Item 7. Management’s Discussion and Analysis
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
Certain matters in this Form 10-K may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of words such as “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” and “could.” These forward-looking statements include, but are not limited to:
• statements of our goals, intentions and expectations;
• statements regarding our business plans, prospects, growth and operating strategies;
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• statements regarding the quality of our loan and investment portfolios; and
• estimates of our risks and future costs and benefits.
You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These forward-looking statements are based on our current beliefs and expectations and, by their nature, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
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:
• adverse impacts to economic conditions in our local market areas and other markets where we have lending relationships;
• effects of employment levels, labor shortages and inflation, a recession, or slowed economic growth;
• changes in the interest rate environment, including increases or decreases in the Federal Reserve benchmark rate and the duration of such changed levels;
• the impact of inflation and the Federal Reserve monetary policies;
• effects of any federal government shutdown;
• 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 multi-family real estate market conditions;
• competitive pressures among depository institutions, including repricing and competitors' pricing initiatives, and their impact on our market position, loan, and deposit products;
• our ability to implement and change our business strategies;
• competition among depository and other financial institutions and equipment financing companies;
• bank failures or other adverse developments at banks and related negative press about the banking industry in general on investor and depositor sentiment;
• inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on our loans and leases;
• adverse changes in the securities or secondary mortgage markets;
• changes in the quality or composition of our loan, lease or investment portfolios;
• our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, "denial of service" attacks, "hacking" and identity theft, and other attacks on our information technology systems or on our third-party vendors;
• results of examinations by regulatory authorities and potential requirements to increase credit loss allowances, write-down assets, reclassify assets, change our regulatory capital position, or affect our liquidity and earnings;
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• the inability of third-party providers to perform as expected;
• our ability to manage market risk, credit risk and operational risk in the current economic environment;
• our ability to enter new markets successfully and capitalize on growth opportunities;
• our ability to attract and retain key employees;
• changes in the financial condition, results of operations or future prospects of issuers of securities that we own;
• our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;
• changes in consumer spending, borrowing and savings habits;
• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission ("SEC") or the Public Company Accounting Oversight Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods;
• legislative or regulatory changes, including changes in banking, securities, tax law, regulatory policies, and principles;
• our ability to pay dividends on our common stock;
• the potential imposition of new tariffs or changes to existing trade policies that could affect economic activity or specific industry sectors;
• 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 events; and
• the other risks described elsewhere in this Form 10 K and our other reports filed with and furnished to the U.S. Securities and Exchange Commission (“SEC”).
We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur and you should not put undue reliance on any forward-looking statements.
Additional factors that may affect our results are discussed under Part I, Item 1A in this document under the heading “Risk Factors.”
General
Our principal business consists of attracting deposits from the general public, as well as brokered deposits, and investing those funds primarily in loans secured by first mortgages on owner-occupied, one- to four-family residences, a variety of consumer loans, direct financing leases, commercial and industrial loans, and loans secured by commercial and multi-family real estate. We also obtain funds by utilizing FHLB advances. Funds not invested in loans generally are invested in investment securities, including mortgage-backed and mortgage-related securities and agency and municipal bonds. Richmond Mutual Bancorporation's primary business activities are currently limited to one significant business segment, which is community banking.
Our results of operations are primarily dependent on net interest income. Net interest income is the difference between interest income, which is the income that is earned on loans and investments, and interest expense, which is the interest that is paid on deposits and borrowings. Other significant sources of pre-tax income are service charges (mostly from service charges
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on deposit accounts and loan servicing fees), and fees from the sale of residential mortgage loans originated for sale in the secondary market. We may also recognize income from the sale of investment securities.
At December 31, 2024, on a consolidated basis, we had $1.5 billion in assets, $1.2 billion in loans, $1.1 billion in deposits, and $132.9 million in stockholders’ equity. First Bank Richmond’s risk-based capital ratio at December 31, 2024 was 14.2%, exceeding the 10.0% requirement for a well-capitalized institution. For the year ended December 31, 2024, we reported net income of $9.4 million, compared with net income of $9.5 million for 2023.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with GAAP. In doing so, we have to make estimates and assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We have reviewed our critical accounting estimates with the audit committee of our Board of Directors.
See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our financial statements.
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.
Management Strategy
We are a community-oriented financial institution dedicated to serving the needs of customers in our primary market area. Our commitment is to offer a full array of consumer and commercial banking products and services to meet the needs of our customers. We offer mortgage lending products to qualified borrowers to give them the broadest access to home ownership in our markets. We offer commercial lending products and services tailored to complement their businesses. Our goal is to maintain asset quality while continuing to build our strong capital position while looking for growth opportunities in the markets we serve. To achieve these goals, we will focus on the following strategies:
Lending. We believe that commercial lending offers an opportunity to enhance our profitability while managing credit, interest rate and operational risk. We seek quality commercial loan opportunities in our existing markets and purchase loan participations that complement our existing portfolios. We will continue to focus our efforts on our existing markets as well as to further develop the Columbus, Ohio market through our loan production office. We anticipate that the majority of our commercial and multi-family real estate and commercial construction loan originations will range in size from $1.0 million to $8.0 million, while the majority of our commercial and industrial loan originations will range in size from $250,000 to $1.5 million. At December 31, 2024, our commercial loan portfolio, which includes commercial and multi-family real estate loans, commercial and industrial loans, and construction loans, totaled $816.5 million, or 69.5% of total loans and leases, with approximately $236.9 million of these loans, or 20.2% of our total loans and leases, located in the Columbus, Ohio market.
Deposit Services. Deposits are our primary source of funds for lending and investment. We intend to continue to focus on increasing core deposits (which we define as all deposits except for certificates of deposit of $250,000 or more and brokered certificates of deposit) in our primary market area, with a particular emphasis on noninterest-bearing deposits. We will continue
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to enhance our offering of retail deposit products to maintain and increase our market share, while continuing to build our product offering of commercial deposit products to strengthen our relationships with our business customers. Core deposits represented 70.1% of our total deposits as of December 31, 2024.
Balance Sheet Growth . As a result of our efforts to build our management and infrastructure, we believe we are well-positioned to increase the size of our balance sheet without a proportional increase in overhead expense or operating risk. Accordingly, we intend to increase, on a managed basis, our assets and liabilities, particularly loans and deposits.
Asset Quality. We believe that strong asset quality is a key to long-term financial success. Our strategy for credit risk management focuses on an experienced team of credit professionals, well-defined credit policies and procedures, appropriate loan underwriting criteria and active credit monitoring. Our non-performing loans to total loans ratio was 0.58% at December 31, 2024.
Capital Position. Our policy has always been to protect the safety and soundness of First Bank Richmond through credit and operational risk management, balance sheet strength, and sound operations. The end result of these activities has been a capital ratio in excess of the well-capitalized standards set by our regulators. We believe that maintaining a strong capital position safeguards the long-term interests of First Bank Richmond.
Interest Rate Risk Management. Changes in interest rates are our primary market risk as our balance sheet is almost entirely comprised of interest-earning assets and interest-bearing liabilities. As such, fluctuations in interest rates have a significant impact not only upon our net income but also upon the cash flows related to those assets and liabilities and the market value of our assets and liabilities. In order to maintain what we believe to be acceptable levels of net interest income in varying interest rate environments, we actively manage our interest rate risk and assume a moderate amount of interest rate risk consistent with board policies.
Selected Consolidated Financial and Other Data
The Financial Condition Data and Operating Data as of and for the years ended December 31, 2024 and 2023 are derived from the audited financial statements and related notes included elsewhere in this Form 10-K. The following information is only a summary and is qualified in its entirety by the detailed information included elsewhere herein and should be read along with Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.
At December 31,
2024 2023
(In thousands)
Selected Financial Condition Data:
Total assets $ 1,504,875 $ 1,461,024
Loans and leases, net (1)
1,158,879 1,090,073
Securities available for sale, at fair value 258,192 282,688
Investment securities, at amortized cost 3,498 4,950
FHLB stock 13,907 12,647
Deposits 1,093,940 1,041,140
FHLB advances 265,000 271,000
Stockholders’ equity 132,872 134,860
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(1) Net of allowance for credit losses, loans in process and deferred loan fees.
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Years Ended December 31,
2024 2023
(In thousands)
Selected Operations Data:
Total interest income $ 80,526 $ 67,410
Total interest expense 41,819 29,748
Net interest income 38,707 37,662
Provision for credit losses 550 532
Net interest income after provision for credit losses 38,157 37,130
Service charges on deposit accounts 1,239 1,115
Card fee income 1,237 1,259
Loan and lease servicing fees 463 448
Gain on loan and lease sales 555 518
Loss on sales of securities (51) —
Other income 1,315 1,271
Total non-interest income 4,758 4,611
Total non-interest expenses 32,052 30,738
Income before provision for income taxes 10,863 11,003
Provision for income taxes 1,486 1,516
Net income $ 9,377 $ 9,487
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At or For the
Years Ended December 31,
2024 2023
Selected Financial Ratios and Other Data:
Performance ratios:
Return on average assets (ratio of net income to average total assets) 0.63 % 0.68 %
Return on average equity (ratio of net income to average equity) 7.03 % 7.36 %
Yield on interest-earning assets 5.55 % 4.98 %
Rate paid on interest-bearing liabilities 3.37 % 2.59 %
Interest rate spread information:
Average during period 2.18 % 2.39 %
End of period 2.15 % 2.27 %
Net interest margin (1)
2.67 % 2.78 %
Operating expense to average total assets 2.15 % 2.20 %
Average interest-earning assets to average interest-bearing liabilities 116.96 % 117.81 %
Efficiency ratio (2)
73.74 % 72.71 %
Asset quality ratios:
Non-performing assets to total assets (3)
0.45 % 0.56 %
Non-performing loans and leases to total gross loans and leases (4)
0.58 % 0.72 %
Allowance for credit losses on loans and leases to non-performing loans and leases (4)
232.99 % 195.80 %
Allowance for credit losses on loans and leases to total gross loans and leases 1.34 % 1.42 %
Net charge-offs to average outstanding loans and leases during the period 0.13 % 0.06 %
Capital ratios:
Common equity tier 1 capital (to risk weighted assets) (5)
12.98 % 12.85 %
Tier 1 leverage (core) capital (to adjusted tangible assets) (5)
10.75 % 10.64 %
Tier 1 risk-based capital (to risk weighted assets) (5)
12.98 % 12.85 %
Total risk-based capital (to risk weighted assets) (5)
14.23 % 14.10 %
Equity to total assets at end of period 8.83 % 9.23 %
Average equity to average assets 8.93 % 9.20 %
Per share data:
Basic earnings per share $ 0.93 $ 0.91
Diluted earnings per share 0.92 0.91
Cash dividends paid 0.56 0.56
Book value at year end 12.29 12.03
Tangible book value at year end (6)
12.29 12.03
Other data:
Number of full-service offices 12 12
Full-time equivalent employees 173 176
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(1) Net interest income divided by average interest earning assets.
(2) Total non-interest expenses as a percentage of net interest income and total non-interest income.
(3) Non-performing assets consist of nonaccrual loans and leases, accruing loans and leases more than 90 days past due, and foreclosed assets.
(4) Non-performing loans and leases consist of nonaccrual loans and leases and accruing loans and leases more than 90 days past due.
(5) Capital ratios are for First Bank Richmond.
(6) Tangible book value per share is a non-GAAP measure used by management and others within the financial services industry. Tangible book value per share is calculated by dividing tangible common equity by the number of shares outstanding.
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Financial Condition at December 31, 2024 Compared to December 31, 2023
General. Total assets increased $44.3 million, or 3.0%, to $1.5 billion at December 31, 2024 from December 31, 2023. The increase was driven by a $68.8 million, or 6.3%, increase in the loan and lease portfolio, net of allowance for credit losses on loans and leases, partially offset by a $25.9 million, or 9.0% decrease in investment securities. The increase in loans and leases was primarily funded by a $52.8 million, or 5.1%, increase in deposits.
Loans and Leases. Our loan and lease portfolio, net of allowance for credit losses on loans and leases, increased $68.8 million, or 6.3%, to $1.2 billion at December 31, 2024 from $1.1 billion at December 31, 2023. The majority of the growth occurred in multi-family loans which increased $47.1 million, or 33.9%, to $185.9 million, and in commercial real estate loans which increased $30.1 million, or 8.8%, to $371.7 million at December 31, 2024 compared to the prior year. We also experienced a $10.9 million, or 9.5%, increase in commercial and industrial loans, and a $16.4 million, or 9.5%, increase in residential real estate loans (including home equity lines of credit). Offsetting these increases were a $25.2 million, or 16.0%, decrease in construction and development loans, an $8.5 million, or 5.4%, decrease in direct financing leases, and a $2.0 million, or 8.8%, decrease in consumer loans.
The following table presents information concerning the composition of our loan and lease portfolio in dollar amounts and in percentages (before deductions for loans in process, deferred fees and discounts and allowances for credit losses on loans and leases) as of the dates indicated.
At December 31,
2024 2023
Amount Percent Amount Percent
(Dollars in thousands)
Real estate loans:
Residential mortgage (1)
$ 172,644 14.69 % $ 162,123 14.65 %
Home equity lines of credit 16,826 1.43 10,904 0.99
Multi-family 185,864 15.81 138,757 12.54
Commercial mortgage 371,705 31.63 341,633 30.87
Construction and development 132,570 11.28 157,805 14.26
Total real estate loans 879,609 74.84 811,222 73.31
Consumer loans 21,218 1.81 23,264 2.10
Commercial business loans and leases:
Commercial and industrial 126,367 10.75 115,428 10.43
Leases 148,102 12.60 156,598 14.15
Total commercial business loans and leases 274,469 23.35 272,026 24.58
Total loans and leases 1,175,296 100.00 % 1,106,512 100.00 %
Less:
Deferred fees and discounts 626 776
Allowance for credit losses on loans and leases 15,791 15,663
Total loans and leases, net $ 1,158,879 $ 1,090,073
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(1) Includes $8.3 million and $6.4 million of loans secured by second mortgages on residential properties at December 31, 2024 and 2023, respectively.
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Nonperforming loans and leases, consisting of nonaccrual loans and leases and accruing loan and leases more than 90 days past due, totaled $6.8 million, or 0.58% of total loans and leases at December 31, 2024, compared to $8.0 million, or 0.72% of total loans and leases at December 31, 2023. The decrease in nonperforming loans and leases was primarily attributable to a $1.2 million decrease in commercial and industrial loans, primarily due to one loan of $1.2 million secured by business assets, previously nonaccruing, that was paid off in 2024. At December 31, 2024, our largest nonperforming loan was a $4.9 million nonaccrual commercial construction and development loan that is currently subject to litigation between the developer and other parties. At the time of origination, this loan had a loan to value ratio of 73%.
Allowance for Credit Losses. On January 1, 2023, the Company 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 $15.8 million, or 1.34% of total loans and leases outstanding at December 31, 2024, compared to $15.7 million, or 1.42%, of total loans and leases at December 31, 2023. Net charge-offs during 2024 were $1.5 million, compared to net charge-offs of $678,000 during 2023. The Company's allowance for credit losses on unfunded commitments, which is reported in other liabilities on the Condensed Consolidated Balance Sheets, totaled $558,000 and $1.6 million at December 31, 2024 and December 31, 2023, respectively. The decrease in the allowance for credit losses on unfunded commitments was primarily due to lower unfunded loan commitments.
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 December 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.
Investment Securities. Investment securities decreased $25.9 million, or 9.0%, to $261.7 million at December 31, 2024, from $287.6 million at December 31, 2023. The decrease was primarily due to maturities and paydowns of securities of $22.1 million, the sale of $6.9 million of available-for-sale securities, and a $3.5 million downward mark-to-market adjustment in the fair value of securities available for sale, partially offset by the purchase of $7.5 million of new securities.
Deposits. Total deposits increased $52.8 million, or 5.1%, to $1.1 billion at December 31, 2024 compared to December 31, 2023. This increase was primarily due to an increase in savings and money-market accounts of $44.5 million, or 17.3%, as well as an increase in non-brokered time deposits of $40.3 million, or 16.2%. These increases were partially offset by a decrease of $20.8 million, or 7.8%, in demand deposit accounts, and an $11.3 million, or 4.2%, decrease in brokered time deposits. Management attributes the shift in funds from transaction accounts to retail certificates of deposit, which primarily occurred during the first nine months of 2024, to customers taking advantage of higher rates being paid on time deposits as a result of interest rate hikes instituted by the Federal Reserve. At December 31, 2024, brokered deposits equaled $257.6 million, or 23.5% of total deposits compared to $268.8 million, or 25.8% of total deposits at December 31, 2023. At December 31, 2024, noninterest-bearing deposits totaled $110.1 million, or 10.1% of total deposits, compared to $114.4 million, or 11.0%, of total deposits at December 31, 2023.
As of December 31, 2024, approximately $248.1 million of our deposit portfolio, or 22.7% 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.
Borrowings. Borrowings, consisting solely of FHLB advances, totaled $265.0 million at December 31, 2024, compared to $271.0 million at December 31, 2023.
Stockholders’ Equity. Stockholders’ equity totaled $132.9 million at December 31, 2024, a decrease of $2.0 million, or 1.5%, from December 31, 2023. The decrease in stockholders’ equity primarily was the result of the payment of $5.7 million in dividends to Company stockholders, the repurchase of $5.0 million of Company common stock, and an increase in Accumulated Other Comprehensive Loss ("AOCL") of $2.8 million, partially offset by net income of $9.4 million. The increase in AOCL was primarily due to reductions in mark-to-market values associated with our available for sale investment securities portfolio, due to increases in market interest rates. At December 31, 2024, the available for sale portfolio had a net unrealized loss of $58.0 million compared to a net unrealized loss of $54.5 million at December 31, 2023. The AOCL impact to equity, after tax effecting the unrealized loss, was $45.8 million at December 31, 2024, compared to $43.0 million at December 31, 2023. First Bank Richmond was considered “well-capitalized” as defined by all regulatory standards as of December 31, 2024.
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Comparison of Results of Operations for the Years Ended December 31, 2024 and 2023
General . Net income totaled $9.4 million for 2024 compared to $9.5 million in 2023, a decrease of $109,000 or 1.2%. The decrease in net income was due to a $1.3 million, or 4.3%, increase in non-interest expense, partially offset by a $1.0 million, or 2.8%, increase in net interest income, a $147,000, or 3.2%, increase in non-interest income, and a $30,000, or 1.9%, decrease in income tax expense.
Interest Income . Total interest income for 2024 increased $13.1 million, or 19.5%, over 2023. The increase primarily was a result of a 57 basis point increase in the average yield on interest earning assets, alongside a $97.0 million increase in the average balance of interest earning assets. Interest earned on loans and leases increased $12.8 million, or 21.8%, due to a $101.5 million increase in the average balance of and a 62 basis point increase in the average yield earned on loans and leases. Interest earned on investment securities, excluding FHLB stock, decreased $332,000, or 4.6%, due to an $11.9 million decrease in the average balance of the portfolio. Dividends on FHLB stock increased $381,000, or 44.8%, during 2024 compared to the prior year. The average yield on FHLB stock during 2024 was 8.89%, up 97 basis points from 7.92% during the prior year, while the average balance of FHLB stock outstanding during 2024 was $13.9 million, up from $10.8 million during 2023. Interest on cash and cash equivalents increased $265,000 due to a 50 basis point increase in the average yield.
Interest Expense . Total interest expense increased $12.1 million, or 40.6%, to $41.8 million during 2024 compared to $29.7 million during 2023. The increase primarily was the result of an increase in the average rate paid on certificate of deposit accounts, savings and money market accounts, and borrowings and, to a lesser extent, an increase in average balance of certificate of deposit accounts and borrowings. The average rate paid on certificate of deposit accounts increased 89 basis points to 4.18% from 3.29% in 2023, while the average balance of certificate of deposit accounts increased $47.9 million, or 9.4%, to $557.2 million in 2024 compared to $509.3 million in 2023, resulting in a $6.5 million increase in interest expense. The average rate paid on savings and money market accounts increased 57 basis points to 2.39% from 1.82% in 2023, while the average balance of those accounts increased $11.4 million, or 4.2%, to $285.9 million in 2024 compared to $274.5 million in 2023, resulting in a $1.8 million increase in interest expense. The average balance of interest-bearing checking accounts decreased $6.1 million, or 4.1%, to $141.9 million in 2024 from $148.0 million in 2023, while the average rate paid on interest-bearing checking accounts increased 42 basis points to 1.13% in 2024 from 0.71% in 2023, resulting in a $555,000 increase in interest expense. Interest expense on borrowings, consisting solely of FHLB advances, increased $3.1 million, or 45.1%, due to a 75 basis point increase in the average rate paid to 3.93% in 2024 from 3.18% in 2023, and a $37.9 million, or 17.4%, increase in the average balance of borrowings to $256.0 million in 2024 from $218.0 million in 2023.
Net Interest Income . Net interest income before the provision for credit losses increased $1.0 million, or 2.8%, to $38.7 million in 2024 compared to $37.7 million in 2023, primarily due to growth in interest-earning assets, which more than offset the impact of a lower net interest margin. Our net interest margin in 2024 was 2.67%, a decrease of 11 basis points compared to 2023, as the rate paid on interest-bearing liabilities rose faster than the yield on interest-earning assets.
Between March 2022 and July 2023, in response to elevated inflation, the Federal Open Market Committee (“FOMC”) of the Federal Reserve increased interest rates by a total of 525 basis points, bringing the target range to 5.25% to 5.50%. On September 18, 2024, the FOMC reduced the target range to 4.75% to 5.00%, marking the first rate cut since March 2020. This was followed by additional reductions of 25 basis points in both November and December 2024, bringing the target range down to 4.25% to 4.50% as of year-end. These rate cuts were implemented in response to signs of economic softening, including a cooling labor market and moderating inflation. While interest income benefited from the repricing impact of the higher interest rate environment on earning asset yields earlier in the year, these benefits were offset by the higher cost of interest-bearing deposit accounts and borrowings, which tend to reprice or reset faster than assets. The gradual rate reductions in late 2024 began to ease funding cost pressures; however, competitive deposit pricing and the lag in asset yield adjustments limited the immediate benefit to net interest income.
Provision for Credit Losses . The provision for credit losses in 2024 was $550,000, an $18,000, or 3.4%, increase compared to $532,000 in 2023. The provision for credit losses reflects the amount required to maintain the allowance for credit losses at an appropriate level based upon management’s evaluation of the adequacy of collective and individual loss reserves. Net charge-offs during 2024 were $1.5 million, compared to net charge-offs of $678,000 in 2023. The allowance for credit losses on loans and leases as a percentage of the total loan and lease portfolio was 1.34% at year-end 2024, compared to 1.42% at year-end 2023. Net charge-offs in 2024 equaled 0.13% of total average loans and leases outstanding compared to net charge-offs of 0.06% of total average loans and leases outstanding in 2023.
Non-interest Income . Total non-interest income increased $147,000, or 3.2%, to $4.8 million for 2024 compared to $4.6 million for 2023. The increase was primarily driven by an increase in service charges on deposit accounts of $124,000, or 11.1%, to $1.2 million in 2024 from $1.1 million in 2023, due to higher transaction activity and account maintenance fees,
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coupled with year-over-year deposit growth. Other income increased $45,000, or 3.5%, to $1.3 million in 2024 as compared to 2023, due to increased wealth management income. Net gains on loan and lease sales increased $37,000, or 7.1%, to $555,000 in 2024 as compared to 2023, due to increased mortgage banking activity resulting from a decrease in market interest rates during the second half of 2024 and improved housing inventory. Loan and lease servicing fees increased $15,000, or 3.4%, to $463,000 in 2024 as compared to 2023, due to increased mortgage originations. Partially offsetting these increases were net losses recognized on the sale of securities available-for-sale of $51,000, compared to no losses or gains recognized in 2023. In addition, card fee income decreased $22,000, or 1.7%, due to lower contract fees in 2024 as compared to 2023.
Non-interest Expenses . Total non-interest expense increased $1.3 million, or 4.3%, to $32.1 million during 2024 compared to 2023, primarily due to increases in salaries and employee benefits, deposit insurance expense, data processing fees, and legal and professional fees, partially offset by decreases in equipment expenses and other expenses.
Salaries and employee benefits increased $909,000, or 5.2%, to $18.3 million in 2024 from $17.4 million in 2023, primarily due to higher health insurance and compensation costs. Deposit insurance expense increased $367,000, or 31.6%, to $1.5 million in 2024 from $1.2 million in 2023, due to a change in our asset and deposit mix. Data processing fees increased $267,000, or 8.0%, to $3.6 million in 2024 from $3.3 million in 2023, primarily due to increased software and core provider expenses. Legal and professional fees increased $224,000, or 14.0%, to $1.8 million in 2024 from $1.6 million in 2023, primarily due to other professional service expenses related to auditing and internal process enhancements. Equipment expenses decreased $201,000, or 17.8%, to $927,000 in 2024 from $1.1 million in 2023, primarily due to reduced depreciation expense. Other expenses decreased $264,000, or 6.7%, to $3.7 million in 2024 from $3.9 million in 2023, primarily due to a decrease in loan closing expenses and reduced losses due to fraud.
Income Tax Expense . Income tax expense decreased $30,000 in 2024 compared to 2023. This decrease in income tax expense was primarily due to pretax income decreasing $139,000, or 1.3%. The effective tax rate for the year ended 2024 was 13.7% compared to 13.8% in 2023.
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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. Average balances have been calculated using daily balances. Average balances of loans and leases receivable include loans held for sale. 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.
Years Ended December 31,
2024 2023
Average
Balance
Outstanding Interest
Earned/
Paid Yield/
Rate Average
Balance
Outstanding Interest
Earned/
Paid Yield/
Rate
(Dollars in thousands)
Interest-earning assets:
Loans and leases receivable $ 1,145,973 $ 71,596 6.25 % $ 1,044,471 $ 58,794 5.63 %
Securities 273,706 6,871 2.51 % 285,600 7,203 2.52 %
FHLB stock 13,863 1,232 8.89 % 10,750 851 7.92 %
Cash and cash equivalents and other 18,002 827 4.59 % 13,728 562 4.09 %
Total interest-earning assets 1,451,544 80,526 5.55 % 1,354,549 67,410 4.98 %
Non-earning assets 41,860 45,212
Total assets 1,493,404 1,399,761
Interest-bearing liabilities:
Savings and money market accounts 285,946 6,833 2.39 % 274,497 4,989 1.82 %
Interest-bearing checking accounts 141,902 1,609 1.13 % 147,964 1,054 0.71 %
Certificate accounts 557,216 23,309 4.18 % 509,316 16,767 3.29 %
Borrowings 255,969 10,068 3.93 % 218,025 6,938 3.18 %
Total interest-bearing liabilities 1,241,033 41,819 3.37 % 1,149,802 29,748 2.59 %
Noninterest-bearing demand deposits 105,356 107,192
Other liabilities 13,696 13,924
Stockholders' equity 133,319 128,843
Total liabilities and stockholders' equity 1,493,404 1,399,761
Net interest income $ 38,707 $ 37,662
Net earning assets $ 210,511 $ 204,747
Net interest rate spread (1)
2.18 % 2.39 %
Net interest margin (2)
2.67 % 2.78 %
Average interest-earning assets to average interest-bearing liabilities 116.96 % 117.81 %
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(1) 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) Net interest margin represents net interest income divided by average total interest-earning assets.
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Rate/Volume Analysis
The following schedule presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and that due to the changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.
Years Ended
December 31,
2024 vs. 2023
Increase/
(decrease)
due to Total
increase/ (decrease)
Volume Rate
(In thousands)
Interest-earning assets:
Loans and leases receivable $ 5,707 $ 7,095 $ 12,802
Securities (305) (27) (332)
FHLB stock 247 134 381
Cash and cash equivalents and other 175 90 265
Total interest-earning assets $ 5,824 $ 7,292 $ 13,116
Interest-bearing liabilities:
Savings and money market accounts $ 209 $ 1,635 $ 1,844
Interest-bearing checking accounts (43) 598 555
Certificate accounts 1,578 4,964 6,542
Borrowings 1,208 1,922 3,130
Total interest-bearing liabilities $ 2,952 $ 9,119 $ 12,071
Change in net interest income $ 1,045
Capital and Liquidity
Capital. Shareholders' equity totaled $132.9 million at December 31, 2024 and $134.9 million at December 31, 2023. In addition to net income of $9.4 million, other sources of capital during 2024 included $661,000 related to the allocation of ESOP shares during the year and $1.5 million related to stock-based compensation. Uses of capital during 2024 included $5.7 million of dividends paid on common stock, $5.0 million of stock repurchases, and an increase in AOCL of $2.8 million. The increase in AOCL primarily was due to the reduction in mark-to-market values associated with the Company's available-for-sale investment securities portfolio.
We paid regular quarterly cash dividends of $0.14 per common share during both 2024 and 2023. This equates to a dividend payout ratio of 60.8% in 2024 and 62.4% in 2023. We currently expect to continue the current practice of paying 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 2025 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 current outstanding shares at December 31, 2024. The amount of dividends, if any, we may pay may be limited as more fully discussed in "Note 18: Regulatory Capital" in the accompanying notes to consolidated financial statements contained in Item 8 of this Form 10-K.
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Stock Repurchase Plans. From time to time, our Board of Directors has authorized stock repurchase plans. 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 that remained available for the repurchase at that date under the existing program, and extended 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, now set to expire on June 6, 2025.
As of December 31, 2024, the Company had approximately 472,944 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 5 - "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities."
Liquidity. Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds. The objective of our liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund our operations and to meet obligations and other commitments on a timely basis and at a reasonable cost. We seek to achieve this objective and ensure that funding needs are met by maintaining an appropriate level of liquid funds through asset/liability management, which includes managing the mix and time to maturity of financial assets and financial liabilities on our balance sheet. Our liquidity position is enhanced by our ability to raise additional funds as needed in the wholesale markets.
Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will mature in the near future. Liquid assets generally include cash, interest-bearing deposits in banks, securities available for sale, maturities and cash flow from securities held to maturity, sales of fixed rate residential mortgage loans in the secondary market, and federal funds sold and resell agreements. Liability liquidity generally is provided by access to funding sources which include core deposits and advances from the FHLB and other borrowing relationships with third party financial institutions.
Our liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs.
As of December 31, 2024, we had approximately $10.1 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 December 31, 2024, based upon available, pledgeable collateral, our total remaining borrowing capacity with the FHLB was approximately $106.9 million. Furthermore, at December 31, 2024, we had approximately $179.7 million in securities that were unencumbered by a pledge and could be used to support additional borrowings through repurchase agreements or the Federal Reserve discount window, as needed. As of December 31, 2024, management is 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.
In the ordinary course of business we have entered into contractual obligations and have made other commitments to make future payments. Refer to the accompanying notes to consolidated financial statements elsewhere in this report for the expected timing of such payments as of December 31, 2024. These include payments related to (i) long-term borrowings (Note 11: Federal Home Loan Bank Advances), (ii) time deposits with stated maturity dates (Note 10: Deposits) and (iii) commitments to extend credit and standby letters of credit (Note 14: Commitments and Contingent Liabilities).
We also incur capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and to introduce new technology-based products to compete effectively in our markets. We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment. The amount of capital investment is influenced by, among other things, current and projected demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory
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considerations. Based on our current capital allocation objectives for 2025, management does not expect cash expenditures for capital investment in premises and equipment to have a material effect on our liquidity, capital resources or operations.
Richmond Mutual Bancorporation is a separate legal entity from First Bank Richmond and must provide for its own liquidity. In addition to its own operating expenses, Richmond Mutual Bancorporation is responsible for paying for any stock repurchases, dividends declared to its stockholders and other general corporate expenses. 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. "Note 18: Regulatory Capital" in the accompanying notes to consolidated financial statements contained in Part II, Item 8 and "How We Are Regulated - Dividends" contained in Part I, Item I of this Form 10-K. At December 31, 2024, Richmond Mutual Bancorporation, on an unconsolidated basis, had $5.5 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs.
See also the "Consolidated Statements of Cash Flows" included in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K for further information.
Regulatory Capital Requirements. First Bank Richmond is subject to minimum capital requirements imposed by the FDIC. 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 December 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.
Actual Minimum for Capital Adequacy Purposes Minimum to be Categorized as "Well-Capitalized" Under Prompt Corrective Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 2024 (Dollars in thousands)
Total risk-based capital (to risk weighted assets) $ 181,415 14.2 % $ 102,014 8.0 % $ 127,518 10.0 %
Tier 1 risk-based capital (to risk weighted assets) 165,471 13.0 76,511 6.0 102,014 8.0
Common equity tier 1 capital (to risk weighted assets) 165,471 13.0 57,383 4.5 82,887 6.5
Tier 1 leverage (core) capital (to adjusted tangible assets) 165,471 10.7 61,579 4.0 76,974 5.0
As of December 31, 2023
Total risk-based capital (to risk weighted assets) $ 174,938 14.1 % $ 99,247 8.0 % $ 124,059 10.0 %
Tier 1 risk-based capital (to risk weighted assets) 159,409 12.8 74,435 6.0 99,247 8.0
Common equity tier 1 capital (to risk weighted assets) 159,409 12.8 55,826 4.5 80,638 6.5
Tier 1 leverage (core) capital (to adjusted tangible assets) 159,409 10.6 59,931 4.0 74,914 5.0
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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 December 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 December 31, 2024, it would have exceeded all regulatory capital requirements.