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Item 2. Management’s Discussion and Analysis

2024-11-13 compared with 2024-08-09 · 156 added, 154 removed, 249 unchanged (55% 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 June 30, 2024, and the consolidated results of operations for the three and six month periods ended June 30, 2024, compared to the same periods in 2023, is intended to assist in understanding the financial condition and results of operations of the Company.

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

The 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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• effects of employment levels, labor shortages and inflation, a recession, or slowed economic growth;

• changes in the interest rate environment, including past increases in the Board of Governors of the Federal Reserve System (the "Federal Reserve") benchmark rate and the duration of such increased levels;

• changes in the interest rate environment, including increases or decreases in the Board of Governors of the Federal Reserve System (the "Federal Reserve") benchmark rate and the duration of such changed levels;

• the impact of inflation and the Federal Reserve monetary policies;

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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, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, civil unrest, and other external eventss;

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

• 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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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 $180.9 million at June 30, 2024.

Total wealth management assets under management and administration were $189.5 million at September 30, 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 June 30, 2024, on a consolidated basis, we had $1.5 billion in assets, $1.1 billion in loans and leases, net of allowance, $1.1 billion in deposits and $131.1 million in stockholders’ equity.

At June 30, 2024, First Bank Richmond’s total risk-based capital ratio was 14.21%, exceeding the 10.0% requirement for a well-capitalized institution.

For the six months ended June 30, 2024, net income was $4.4 million, compared with net income of $5.6 million for the six months ended June 30, 2023.

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

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

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

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 six months ended June 30, 2024 to the critical accounting estimates reported in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Form 10-K.

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

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.

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

Total assets increased $34.1 million, or 2.3%, to $1.5 billion at June 30, 2024 from December 31, 2023.

The increase was primarily the result of a $50.5 million, or 4.6%, increase in loans and leases, net of allowance for credit losses, to $1.1 billion, partially offset by a $15.6 million, or 5.4%, decrease in investment securities to $272.0 million at June 30, 2024.

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

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

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

Investment Securities.

Investment securities available for sale totaled $267.3 million and $282.7 million, while investment securities held to maturity totaled $4.7 million and $4.9 million at June 30, 2024 and December 31, 2023, respectively.

The $15.3 million, or 5.4%, decrease in investment securities available for sale was primarily due to maturities and principal repayments of $8.4 million, a $5.2 million downward mark-to-market adjustment on the investment portfolio due to increased market rates of interest, and $3.8 million in sales of securities.

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

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

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

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Loans and Leases.

Loans and leases, net of allowance for credit losses on loans and leases, increased $50.5 million, or 4.6%, to $1.1 billion at June 30, 2024 from December 31, 2023.

The increase in loans and leases was attributable to increases in multi-family loans, commercial real estate loans, residential mortgage loans, and commercial and industrial loans of $35.5 million, $14.6 million, $12.9 million and $11.7 million, respectively.

At June 30, 2024, loans held for sale totaled $370,000, compared to $794,000 at December 31, 2023.

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

Accruing loans and leases past due 90 days or more totaled $2.6 million at June 30, 2024, compared to $1.7 million at December 31, 2023.

Nonperforming loans and leases, consisting of nonaccrual loans and leases and accruing loans and leases 90 days or more past due, totaled $7.7 million, or 0.67% of total loans and leases, at June 30, 2024, compared to $8.0 million, or 0.72% of total loans and leases, at December 31, 2023.

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

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

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

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

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

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

Nonperforming loans and leases, consisting of nonaccrual loans and

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

Allowance for Credit Losses.

The allowance for credit losses on loans and leases increased $219,000, or 1.4%, to $15.9 million at June 30, 2024 from December 31, 2023.

At June 30, 2024, the allowance for credit losses on loans and leases totaled 1.37% of total loans and leases outstanding.

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

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

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 half of 2024 were $774,000 compared to net charge-offs of $137,000 during the first half of 2023.

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

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 June 30, 2024, which evaluation included consideration of a potential recession due to inflation, stock market volatility, and overall geopolitical tensions.

The Company evaluated its exposure to potential loan and lease losses as of September 30, 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.

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Other Assets .

Other assets decreased $471,000, or 1.9%, to $24.3 million at June 30, 2024 from $24.8 million at December 31, 2023, primarily due to standard amortization of prepaid assets.

Total deposits increased $58.9 million, or 5.7%, to $1.1 billion at June 30, 2024 from December 31, 2023.

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

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

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

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

Brokered deposits totaled $287.5 million, or 26.1% of total deposits, at June 30, 2024, compared to $268.8 million, or 25.8% of total deposits, at December 31, 2023.

At June 30, 2024, noninterest-bearing deposits totaled $102.3 million, or 9.3% of total deposits, compared to $114.4 million, or 11.0% of total deposits, at December 31, 2023.

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

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

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

As of June 30, 2024, approximately $253.0 million of our deposit portfolio, or 21.4% of total deposits, excluding collateralized public deposits, was uninsured.

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

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

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

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

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

Stockholders’ Equity.

Stockholders’ equity totaled $131.1 million at June 30, 2024, a decrease of $3.7 million, or 2.8%, from December 31, 2023.

The decrease in stockholders' equity from year-end 2023 resulted from the repurchase of $2.2 million of Company common stock, an increase in Accumulated Other Comprehensive Loss ("AOCL") of $4.1 million, and the payment of $2.9 million in dividends to Company stockholders, partially offset by $4.4 million in net income.

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

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 $59.7 million at June 30, 2024.

The AOCL impact to equity, after tax affecting the unrealized loss, was $47.2 million at June 30, 2024 compared to $43.0 million at December 31, 2023.

This decline in value from December 31, 2023 to June 30, 2024 was due to interest rate changes, not credit quality.

The Company repurchased 189,928 shares of Company common stock at an average price of $11.63 per share for a total of $2.2 million during the first six months of 2024.

The Company's equity to asset ratio was 8.77% at June 30, 2024.

At June 30, 2024, the Bank's Tier 1 capital to total assets ratio was 10.65% 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, 2024 and 2023.

Net income for the three months ended June 30, 2024 was $2.1 million, a $632,000 or 23.5% decrease from net income of $2.7 million for the three months ended June 30, 2023.

Diluted earnings per share were $0.20 for the second quarter of 2024, compared to $0.26 diluted earnings per share for the second quarter of 2023.

The decrease in net income was the result of an increase in noninterest expense of $716,000, and an increase in the provision for credit losses of $262,000, partially offset by an increase in net interest income of $243,000 and a decrease in the provision for income taxes of $170,000.

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

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

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

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

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

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

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

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

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

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

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

Interest Income.

Interest income increased $3.9 million, or 23.8%, to $20.1 million during the quarter ended June 30, 2024, compared to $16.2 million during the quarter ended June 30, 2023.

Interest income on loans and leases increased $3.7 million, or 26.3%, to $17.8 million for the quarter ended June 30, 2024, from $14.1 million for the comparable quarter in 2023,

due to an increase in the average balance of loans and leases of $120.3 million, and an increase of 72 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 June 30, 2024, compared to $1.0 billion for the quarter ended June 30, 2023.

The average yield on loans and leases was 6.20% for the quarter ended June 30, 2024, compared to 5.48% for the comparable quarter in 2023.

Interest income on investment securities, excluding FHLB stock, decreased $76,000, or 4.2%, for the second quarter of 2024 from the comparable quarter in 2023.

The average yield on investment securities, excluding FHLB stock, increased to 2.54% for the second quarter of 2024, compared to 2.46% for the second quarter of 2023.

The average balance of investment securities, excluding FHLB stock, decreased to $273.1 million for the quarter ended June 30, 2024, compared to $294.1 million for the quarter ended June 30, 2023.

Dividends on FHLB stock increased $142,000, or 78.9%, during the quarter ended June 30, 2024, from the comparable quarter in 2023, resulting in an average yield on FHLB stock of 9.26% for the three months ended June 30, 2024, compared to 7.10% for the three months ended June 30, 2023.

Interest income on cash and cash equivalents increased $83,000, or 62.5%, during the quarter ended June 30, 2024, from the comparable quarter in 2023, due to a 102 basis point increase in the average yield and a $3.8 million increase in the average balance of cash and cash equivalents.

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

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

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

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

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

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

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

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

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

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

Interest Expense.

Interest expense increased $3.6 million, or 52.5%, to $10.5 million for the quarter ended June 30, 2024, compared to the quarter ended June 30, 2023.

Interest expense on deposits increased $2.5 million, or 44.3%, to $8.0 million for the quarter ended June 30, 2024, from the comparable quarter in 2023.

The increase in interest expense on deposits primarily was attributable to a $49.0 million increase in the average balance of, and an 87 basis point increase in the average rate paid on, interest-bearing deposits.

The average rate paid on interest-bearing deposits was 3.23% for the quarter ended June 30, 2024, compared to 2.35% for the quarter ended June 30, 2023.

The average balance of interest-bearing deposits was $991.1 million for the quarter ended June 30, 2024, compared to $942.2 million in the comparable quarter in 2023.

Interest expense on FHLB borrowings increased $1.2 million, or 86.4%, to $2.5 million in the second 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 and, to a lesser extent, an increase in the average balance of such borrowings.

The average rate paid on FHLB borrowings was 3.89% for the quarter ended June 30, 2024, compared to 2.73% for the second quarter of 2023.

The average balance of FHLB borrowings totaled $257.9 million during the quarter ended June 30, 2024, compared to $197.1 million for the quarter ended June 30, 2023.

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

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

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

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

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

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

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

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

Net Interest Income.

Net interest income before the provision for credit losses increased $243,000, or 2.6%, to $9.6 million for the second quarter of 2024, compared to $9.3 million for the second quarter of 2023.

This increase was due to a $107.0 million increase in average interest earning assets, partially offset by a 24 basis point decrease in the average interest rate spread.

Net interest margin (annualized) was 2.64% for the three months ended June 30, 2024, compared to 2.77% for the three months ended June 30, 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%, where it remained as of June 30, 2024.

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.

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

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

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

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

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

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

Average Balances, Interest and Average Yields/Cost.

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

Three Months Ended June 30,

Three Months Ended September 30,

Outstanding Interest

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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 three months ended June 30, 2024 totaled $270,000, compared to $8,000 for the three months ended June 30, 2023.

Net charge-offs during the second quarter of 2024 were $450,000 compared to $215,000 in the second quarter of 2023.

(Reversal of)/Provision for Credit Losses.

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

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

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

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

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

Noninterest Income.

Noninterest income decreased $66,000, or 5.6%, to $1.1 million for the quarter ended June 30, 2024, compared to the same quarter in 2023.

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

Net gains on loan and lease sales decreased $64,000, or 41.4%, compared to the same quarter in 2023, due to decreased mortgage banking activity.

Net losses on sales of securities available for sale totaled $62,000 for the three months ended June 30, 2024, while there were no sales of securities in the comparable quarter of 2023.

Service fees on deposit accounts increased $34,000, or 12.3%, in the second quarter of 2024 from the comparable quarter in 2023, due to higher transaction activity and account maintenance fees, coupled with year-over-year deposit growth.

Loan and lease servicing fees increased $22,000, or 20.1%, for the quarter ended June 30, 2024 compared to the comparable quarter in

2023 due to increased loan participation income.

In addition, other income increased $16,000, or 4.8%, to $341,000 for the quarter ended June 30, 2024, compared to $325,000 for the comparable quarter in 2023 due to increased wealth management income.

Card fee income decreased $11,000, or 3.8%, to $313,000 for the quarter ended June 30, 2024 compared to the same quarter in 2023.

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

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

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

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

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

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

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

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

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

Noninterest Expense.

Noninterest expense increased $716,000, or 9.8%, to $8.1 million for the three months ended June 30, 2024, from $7.3 million for the same period in 2023.

Salaries and employee benefits increased $400,000, or 9.4%, to $4.7 million for the quarter ended June 30, 2024, from $4.3 million for the same quarter in 2023.

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

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

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

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

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

Legal and professional fees increased $124,000, or 34.9%, to $481,000 from the comparable quarter in 2023 primarily due to professional services expenses related to auditing and internal process enhancements.

Data processing fees increased $57,000, or 7.0%, to $879,000 in the second quarter of 2024 compared to the same quarter of 2023, primarily due to increased software and core provider expenses.

Other expenses decreased $43,000, or 4.7%, to $874,000 during the second quarter of 2024, compared to the same quarter of 2023, primarily due to decreased employee expenses and loan closing expenses.

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

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

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

Income Tax Expense.

The provision for income taxes decreased $170,000 during the three months ended June 30, 2024, compared to the same period in 2023, due to a lower level of pre-tax income.

The effective tax rate for the second quarter of 2024 was 12.9% compared to 15.0% for the same quarter a year ago.

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

Comparison of Results of Operations for the Six Months Ended June 30, 2024 and 2023.

Net income for the six months ended June 30, 2024 was $4.4 million, a $1.2 million or 20.8% decrease from net income of $5.6 million for the six months ended June 30, 2023.

Diluted earnings per share were $0.43 for the first six months of 2024, compared to $0.53 diluted earnings per share for the first six months of 2023.

The decrease in net income primarily was the result of an increase in noninterest expense of $1.4 million and an increase in the provision for credit losses of $275,000, partially offset by an increase in net interest income of $205,000, and a decrease in the provision for income taxes of $350,000.

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

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

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

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

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

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

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

Interest Income.

Interest income increased $8.2 million, or 26.0%, to $39.6 million during the six months ended June 30, 2024, compared to $31.4 million during the six months ended June 30, 2023.

Interest income on loans and leases increased $7.8 million, or 28.5%, to $35.1 million for the six months ended June 30, 2024, from $27.3 million for the comparable period in 2023, due to an increase in the average balance of loans and leases of $130.7 million, and an increase of 74 basis points in the average yield earned on loans and leases.

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

The average yield on loans and leases was 6.16% for the six months ended June 30, 2024, compared to 5.42% for the comparable period in 2023.

Interest income on investment securities, excluding FHLB stock, decreased $75,000, or 2.1%, to $3.5 million from the comparable period in 2023, due to a nine basis point increase in the average yield, partially offset by a decrease in the average balance of investment securities.

The average yield on investment securities, excluding FHLB stock, was 2.54% for the first six months of 2024, compared to 2.45% for the first six months of 2023.

The average balance of investment securities, excluding FHLB stock, was $278.5 million for the six months ended June 30, 2024, compared to $294.5 million for the six months ended June 30, 2023.

Dividends on FHLB stock increased $328,000, or 103.1%, during the six months ended June 30, 2024, from the comparable period in 2023, resulting in an average yield on FHLB stock of 9.35% for the six months ended June 30, 2024, compared to 6.31% for the six months ended June 30, 2023.

Interest income on cash and cash equivalents increased $157,000, or 78.9%, during the six months ended June 30, 2024, from the comparable period in 2023, due to a 157 basis point increase in the average yield and a $4.1 million increase in the average balance of cash and cash equivalents.

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

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

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

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

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

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

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

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

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

Interest Expense.

Interest expense increased $8.0 million, or 65.3%, to $20.2 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Interest expense on deposits increased $5.5 million, or 57.4%, to $15.1 million for the six months ended June 30, 2024, from the comparable period in 2023.

The increase in interest expense on deposits was attributable to a $46.5 million increase in the average balance of, and a 103 basis point increase in the average rate paid on, interest-bearing deposits.

The average rate paid on interest-bearing deposits was 3.11% for the six months ended June 30, 2024, compared to 2.08% for the six months ended June 30, 2023.

The average balance of interest-bearing deposits was $968.2 million for the six months ended June 30, 2024, compared to $921.7 million in the comparable period in 2023.

expense on FHLB borrowings increased $2.5 million, or 93.9%, to $5.1 million in the first six months of 2024 compared to $2.6 million for the same period in 2023, due to increases in the average rate paid on, and average balance of, FHLB borrowings.

The average rate paid on FHLB borrowings was 3.83% for the six months ended June 30, 2024, an increase of 16 basis points from 2.67% for the first six months of 2023.

The average balance of FHLB borrowings totaled $267.6 million during the six months ended June 30, 2024, up $69.8 million from $197.8 million for the six months ended June 30, 2023.

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

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

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

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

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

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

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

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

Net Interest Income.

Net interest income before the provision for credit losses increased $205,000, or 1.1%, to $19.4 million for the first six months of 2024, compared to $19.2 million for the first six months of 2023.

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

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

Net interest margin (annualized) was 2.69% for the six months ended June 30, 2024, compared to 2.90% for the six months ended June 30, 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.

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

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

Average Balances, Interest and Average Yields/Cost.

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

Six Months Ended June 30,

Nine Months Ended September 30,

Outstanding Interest

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Provision for Credit Losses.

The provision for credit losses for the six months ended June 30, 2024 totaled $454,000, compared to $178,000 for the six months ended June 30, 2023, a $275,000 or 154.4% increase.

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

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

Net charge-offs during the first half of 2024 were $774,000 compared to $137,000 in the first half of 2023.

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

Noninterest Income.

Noninterest income decreased $34,000, or 1.5%, to $2.2 million for the six months ended June 30, 2024, compared to the same period in 2023.

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

Net gains on loan and lease sales decreased $100,000, or 32.3%, compared to the same period in 2023, due to decreased mortgage banking activity.

Net losses on sales of securities available for sale totaled $62,000 for the first half of 2024, while there were no sales of securities in the first half of 2023.

Other income increased $82,000, or 14.2%, to $660,000 for the six months ended June 30, 2024, compared to $578,000 for the comparable period in 2023 due to increased wealth management income.

Loan and lease servicing fees increased $29,000, or 12.7%, for the six months ended June 30, 2024 compared to the comparable period in 2023.Service fees on deposit accounts increased $26,000, or 4.6%, in the first six months of 2024 from the comparable period in 2023 due to higher transaction activity and account maintenance fees, coupled with year-over-year deposit growth.

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

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

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

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

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

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

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

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

Noninterest Expense.

Noninterest expense increased $1.4 million, or 9.6%, to $16.1 million for the six months ended June 30, 2024, from $14.7 million for the same period in 2023.

Salaries and employee benefits increased $732,000, or 8.6%, to $9.2 million for the six months ended June 30, 2024, from $8.5 million for the same period in 2023.

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

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

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

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

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

Legal and professional fees increased $246,000, or 36.9%, to $913,000 for the six months ended June 30, 2024 compared to $667,000 for the comparable period in 2023 due to other professional service expenses related to auditing and internal process enhancements.

Data processing fees increased $127,000, or 7.7%, to $1.8 million in the first six months of 2024 compared to the same period of 2023, primarily due to increased software and core provider expenses.

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

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

Income Tax Expense.

The provision for income taxes decreased $350,000 during the six months ended June 30, 2024, compared to the same period in 2023, due to a lower level of pre-tax income.

The effective tax rate for the first half of 2024 was 12.9% compared to 15.3% for the same period a year ago.

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

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

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

Capital and Liquidity

Shareholders' equity totaled $131.1 million at June 30, 2024 and $134.9 million at December 31, 2023.

In addition to net income of $2.1 million, other sources of capital during the second quarter of 2024 included $156,000 related to the allocation of ESOP shares and $364,000 related to stock-based compensation.

Uses of capital during the first six months of 2024 included $1.3 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 increases to the unrealized losses on available for sale securities due to rising market interest rates.

We paid a regular quarterly dividend of $0.14 per common share during the second quarter of 2024, and regular quarterly dividends of $0.14 per common share during 2023.

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

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

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

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

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

Assuming continued payment during 2024 at the current dividend rate of $0.14 per share, our average total dividend paid each quarter would be approximately $1.5 million based on the number of our currently outstanding shares at June 30, 2024.

Stock Repurchase Plans.

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In general, stock-repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders.

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

On 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.

On May 16, 2024, the Company announced that the Board of Directors approved an extension of the Company's existing stock repurchase program, which had been scheduled to expire on June 6, 2024, for an additional year, now set to expire on June 6, 2025.

As of June 30, 2024, the Company had approximately 678,108 shares available for repurchase under its existing stock repurchase program.

Repurchased shares also help satisfy obligations related to stock compensation awards.

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 an additional 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, and extending the stock repurchase program's expiration date to June 6, 2024, unless completed sooner.

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

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

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

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

Our liquid assets in the form of cash and cash equivalents and investments available for sale totaled $286.4 million at June 30, 2024.

Certificates of deposit scheduled to mature in less than one year from June 30, 2024 totaled $352.9 million.

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

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

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

As of June 30, 2024, we had approximately $7.8 million held in an interest-bearing account at the Federal Reserve.

As of September 30, 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 June 30, 2024, based upon available, pledgeable collateral, our total remaining borrowing capacity with the FHLB was approximately $118.5 million.

Furthermore, at June 30, 2024, we had approximately $201.5 million in securities that were unencumbered by a pledge and could be used to support additional borrowings through repurchase agreements or the Federal Reserve discount window, as needed.

As of June 30, 2024, management was not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations.

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

Furthermore, at September 30, 2024, we had approximately $179.8 million in securities that were unencumbered by a pledge and could be used to support additional borrowings through repurchase agreements or the Federal Reserve discount window, as needed.

As of September 30, 2024, management was not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations.

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 six months ended June 30, 2024 was $5.1 million, compared to $6.4 million provided by operating activities for the six months ended June 30, 2023.

During the six months ended June 30, 2024, net cash used in investing activities was $41.2 million, which consisted primarily of a $49.6 million net change in loans receivable, compared to $78.6 million of cash used in investing activities for the six months ended June 30, 2023.

Net cash provided by financing activities for the six months ended June 30, 2024 was $34.9 million, which was comprised primarily of a $58.9 million net change in deposits, compared to $73.8 million provided by financing activities during the six months ended June 30, 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.

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

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

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

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.

Richmond Mutual Bancorporation is a separate legal entity from First Bank Richmond and must provide for its own liquidity.

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

At June 30, 2024, Richmond Mutual Bancorporation, on an unconsolidated basis, had $7.1 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs.

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

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

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

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 June 30, 2024

As of September 30, 2024

Total risk-based capital (to risk weighted assets) $ 180,328 14.3 % $ 100,548 8.0 % $ 125,685 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 June 30, 2024, the Bank’s CET1 capital exceeded the required capital conservation buffer.

At September 30, 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 June 30, 2024, it would have exceeded all regulatory capital requirements.

If Richmond Mutual Bancorporation was subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at September 30, 2024, it would have exceeded all regulatory capital requirements.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis