activities for the six months ended June 30, 2023 was $73.8 million, which was comprised primarily of net change in borrowings, compared to $33.9 million provided by financing activities during the six months ended June 30, 2022.

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 2022 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 March 31, 2023, Richmond Mutual Bancorporation, on an unconsolidated basis, had $22.8 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs.

At June 30, 2023, Richmond Mutual Bancorporation, on an unconsolidated basis, had $18.6 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 March 31, 2023, 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 June 30, 2023, 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 March 31, 2023

As of June 30, 2023

Total risk-based capital (to risk weighted assets) $ 169,748 14.0 % $ 96,835 8.0 % $ 121,043 10.0 %

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

At March 31, 2023, the Bank’s CET1 capital exceeded the required capital conservation buffer.

At June 30, 2023, the Bank’s CET1 capital exceeded the required capital conservation buffer.

For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank only basis and the Federal Reserve Board expects the holding company’s subsidiary banks to be well capitalized under the prompt corrective action regulations.

If Richmond Mutual Bancorporation was subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at March 31, 2023, 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 June 30, 2023, it would have exceeded all regulatory capital requirements.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

1 unchanged sentence

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