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Item 2. Management’s Discussion and Analysis

2024-05-14 compared with 2023-11-13 · 113 added, 256 removed, 188 unchanged (66% 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, 2023, and the consolidated results of operations for the three and nine month periods ended September 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 “Company”) at March 31, 2024, and the consolidated results of operations for the three month period ended March 31, 2024, compared to the same period in 2023, 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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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, or slowed economic growth;

• potential adverse impacts to economic conditions in our 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, or slowed economic growth;

• changes in the interest rate environment, including the recent increases in the Board of Governors of the Federal Reserve System (the "Federal Reserve") benchmark rate and duration at which such increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity;

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• the effects of any federal government shutdown;

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

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

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

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

• our ability to access cost-effective funding including maintaining the confidence of depositors;

• unexpected outflows of uninsured deposits may require us to sell investment securities at a loss;

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

• fluctuations in real estate values, and residential, commercial, and multi-family real estate market conditions;

• demand for loans and deposits in our market area;

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

• the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, civil unrest, and other external events on our business;

• the other risks detailed in this report and from time to time in our other filings with the Securities and Exchange Commission ("SEC"), including our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”).

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Our lease portfolio consists of various kinds of equipment, generally technology-related, such as computer systems, medical equipment and general manufacturing, industrial, construction and transportation equipment.

We seek leasing transactions where we believe the equipment leased is integral to the lessee's business.

We also provide trust and wealth management services, including serving as executor and trustee under wills and deeds and as guardian and custodian of

employee benefits, and manage private investment accounts for individuals and institutions.

Total wealth management assets under management and administration were $152.4 million at September 30, 2023.

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 $180.2 million at March 31, 2024.

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, 2023, on a consolidated basis, we had $1.4 billion in assets, $1.1 billion in loans and leases, net of allowance, $1.1 billion in deposits and $118.6 million in stockholders’ equity.

At September 30, 2023, First Bank Richmond’s total risk-based capital ratio was 13.7%, exceeding the 10.0% requirement for a well-capitalized institution.

For the nine months ended September 30, 2023, net income was $7.5 million, compared with net income of $9.7 million for the nine months ended September 30, 2022.

At March 31, 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 $132.4 million in stockholders’ equity.

At March 31, 2024, First Bank Richmond’s total risk-based capital ratio was 14.1%, exceeding the 10.0% requirement for a well-capitalized institution.

For the three months ended March 31, 2024, net income was $2.4 million, compared with net income of $2.9 million for the three months ended March 31, 2023.

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, 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 three months ended March 31, 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.

See "Critical Accounting Estimates" included in Part II, Item 7 of our 2023 Form 10-K for a further discussion of our Critical Accounting Estimates.

Allowance for Credit Losses.

The allowance for credit losses applies to all financial instruments carried at amortized cost.

We maintain an allowance for credit losses on loans and leases based on expected future credit losses at the balance sheet date.

Loan and lease losses are charged against the allowance when management believes the uncollectibility of a loan or lease balance is confirmed.

Subsequent recoveries, if any, are credited to the allowance.

Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off.

A provision for credit losses for loans and leases is charged to operations based on our periodic evaluation of the necessary balance in the allowance.

Determining the appropriateness of the allowance for credit losses is complex and requires judgement by management on future factors that are unknown.

We have an established process to determine the adequacy of the allowance for credit losses.

The determination of the allowance is inherently subjective, as it requires significant estimates, including the amounts and timing of expected future cash flows on 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 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 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.

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

Available for Sale Securities.

Under Financial Accounting Standards Board (“FASB”) Codification Topic 320 (ASC 320), Investments-Debt, investment securities must be classified as held to maturity, available for sale or trading.

Management determines the appropriate classification at the time of purchase.

The classification of securities is significant since it directly impacts the accounting for unrealized gains and losses on securities.

Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and we have the ability to hold the securities to maturity.

Securities not classified as held to maturity are classified as available for sale and are carried at fair value, with the unrealized holding gains and losses, net of tax, reported in other comprehensive income and which do not affect earnings until realized.

The fair values of our securities are generally determined by reference to quoted prices from reliable independent sources utilizing observable inputs.

Certain of our fair values of securities are determined using models whose significant value drivers or assumptions are unobservable and are significant to the fair value of the securities.

These models are utilized when quoted prices are not available for certain securities or in markets where trading activity has slowed or ceased.

When quoted prices are not available and are not provided by third party pricing services, management judgment is necessary to determine fair value.

As such, fair value is determined using discounted cash flow analysis models, incorporating default rates, estimation of prepayment characteristics and implied volatilities.

We evaluate all securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, for determining if any impairment exists as defined in ASC 326.

If an impairment has occurred, it must be determined if the impairment is due to credit or non-credit related factors.

In evaluating the possible impairment of securities, consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and our ability and intent to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

In analyzing an issuer’s financial condition, we may consider whether the securities are issued by the federal government or its agencies or government sponsored agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.

If management determines that an investment experienced an impairment that is credit-related, it must then be determined if we intend to sell the security, or if it is more likely than not that we will be required to sell the security, before the recovery of its amortized cost basis.

If either of these circumstances are present, then the impairment will be recognized in earnings with a corresponding adjustment to the amortized cost basis of the security.

If we do not intend to sell the security and it is more likely than not that we will not be required to sell the security before recovery of its amortized cost basis, the present values of expected cash flows to be collected from the security will be compared against the amortized cost basis of the security.

If the amortized cost basis of the security is greater than the present cash flows expected from the security, a credit loss would exist and it would determine the amount of allowance, if any, that would be deemed needed.

A needed allowance would result in an allowance recognized on the balance sheet, with a corresponding adjustment to earnings, limited to the amount that fair value is less than the amortized cost basis of the security.

After recognizing a credit loss through an allowance, periodic assessments are necessary to determine increases or decreases to the credit loss, which require adjustments to the allowance.

Any adjustments would be recognized through earnings, not to exceed the net amount of the allowance as limited to the amount that amortized cost exceeds fair value.

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 September 30, 2023 and December 31, 2022

Total assets increased $94.3 million, or 7.1%, to $1.4 billion at September 30, 2023 from December 31, 2022.

The increase was primarily the result of an $105.2 million, or 10.9%, increase in loans and leases, net of allowance for credit losses, to $1.1 billion at September 30, 2023, partially offset by a decrease of $22.2 million, or 7.6%, in investment securities to $269.4 million at September 30, 2023.

Comparison of Financial Condition at March 31, 2024 and December 31, 2023

Total assets increased $26.6 million, or 1.8%, to $1.5 billion at March 31, 2024 from December 31, 2023.

The increase was primarily the result of a $33.1 million, or 3.0%, increase in loans and leases, net of allowance for credit losses, to $1.1 billion, partially offset by a $6.6 million, or 2.3%, decrease in investment securities to $281.0 million at March 31, 2024.

Investment Securities.

Investment securities available-for-sale decreased $20.7 million, or 7.3%, to $264.2 million, while investment securities held-to-maturity decreased $1.5 million, or 23.1%, to $5.1 million at September 30, 2023, compared to December 31, 2022.

The decrease in investment securities available-for-sale was primarily due to a $12.6 million mark-to-market adjustment on the investment portfolio, as well as maturities and principal repayments on investment securities exceeding purchases on new securities.

Investment securities available for sale totaled $276.3 million and $282.7 million, while investment securities held to maturity totaled $4.7 million and $4.9 million at March 31, 2024 and December 31, 2023, respectively.

The $6.3 million or 2.2% decrease in investment securities available for sale was primarily due to maturities and principal repayments of $4.4 million and a $3.6 million downward mark-to-market adjustment on the investment portfolio.

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 $105.2 million, or 10.9%, to $1.1 billion at September 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 residential mortgage loans of $47.6 million, $21.1 million and $14.4 million, respectively.

At September 30, 2023, loans held for sale totaled $568,000, 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 $8.0 million or 0.74% of total loans and leases at September 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 $1.6 million at September 30, 2023, compared to $3.2 million at December 31, 2022.

Loans and leases, net of allowance for credit losses on loans and leases, increased $33.1 million, or 3.0%, to $1.1 billion at March 31, 2024 from December 31, 2023.

The increase in loans and leases was attributable to an increase in multi-family loans, residential mortgage loans, and commercial and industrial loans of $15.0 million, $8.9 million and $8.2 million, respectively.

At March 31, 2024, loans held for sale totaled $85,000, compared to $794,000 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 $6.9 million, or 0.61% of total loans and leases at March 31, 2024, compared to $8.0 million or 0.72% of

total loans and leases at December 31, 2023.

Accruing loans and leases past due 90 days or more totaled $1.9 million at March 31, 2024, compared to $1.7 million at December 31, 2023.

Allowance for Credit Losses.

On January 1, 2023, the Bank adopted the accounting standard referred to as CECL.

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 1.43% of total loans and leases outstanding at September 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 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 $1.7 million at September 30, 2023.

Net charge-offs during the first nine months of 2023 were $436,000 compared to net charge-offs of $152,000 during the first nine months of 2022.

The allowance for credit losses on loans and leases increased $162,000, or 1.0%, to $15.8 million at March 31, 2024 from December 31, 2023.

At March 31, 2024, the allowance for credit losses on loans and leases totaled 1.39% of total loans and leases outstanding.

At December 31, 2023, the allowance for credit losses on loans and leases totaled $15.7 million, or 1.42% of total loans and leases outstanding.

Net charge-offs during the first quarter of 2024 were $324,000 compared to net recoveries of $78,000 during the comparable quarter of 2023.

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, 2023, which evaluation included consideration of persistent inflation, higher interest rates, a weakened economic growth and unemployment outlook, stock market volatility, and increased geopolitical risk.

The Company evaluated its exposure to potential loan and lease losses as of March 31, 2024, 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.

Potentially higher risk segments of the portfolio, such as hotels and restaurants, are being closely monitored.

For additional information on the allowance for credit losses, see "Allowance for Credit Losses on Loans and Leases" and "Economic Outlook" in "Note 4 Loans, Leases and Allowance" of the "Notes to Condensed Consolidated Financial Statements" in this report.

Other Assets .

Other assets increased $5.1 million, or 20.7%, to $29.5 million at September 30, 2023 from $24.5 million at December 31, 2022, primarily as a result of the growth in deferred tax assets due to the one-time adjustment for CECL in the first quarter of 2023 and the mark-to-market adjustment on the investment portfolio.

Total deposits increased $48.6 million, or 4.8%, to $1.1 billion at September 30, 2023, compared to December 31, 2022.

The increase in deposits primarily was due to an increase in brokered time deposits of $44.4 million and other time deposits of $37.4 million, partially offset by a decrease in savings and money market accounts of $31.1 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 $44.4 million to $302.3 million, or 28.7% of total deposits, at September 30, 2023, compared to $257.9 million, or 25.7% of total deposits, at December 31, 2022.

At September 30, 2023, noninterest-bearing deposits totaled $115.6 million, or 11.0% of total deposits, compared to $106.4 million or 10.6% of total deposits at December 31, 2022.

As of September 30, 2023, approximately $201.0 million of our deposit portfolio or 19.1% of total deposits, excluding collateralized public deposits, was uninsured.

Other assets decreased $511,000, or 2.1%, to $24.3 million at March 31, 2024 from $24.8 million at December 31, 2023, primarily due to standard amortization of prepaid assets.

Total deposits increased $28.5 million, or 2.7%, to $1.1 billion at March 31, 2024 from December 31, 2023.

The increase in deposits primarily was due to an increase in brokered time deposits of $22.5 million and other time deposits of $11.1 million, partially offset by a decrease in demand deposit accounts of $3.9 million.

Brokered deposits totaled $291.3 million, or 27.2% of total deposits, at March 31, 2024, compared to $268.8 million, or 25.8% of total deposits, at December 31, 2023.

At March 31, 2024, noninterest-bearing deposits totaled $108.8 million, or 10.2% of total deposits, compared to $114.4 million or 11.0% of total deposits at December 31, 2023.

As of March 31, 2024, approximately $206.9 million of our deposit portfolio, or 19.3% 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 $58.0 million to $238.0 million at September 30, 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 $2.0 million to $273.0 million at March 31, 2024, compared to $271.0 million at December 31, 2023, which together with the increase in deposits were used to fund loan growth.

Stockholders’ Equity.

Stockholders’ equity totaled $118.6 million at September 30, 2023, a decrease of $14.3 million or 10.8% from December 31, 2022.

The decrease in stockholders' equity from year-end 2022 resulted from the repurchase of $5.3 million of Company common stock, an increase in Accumulated Other Comprehensive Loss ("AOCL") of $10.0 million, the payment of $4.5 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 first quarter, partially offset by $7.5 million in net income.

Stockholders’ equity totaled $132.4 million at March 31, 2024, a decrease of $2.5 million, or 1.8%, from December 31, 2023.

The decrease in stockholders' equity from year-end 2023 resulted from the repurchase of $1.1 million of Company common stock, an increase in Accumulated Other Comprehensive Loss ("AOCL") of $2.8 million, and the payment of $1.4 million in dividends to Company stockholders, partially offset by $2.4 million in net income.

The increase in AOCL is primarily due to the decline in mark-to-market values associated with our available for sale investment securities portfolio.

At December 31, 2022, the available-for-sale portfolio had a net unrealized loss of $63.0 million compared to a net unrealized loss of $75.6 million at September 30, 2023.

The AOCL impact to equity, after tax effecting the unrealized loss, was $59.7 million at September 30, 2023 compared to $49.8 million at December 31, 2022.

This decline in value from December 31, 2022 to September 30, 2023 is due to interest rate changes and not due to credit quality.

The Company repurchased 484,171 shares of Company common stock at an average price of $10.89 per share for a total of $5.3 million during the first nine months of 2023.

The Company’s equity to asset ratio was 8.34% at September 30, 2023.

At September 30, 2023, the Bank’s Tier 1 capital to total assets ratio was 10.71% 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, 2023 and 2022.

Net income for the three months ended September 30, 2023 was $1.9 million, a $1.2 million, or 38.3% decrease from net income of $3.2 million for the three months ended September 30, 2022.

Diluted earnings per share were $0.19 for the third quarter of 2023, compared to $0.29 diluted earnings per share for the third quarter of 2022.

The decrease in net income was the result of a decrease in net interest income of $1.4 million and an increase in noninterest expense of $290,000, partially offset by a decrease in the provision for credit losses of $150,000 and the provision for income taxes of $342,000.

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 $58.1 million at March 31, 2024.

The AOCL impact to equity, after tax affecting the unrealized loss, was $45.9 million at March 31, 2024 compared to $43.0 million at December 31, 2023.

This decline in value from December 31, 2023 to March 31, 2024 was due to interest rate changes, not credit quality.

The Company repurchased 92,613 shares of Company common stock at an average price of $11.58 per share for a total of $1.1 million during the first three months of 2024.

The Company's equity to asset ratio was 8.90% at March 31, 2024.

At March 31, 2024, the Bank's Tier 1 capital to total assets ratio was 10.67% 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, 2024 and 2023.

Net income for the three months ended March 31, 2024 was $2.4 million, a $535,000 or 18.4% decrease from net income of $2.9 million for the three months ended March 31, 2023.

Diluted earnings per share were $0.23 for the first quarter of 2024, compared to $0.27 diluted earnings per share for the first quarter of 2023.

The decrease in net income was the result of a decrease in net interest income of $38,000, and an increase in noninterest expense of $696,000, partially offset by an increase in noninterest income of $32,000 and a decrease in the provision for income taxes of $180,000.

Interest Income.

Interest income increased $4.2 million, or 32.2%, to $17.4 million during the quarter ended September 30, 2023, compared to $13.2 million during the quarter ended September 30, 2022.

Interest income on loans and leases increased $4.0 million, or 35.1%, to $15.3 million for the quarter ended September 30, 2023, from $11.3 million for the comparable quarter in 2022, due to an increase in the average balance of loans and leases of $160.4 million, and an increase of 73 basis points in the average yield earned on loans and leases.

The average outstanding balance of loans and leases was $1.1 billion for the quarter ended September 30, 2023, compared to $908.6 million for the quarter ended September 30, 2022.

The average yield on loans and leases was 5.71% for the quarter ended September 30, 2023, compared to 4.98% for the comparable quarter in 2022.

Interest income on investment securities, excluding FHLB stock, increased $91,000, or 5.0%, during the quarter ended September 30, 2023, from the comparable quarter in 2022.

The increase was due to a 34 basis point increase in the average yield earned on investment securities, partially offset by a $27.7 million decrease in average balance of investment securities.

The average yield on investment securities, excluding FHLB stock, was 2.54% for the quarter ended September 30, 2023, compared to 2.20% for the comparable quarter of 2022.

The average balance of investment securities, excluding FHLB stock, was $283.6 million for the quarter ended September 30, 2023, compared to $311.3 million for the quarter ended September 30, 2022.

Dividends on FHLB stock increased $118,000, or 97.5%, during the quarter ended September 30, 2023, from the comparable quarter in 2022, resulting in an average yield on FHLB stock of 8.75% for the three months ended September 30, 2023, compared to 4.94% for the three months ended September 30, 2022.

Interest income on cash and cash equivalents increased $66,000, or 187.0%, during the quarter ended September 30, 2023, from the comparable quarter in 2022, due to a 245 basis point increase in the average yield and a $649,000 increase in the average balance of cash and cash equivalents.

Interest income increased $4.3 million, or 28.4%, to $19.5 million during the quarter ended March 31, 2024, compared to $15.2 million during the quarter ended March 31, 2023.

Interest income on loans and leases increased $4.1 million, or 30.8%, to $17.3 million for the quarter ended March 31, 2024, from $13.2 million for the comparable quarter in

2023, due to an increase in the average balance of loans and leases of $141.4 million, and an increase of 77 basis points in the average yield earned on loans and leases.

The average outstanding loan and lease balance was $1.1 billion for the quarter ended March 31, 2024, compared to $984.2 million for the quarter ended March 31, 2023.

The average yield on loans and leases was 6.13% for the quarter ended March 31, 2024, compared to 5.36% for the comparable quarter in 2023.

Interest income on investment securities, excluding FHLB stock, was unchanged from the comparable quarter in 2023.

The average yield on investment securities, excluding FHLB stock, was 2.53% for the first quarter of 2024, compared to 2.44% for the first quarter of 2023.

The average balance of investment securities, excluding FHLB stock, was $284.0 million for the quarter ended March 31, 2024, compared to $294.9 million for the quarter ended March 31, 2023.

Dividends on FHLB stock increased $186,000, or 134.8%, during the quarter ended March 31, 2024, from the comparable quarter in 2023, resulting in an average yield on FHLB stock of 9.44% for the three months ended March 31, 2024, compared to 5.50% for the three months ended March 31, 2023.

Interest income on cash and cash equivalents increased $73,000, or 112.4%, during the quarter ended March 31, 2024, from the comparable quarter in 2023, due to a 126 basis point increase in the average yield and a $4.3 million increase in the average balance of cash and cash equivalents.

Interest Expense.

Interest expense increased $5.6 million, or 211.8%, to $8.3 million for the quarter ended September 30, 2023, compared to the quarter ended September 30, 2022.

Interest expense on deposits increased $4.5 million, or 251.2%, to $6.3 million for the quarter ended September 30, 2023, from the comparable quarter in 2022.

Interest expense increased $4.4 million, or 81.8%, to $9.7 million for the quarter ended March 31, 2024, compared to the quarter ended March 31, 2023.

Interest expense on deposits increased $3.0 million, or 75.5%, to $7.1 million for the quarter ended March 31, 2024, from the comparable quarter in 2023.

The increase in interest expense on deposits primarily was attributable to a $44.3 million increase in the average balance of, and a 120 basis point increase in the average rate paid on interest-bearing deposits.

The average rate paid on interest-bearing deposits was 2.69% for the quarter ended September 30, 2023, compared to 0.86% for the quarter ended September 30, 2022.

The average balance of interest-bearing deposits increased $103.1 million, or 12.3%, to $939.2 million in the quarter ended September 30, 2023, compared to $836.0 million in the comparable quarter in 2022.

Interest expense on FHLB advances increased $1.1 million, or 129.2%, to $2.0 million in the third quarter of 2023 compared to $859,000 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 3.50% for the quarter ended September 30, 2023, compared to 1.88% for the third quarter of 2022.

The average balance of

FHLB borrowings totaled $224.8 million during the quarter ended September 30, 2023, compared to $182.5 million for the quarter ended September 30, 2022.

The average rate paid on interest-bearing deposits was 2.99% for the quarter ended March 31, 2024, compared to 1.79% for the quarter ended March 31, 2023.

The average balance of interest-bearing deposits was $945.2 million for the quarter ended March 31, 2024, compared to $900.9 million in the comparable quarter in 2023.

Interest expense on FHLB borrowings increased $1.3 million, or 101.6%, to $2.6 million in the first quarter of 2024 compared to $1.3 million for the same quarter in 2023, primarily due to an increase in the average rate paid on FHLB borrowings.

The average rate paid on FHLB borrowings was 3.77% for the quarter ended March 31, 2024, compared to 2.61% for the first quarter of 2023.

The average balance of FHLB borrowings totaled $277.2 million during the quarter ended March 31, 2024, compared to $198.5 million for the quarter ended March 31, 2023.

Net Interest Income.

Net interest income before the provision for credit losses decreased $1.4 million, or 13.2%, to $9.1 million in the third quarter of 2023, compared to $10.5 million for the third quarter of 2022.

Net interest income before the provision for credit losses decreased $38,000, or 0.4%, to $9.8 million for the first quarter of 2024, compared to $9.9 million for the first quarter of 2023.

This decrease was due to a 48 basis point decrease in the average interest rate spread, partially offset by a $138.4 million increase in average interest earning assets.

Net interest margin (annualized) was 2.66% for the three months ended September 30, 2023, compared to 3.39% for the three months ended September 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 third quarter of 2023, to a range of 5.25% to 5.50%.

Net interest margin (annualized) was 2.74% for the three months ended March 31, 2024, compared to 3.04% for the three months ended March 31, 2023.

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.

During the first half of 2023, in response to continuing elevated inflation, the Federal Open Market Committee ("FOMC") of the Federal Reserve System increased the target range for the federal funds rate by 100 basis points, to a range of 5.25% to 5.50%.

While net 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 re-price or reset faster than assets.

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.

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.

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

Three 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 three months ended September 30, 2023 totaled $50,000, compared to a $200,000 provision for loan and lease losses for the three months ended September 30, 2022, a $150,000 or 75.2% 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 third quarter of 2023 were $299,000 compared to net charge-offs of $25,000 in the third 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, a weakened economic growth and unemployment outlook, stock market volatility, and overall geopolitical tensions.

The provision for credit losses for the three months ended March 31, 2024 totaled $183,000, compared to $170,000 for the three months ended March 31, 2023, a $13,000 or 7.7% increase.

Net charge-offs during the first quarter of 2024 were $324,000 compared to net recoveries of $78,000 in the first quarter of 2023.

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 decreased $27,000, or 2.2%, to $1.2 million for the quarter ended September 30, 2023, compared to the same quarter in 2022.

The decrease in noninterest income resulted primarily from decreases in loan and lease servicing fees of $124,000, or 52.8%, to $111,000 and in net gains on loan and lease sales of $27,000, or 22.9%, to $90,000.

These decreases were partially offset by increases in other income of $104,000, or 38.1%, to $378,000 and in service charges on deposit accounts of $15,000, or 5.7%, to $275,000.

The decrease in loan and lease servicing

fees was due to a recovery of $114,000 of mortgage servicing rights recorded in the third quarter of 2022 and not replicated in the third quarter of 2023.

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

During the three months ended September 30, 2023, the Company sold $4.0 million of loans compared to the sale of $5.2 million of loans during the three months ended September 30, 2022.

Other income increased due to a reduction of letter of credit fees recognized in the third quarter of 2022, along with increased wealth management income in the third quarter of 2023.

Service fees on deposit accounts increased during the third quarter of 2023 compared to the third quarter of 2022 due to increased non-sufficient funds fees and account service fees.

Noninterest income increased $32,000 or 2.9%, to $1.1 million for the quarter ended March 31, 2024, compared to the same quarter in 2023.

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

Other income increased $66,000, or 26.3%, to $319,000 for the quarter ended March 31, 2024, compared to $253,000 for the comparable quarter in 2023 due to increased wealth management income.

Loan and lease servicing fees increased $7,000, or 6.0%, for the quarter ended March 31, 2024 compared to the comparable quarter in 2023.

Net gains on loan and lease sales decreased $36,000, or 23.3%, compared to the same quarter in 2023, due to decreased mortgage banking activity.

Service fees on deposit accounts decreased $8,000, or 2.9%, in the first quarter of 2024 from the comparable quarter in 2023.

Noninterest Expense.

Noninterest expense increased $290,000, or 3.8%, to $8.0 million for the three months ended September 30, 2023, from $7.7 million for the same period in 2022.

Salaries and employee benefits decreased $333,000, or 7.1%, to $4.4 million for the quarter ended September 30, 2023, from $4.7 million for the same quarter in 2022.

The decrease in salaries and benefits was primarily due to decreased bonus expense.

Data processing fees increased $110,000, or 14.8%, to $854,000 in the third quarter of 2023 compared to the same quarter of 2022, primarily due to increased software and online services expenses.

Deposit insurance expense increased $194,000, or 225.6%, during the third quarter of 2023 compared to the same quarter in 2022, primarily due to a change in the asset and deposit mix and an increase in the FDIC assessment rate in 2023.

Noninterest expense increased $696,000, or 9.5%, to $8.1 million for the three months ended March 31, 2024, from $7.4 million for the same period in 2023.

Salaries and employee benefits increased $332,000, or 7.8%, to $4.6 million for the quarter ended March 31, 2024, from $4.2 million for the same quarter in 2023.

The increase in salaries and benefits was primarily due to increased employee benefits expense.

Data processing fees increased $70,000, or 8.4%, to $907,000 in the first quarter of 2024 compared to the same quarter of 2023, primarily due to increased software and core provider expenses.

Deposit insurance expense increased $235,000, or 139.9%, from the comparable quarter in 2023 primarily due to a change in the asset and deposit mix.

Income Tax Expense.

The provision for income taxes decreased $342,000 during the three months ended September 30, 2023, compared to the same period in 2022, due to a lower level of pre-tax income.

The effective tax rate for the third quarter of 2023 was 12.3% compared to 16.3% for the same quarter a year ago.

The provision for income taxes decreased $180,000 during the three months ended March 31, 2024, compared to the same period in 2023, due to a lower level of pre-tax income.

The effective tax rate for the first quarter of 2024 was 12.9% compared to 15.5% 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 Nine Months Ended September 30, 2023 and 2022.

Net income for the nine months ended September 30, 2023 was $7.5 million, a $2.1 or 21.9% decrease from net income of $9.7 million for the nine months ended September 30, 2022.

Diluted earnings per share were $0.72 for the first nine months of 2023, compared to $0.87 diluted earnings per share for the first nine months of 2022.

The decrease in net income was primarily the result of a $2.8 million decrease in net interest income, a $43,000 decrease in noninterest income and a $495,000 increase in noninterest expense, partially offset by a $372,000 decrease in the provision for credit losses and an $834,000 decrease in the provision for income taxes.

Interest Income.

Interest income increased $11.3 million, or 30.0%, to $48.8 million during the nine months ended September 30, 2023, compared to $37.6 million during the nine months ended September 30, 2022.

Interest income on loans and leases increased $10.3 million, or 32.0%, to $42.6 million for the nine months ended September 30, 2023, from $32.3 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 62 basis points.

The average outstanding loan and lease balance was $1.0 billion for the first nine months of 2023, compared to $878.3 million for the first nine months of 2022.

The average yield on loans and leases was 5.52% for the nine months ended September 30, 2023, compared to 4.90% for the comparable period in 2022.

Interest income on investment securities, excluding FHLB stock, increased $455,000, or 9.2%, during the nine months ended September 30, 2023, from the comparable period in 2022.

The increase was due to a 47 basis point increase in the average yield earned on investment securities, partially offset by a $38.4 million decrease in the average balance of investment securities.

The average yield on investment securities, excluding FHLB stock, was 2.48% for the first nine months of 2023, compared to 2.01% for the first nine months of 2022.

The average balance of investment securities, excluding FHLB stock, was $290.8 million for the nine months ended September 30, 2023, compared to $329.2 million for the nine months ended September 30, 2022.

Dividends on FHLB stock increased $275,000, or 97.5%, during the nine months ended September 30, 2023, from the comparable period in 2022, resulting in an average yield on FHLB stock of 7.16% for the nine months ended September 30, 2023, compared to 3.83% for the nine months ended September 30, 2022.

Interest income on cash and cash equivalents increased $227,000, or 302.7%, during the nine months ended September 30, 2023, from the comparable period in 2022, due to a 301 basis point increase in the average yield, partially offset by a $3.7 million decrease in the average balance of cash and cash equivalents.

Interest Expense.

Interest expense increased $14.1 million, or 218.0%, to $20.5 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.

Interest expense on deposits increased $11.6 million, or 267.6%, to $15.9 million for the nine months ended September 30, 2023, from the comparable period in 2022.

increase in interest expense on deposits primarily was attributable to a $132.8 million increase in the average balance of certificate of deposit accounts, partly offset by a $24.0 million decrease in saving, money market and interest-bearing checking accounts, and a 158 basis point increase in the average rate paid on interest-bearing deposits, which included a 213 basis point increase in the average rate paid on certificate of deposit accounts to 3.09% during the nine months ended September 30, 2023, from 0.96% for the comparable period in 2022.

The average rate paid on interest-bearing deposits was 2.28% for the nine months ended September 30, 2023, compared to 0.70% for the nine months ended September 30, 2022.

The average balance of interest-bearing deposits totaled $927.6 million in the nine months ended September 30, 2023, compared to $818.7 million in the comparable period in 2022.

Interest expense on FHLB advances increased $2.5 million, or 117.1%, to $4.6 million in the first nine months of 2023 compared to $2.1 million for the same period in 2022, due to a 139 basis point increase in the average rate paid on advances to 2.97% during the nine months ended September 30, 2022, from 1.58% for the comparable period in 2022, and a $28.1 million increase in the average balance of FHLB advances during the nine months ended September 30, 2023 as compared to the first nine months of 2022.

Net Interest Income.

Net interest income before the provision for credit losses decreased $2.8 million, or 8.9%, to $28.3 million in the first nine months of 2023, compared to $31.1 million for the first nine months of 2022.

This decrease was primarily due to a 76 basis point decrease in the average interest rate spread during the first nine months of 2023 compared to the comparable period in 2022.

Net interest margin (annualized) was 2.82% for the nine months ended September 30, 2023, compared to 3.37% for the nine months ended September 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.

Nine Months Ended September 30,

Outstanding Interest

(Dollars in thousands)

Interest-earning assets:

Loans and leases receivable $ 1,027,782 $ 42,562 5.52 % $ 878,334 $ 32,250 4.90 %

Securities 290,820 5,408 2.48 % 329,185 4,953 2.01 %

FHLB stock 10,369 557 7.16 % 9,827 282 3.83 %

Cash and cash equivalents and other 10,877 302 3.70 % 14,527 75 0.69 %

Total interest-earning assets 1,339,848 48,829 4.86 % 1,231,873 37,560 4.07 %

Non-earning assets 44,335 39,571

Total assets 1,384,183 1,271,444

Interest-bearing liabilities:

Savings and money market accounts 275,936 3,537 1.71 % 280,304 1,294 0.62 %

Interest-bearing checking accounts 148,539 708 0.64 % 168,195 371 0.29 %

Certificate accounts 503,093 11,644 3.09 % 370,249 2,657 0.96 %

Borrowings 206,897 4,609 2.97 % 178,762 2,123 1.58 %

Total interest-bearing liabilities 1,134,465 20,498 2.41 % 997,510 6,445 0.86 %

Noninterest-bearing demand deposits 104,260 112,448

Other liabilities 13,757 7,050

Stockholders' equity 131,701 154,436

Total liabilities and stockholders' equity 1,384,183 1,271,444

Net interest income $ 28,331 $ 31,115

Net earning assets $ 205,383 $ 234,363

Net interest rate spread (1)

2.45 % 3.21 %

Net interest margin (2)

2.82 % 3.37 %

Average interest-earning assets to average interest-bearing liabilities

118.10 % 123.49 %

_____________

(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 nine months ended September 30, 2023 totaled $228,000, compared to a $600,000 provision for loan and lease losses for the nine months ended September 30, 2022, a $372,000 or 62.0% decrease.

Net charge-offs during the first nine months of 2023 were $436,000 compared to net charge-offs of $152,000 in the first nine months of 2022.

Noninterest Income.

Noninterest income decreased $43,000, or 1.2%, to $3.4 million for the nine months ended September 30, 2023, compared to the same period in 2022.

The decrease in noninterest income resulted primarily from a $182,000, or 31.3%, decrease in net gains on loan and lease sales to $399,000 during the first nine months of 2023, compared to $581,000 during the first nine months 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 nine months ended September 30, 2023, the Company sold $15.3 million of loans compared to the sale of $25.7 million of loans during the nine months ended September 30, 2022.

In addition, loan and lease servicing income decreased $101,000, or 22.8%, to $341,000 for the first nine months of 2023 compared to $442,000 for the comparable period in 2022 primarily due to a recovery of $79,000 to the value of mortgage servicing rights in the first nine months of 2022 that was not replicated in the same period of 2023.

Partially offsetting these decreases were increases in service charges on deposit accounts, card fee income, gain on sale of real estate owned and other income.

Service charges on deposit accounts increased $89,000, or 11.9%, to $831,000 for the nine months ended September 30, 2023, compared to $743,000 for the nine months ended September 30, 2022, primarily due to increased early withdrawal fees and non-sufficient funds fees.

Card fee income increased $27,000, or 3.0%, to $905,000 in the first nine months of 2023 from $878,000 in the first nine months of 2022 due to increased debit card usage.

Other income increased $125,000, or 15.0%, to $956,000 during the nine months ended September 30, 2023, compared to $832,000 during the same period of 2022 primarily due to fees earned from our participation in a loan hedging program with a correspondent bank, along with increased wealth management income.

Noninterest Expense.

Noninterest expense increased $496,000, or 2.2%, to $22.7 million for the nine months ended September 30, 2023, from $22.2 million for the same period in 2022, primarily reflecting higher data processing fees, deposit insurance expense and other expenses.

Salaries and employee benefits, the largest component of noninterest expense, decreased $785,000, or 5.7%, to $12.9 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to decreased bonus expense.

Data processing fees increased $542,000, or 27.5%, to $2.5 million in the first nine months of 2023 compared to the same period of 2022, primarily due to increased software and core provider expenses.

Deposit insurance expense increased $392,000, or 158.1%, to $640,000 in the first nine 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 $307,000, or 11.3%, to $3.0 million in the first nine months of 2023 compared to the same period of 2022 primarily due to increased expenses related to brokered deposits and an increase of losses due to fraud.

Income Tax Expense.

The provision for income taxes decreased $834,000 during the nine months ended September 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 nine months of 2023 was 14.5%, compared to 18.0% for the first nine months 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 $118.6 million at September 30, 2023 and $133.0 million at December 31, 2022.

In addition to net income of $7.5 million, other sources of capital during the first nine months of 2023 included $465,000 related to the allocation of ESOP shares during the year and $1.1 million related to stock-based compensation.

Uses of capital during the first nine months of 2023 included other comprehensive loss, net of tax, of $10.0 million, $4.5 million of dividends paid on common stock, $5.3 million of stock repurchases, and $3.8 million due to the one-time adjustment to retained earnings for the adoption of CECL.

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

We paid a regular quarterly dividend of $0.14 per common share during the first nine months 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 September 30, 2023.

Shareholders' equity totaled $132.4 million at March 31, 2024 and $134.9 million at December 31, 2023.

In addition to net income of $2.4 million, other sources of capital during the first quarter of 2024 included $154,000 related to the allocation of ESOP shares and $367,000 related to stock-based compensation.

Uses of capital during the first three months of 2024 included $2.8 million in AOCL, $1.4 million of dividends paid on common stock, and $1.1 million of stock repurchases.

The increase in the AOCL 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 2024, and regular quarterly dividends of $0.14 per common share during 2023.

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 $1.6 million based on the number of our currently outstanding shares at March 31, 2024.

Stock Repurchase Plans.

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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 September 30, 2023, the Company had approximately 959,611 shares available for repurchase under its existing stock

repurchase program.

As of March 31, 2024, the Company had approximately 775,423 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.

See Part II, Item 2 - "Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities."

See Part II, Item 2 - "Unregistered Sales of Equity Securities and Use of Proceeds."

Liquidity measures the ability to meet current and future cash flow needs as they become due.

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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, interest earning time deposits and investments available-for-sale totaled $285.1 million at September 30, 2023.

Certificates of deposit that are scheduled to mature in less than one year from September 30, 2023 totaled $379.3 million.

Our liquid assets in the form of cash and cash equivalents and investments available for sale totaled $296.6 million at March 31, 2024.

Certificates of deposit that are scheduled to mature in less than one year from March 31, 2024 totaled $325.4 million.

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

As of September 30, 2023, we had approximately $8.0 million held in an interest-bearing account at the Federal Reserve.

As of March 31, 2024, we had approximately $8.1 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, 2023, based upon available, pledgeable collateral, our total remaining borrowing capacity with the FHLB was approximately $105.7 million.

Furthermore, at September 30, 2023, we had approximately $112.3 million in securities that were unencumbered by a pledge and could be used to support additional borrowings of up to $108.9 million through repurchase agreements or the Federal Reserve discount window, as needed.

As of September 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.

As of March 31, 2024, based upon available, pledgeable collateral, our total remaining borrowing capacity with the FHLB was approximately $91.3 million.

Furthermore, at March 31, 2024, we had approximately $145.1 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, 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.

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, 2023 was $8.3 million, compared to $14.6 million provided by operating activities for the nine months ended September 30, 2022.

During the nine months ended September 30, 2023, net cash used in investing activities was $100.6 million, which consisted primarily of net change in loans receivable, compared to $70.9 million of cash used in investing activities for the nine months ended September 30, 2022.

Net cash provided by financing activities for the nine months ended September 30, 2023 was $97.0 million, which was comprised primarily of net change in borrowings, compared to $52.6 million provided by financing activities during the nine months ended September 30, 2022.

Net cash provided by operating activities for the three months ended March 31, 2024 was $2.2 million, compared to $3.6 million provided by operating activities for the three months ended March 31, 2023.

During the three months ended March 31, 2024, net cash used in investing activities was $30.2 million, which consisted primarily of a $31.7 million net change in loans receivable, compared to $27.9 million of cash used in investing activities for the three months ended March 31, 2023.

Net cash provided by financing activities for the three months ended March 31, 2024 was $28.1 million, which was comprised primarily of a $28.5 million net change in deposits, compared to $25.7 million provided by financing activities during the three months ended March 31, 2023.

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 2023 Form 10-K other than set forth above.

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Since Richmond Mutual Bancorporation is a holding company and does not conduct operations, its primary sources of liquidity are interest on investment securities purchased with proceeds from our initial public offering, dividends up-streamed from First Bank Richmond and borrowings from outside sources.

Banking regulations may limit the amount of dividends that may be paid to us

by First Bank Richmond.

At September 30, 2023, Richmond Mutual Bancorporation, on an unconsolidated basis, had $14.9 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs.

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

At March 31, 2024, Richmond Mutual Bancorporation, on an unconsolidated basis, had $10.1 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, 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 March 31, 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.

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, 2023

As of March 31, 2024

Total risk-based capital (to risk weighted assets) $ 177,662 14.1 % $ 100,494 8.0 % $ 125,617 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 September 30, 2023, the Bank’s CET1 capital exceeded the required capital conservation buffer.

At March 31, 2024, 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 September 30, 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 March 31, 2024, 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