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What changed in Richmond Mutual Bancorporation, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Richmond Mutual Bancorporation, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+426 added−460 removedSource: 10-K (2024-03-29) vs 10-K (2023-03-31)

Top changes in Richmond Mutual Bancorporation, Inc.'s 2023 10-K

426 paragraphs added · 460 removed · 331 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

183 edited+27 added−33 removed234 unchanged
Biggest changeAt and For the Years Ended December 31, 2022 2021 (Dollars in thousands) Allowance for loan and lease losses to total loans outstanding 1.27 % 1.43 % Allowance for loan and lease losses $ 12,413 $ 12,108 Total loans outstanding $ 975,000 $ 845,951 Nonaccrual loans to total loans outstanding 0.62 % 0.73 % Nonaccrual loans $ 6,003 $ 6,184 Total loans outstanding $ 975,000 $ 845,951 Allowance for loan and lease losses to nonaccrual loans 206.78 % 195.80 % Allowance for loan and lease losses $ 12,413 $ 12,108 Nonaccrual loans $ 6,003 $ 6,184 Net charge-offs/(recoveries) during the period to average loans outstanding: Commercial mortgage (0.02) % — % Net recoveries during the period $ (53) $ (3) Average amount outstanding $ 285,404 $ 253,938 Commercial and industrial (0.13) % (0.09) % Net recoveries during the period $ (130) $ (104) Average amount outstanding $ 98,630 $ 117,528 Construction and development — % — % Net charge-offs/(recoveries) during the period $ — $ — Average amount outstanding $ 112,058 $ 63,634 Multi-family — % — % Net charge-offs/(recoveries) during the period $ — $ — Average amount outstanding $ 106,813 $ 81,429 Residential mortgage (0.01) % (0.21) % Net recoveries during the period $ (13) $ (273) Average amount outstanding $ 138,147 $ 129,205 Home equity (0.11) % — % Net recoveries during the period $ (10) $ — Average amount outstanding $ 9,212 $ 6,488 Leases 0.29 % 0.21 % Net charge-offs during the period $ 371 $ 257 Average amount outstanding $ 129,252 $ 119,827 Consumer 0.71 % 0.21 % Net charge-offs during the period $ 130 $ 31 Average amount outstanding $ 18,402 $ 14,637 Total loans 0.03 % (0.01) % Net charge-offs/(recoveries) during the period $ 295 $ (92) Average amount outstanding $ 897,918 $ 786,686 The increase in our allowance for loan and lease losses at December 31, 2022 as compared to December 31, 2021 primarily was driven by a $129.0 million increase in our loan portfolio.
Biggest changeAt and For the Years Ended December 31, 2023 2022 (Dollars in thousands) Allowance for credit losses on loans and leases to total loans outstanding 1.42 % 1.27 % Allowance for credit losses on loans and leases $ 15,663 $ 12,413 Total loans outstanding $ 1,106,512 $ 975,000 Nonaccrual loans to total loans outstanding 0.57 % 0.62 % Nonaccrual loans $ 6,324 $ 6,003 Total loans outstanding $ 1,106,512 $ 975,000 Allowance for credit losses on loans and leases to nonaccrual loans 247.68 % 206.78 % Allowance for credit losses on loans and leases $ 15,663 $ 12,413 Nonaccrual loans $ 6,324 $ 6,003 Net charge-offs/(recoveries) during the period to average loans outstanding: Commercial mortgage — % (0.02) % Net recoveries during the period $ (13) $ (53) Average amount outstanding $ 347,827 $ 285,404 Commercial and industrial (0.02) % (0.13) % Net recoveries during the period $ (20) $ (130) Average amount outstanding $ 103,273 $ 98,630 Construction and development — % — % Net charge-offs/(recoveries) during the period $ — $ — Average amount outstanding $ 113,248 $ 112,058 Multi-family — % — % Net charge-offs/(recoveries) during the period $ — $ — Average amount outstanding $ 138,032 $ 106,813 Residential mortgage (0.02) % (0.01) % Net recoveries during the period $ (37) $ (13) Average amount outstanding $ 161,020 $ 138,147 Home equity — % (0.11) % Net recoveries during the period $ — $ (10) Average amount outstanding $ 10,614 $ 9,212 Leases 0.40 % 0.29 % Net charge-offs during the period $ 588 $ 371 Average amount outstanding $ 147,855 $ 129,252 Consumer 0.71 % 0.71 % Net charge-offs during the period $ 160 $ 130 Average amount outstanding $ 22,602 $ 18,402 Total loans 0.06 % 0.03 % Net charge-offs/(recoveries) during the period $ 678 $ 295 Average amount outstanding $ 1,044,471 $ 897,918 At January 1, 2023, the Bank adopted the accounting standard referred to as CECL.
Our regulators require that we classify loans and other assets, such as debt and equity securities considered to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.
Classified Assets . Our regulators require that we classify loans and other assets, such as debt and equity securities considered to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.
We make these loans for up to 65% of 10 the estimated value of raw land and up to 75% of the estimated value of developed land, with a term of up to two years with interest only payments, payable monthly. Construction loans generally involve greater credit risk than long-term financing on improved, owner occupied real estate.
We make these loans for up to 65% of the estimated value of raw land and up to 75% of the estimated value of developed land, with a term of up to two years with interest only payments, payable monthly. Construction loans generally involve greater credit risk than long-term financing on improved, owner occupied real estate.
Failure to implement such a plan can result in further enforcement action, including the issuance of a cease-and-desist order or the imposition of civil money penalties. 25 Commercial Real Estate Lending Concentrations . The federal banking agencies have issued guidance on sound risk management practices for concentrations in commercial real estate lending.
Failure to implement such a plan can result in further enforcement action, including the issuance of a cease-and-desist order or the imposition of civil money penalties. Commercial Real Estate Lending Concentrations . The federal banking agencies have issued guidance on sound risk management practices for concentrations in commercial real estate lending.
When the appraised value is dependent on the improvements to meet the 6 loan to value requirement, the proceeds are held by us until we receive reasonable assurance that the improvements have been completed. The loan officers, at their discretion, may use a limited appraisal or a recertification of value on these types of loans.
When the appraised value is dependent on the improvements to meet the loan to value requirement, the proceeds are held by us until we receive reasonable assurance that the improvements have been completed. The loan officers, at their discretion, may use a limited appraisal or a recertification of value on these types of loans.
In addition, management believes that offering consumer loan products helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities. Originations, Sales and Purchases of Loans Our loan originations are generated by our loan personnel operating at our office locations.
In addition, management believes that offering consumer loan products helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities. 11 Originations, Sales and Purchases of Loans Our loan originations are generated by our loan personnel operating at our office locations.
We sell the majority of the fixed-rate conforming and eligible jumbo one- to four-family residential real estate loans that we originate, generally on a servicing-retained basis, while retaining some non-eligible fixed-rate and adjustable-rate one- to four-family residential real estate loans in order to manage the duration and time to repricing of our loan portfolio.
We sell the majority of the fixed-rate conforming and eligible jumbo one- to four-family residential real estate loans that we originate, generally on a servicing-retained basis, while retaining some non-eligible fixed-rate and adjustable-rate one- to four-family residential real estate loans in order to manage the 12 duration and time to repricing of our loan portfolio.
Because future events affecting borrowers and collateral cannot be predicted with certainty, the existing allowance for loan and lease losses may not be adequate and management may determine that increases in the allowance are necessary if the quality of any portion of our loan or lease portfolio deteriorates as a result.
Because future events affecting borrowers and collateral cannot be predicted with certainty, the existing allowance for credit losses may not be adequate and management may determine that increases in the allowance are necessary if the quality of any portion of our loan or lease portfolio deteriorates as a result.
The sale of mortgage loans provides a source of non-interest income through the gain on sale, reduces our interest rate risk, provides a stream of servicing income, enhances liquidity and enables us to originate more loans at our current capital level than if we held the loans in our loan portfolio.
The sale of mortgage loans provides a source of non-interest income through the gain on sale, reduces our interest rate 5 risk, provides a stream of servicing income, enhances liquidity and enables us to originate more loans at our current capital level than if we held the loans in our loan portfolio.
Our commercial construction loans have terms that typically range from one to two years depending on factors such as the type and size of the development and the financial strength of the borrower/guarantor. Commercial construction loans are typically structured with an interest only period during the construction phase.
Our commercial construction loans have terms that typically range from one to two years depending on factors such as the type and size of the development and the financial strength of the borrower/guarantor. Commercial construction loans are 9 typically structured with an interest only period during the construction phase.
An Indiana-chartered commercial bank may make a wide variety of mortgage loans including fixed-rate loans, adjustable-rate loans, variable-rate loans, participation loans, graduated payment loans, construction and development loans, condominium and co-operative loans, second mortgage loans and other types of loans that may be made according to applicable regulations.
An Indiana-chartered commercial bank may make a wide variety of mortgage loans including fixed-rate loans, adjustable-rate loans, variable-rate loans, participation loans, graduated payment loans, construction 24 and development loans, condominium and co-operative loans, second mortgage loans and other types of loans that may be made according to applicable regulations.
Any interruption or discontinuance 9 of operating cash flows from the business, which may be influenced by events not under the control of the borrower such as economic events and changes in governmental regulations, could materially affect the ability of the borrower to repay the loan.
Any interruption or discontinuance of operating cash flows from the business, which may be influenced by events not under the control of the borrower such as economic events and changes in governmental regulations, could materially affect the ability of the borrower to repay the loan.
In addition to an evaluation of the applicant’s financial condition, a determination is made of the probable adequacy of the primary 11 and secondary sources of repayment, such as personal guarantees, to be relied upon in the transaction. Credit agency reports of the applicant’s credit history supplement the analysis of the applicant’s creditworthiness.
In addition to an evaluation of the applicant’s financial condition, a determination is made of the probable adequacy of the primary and secondary sources of repayment, such as personal guarantees, to be relied upon in the transaction. Credit agency reports of the applicant’s credit history supplement the analysis of the applicant’s creditworthiness.
First Insurance Management, Inc. was formed in 2022 as a pooled captive insurance company subsidiary of the Company, incorporated in the State of Nevada, for the purpose of providing additional insurance coverage for the Company and its subsidiaries related to the operations of the Company for which insurance may not be economically feasible.
First Insurance Management, Inc. was formed in 2022 as a pooled captive insurance company subsidiary of the Company, incorporated in the State of Nevada, for the purpose of providing additional insurance coverage for the Company and its subsidiaries related to the operations of the 23 Company for which insurance may not be economically feasible.
In addition, the aggregate amount of 26 extensions of credit by a financial institution to insiders cannot exceed the institution’s unimpaired capital and surplus. Section 22(g) of the Federal Reserve Act places additional restrictions on loans to executive officers. Enforcement.
In addition, the aggregate amount of extensions of credit by a financial institution to insiders cannot exceed the institution’s unimpaired capital and surplus. Section 22(g) of the Federal Reserve Act places additional restrictions on loans to executive officers. Enforcement.
The purpose of this company is to provide additional property and casualty insurance coverage to the Company and its subsidiaries and reinsurance to 16 other third party insurance captives for which insurance may not be currently available or economically feasible in today's insurance marketplace.
The purpose of this company is to provide additional property and casualty insurance coverage to the Company and its subsidiaries and reinsurance to other third party insurance captives for which insurance may not be currently available or economically feasible in today's insurance marketplace.
The objectives of our investment policy are to provide and maintain liquidity to meet deposit withdrawal and loan funding needs, to help mitigate interest rate and market risk, to diversify our assets, and to maximize the rate of return on 18 invested funds within the context of our interest rate and credit risk objectives.
The objectives of our investment policy are to provide and maintain liquidity to meet deposit withdrawal and loan funding needs, to help mitigate interest rate and market risk, to diversify our assets, and to maximize the rate of return on invested funds within the context of our interest rate and credit risk objectives.
An emerging growth company also is not subject to the requirement that its auditors attest to the effectiveness of the company’s internal control over financial reporting and can provide scaled disclosure regarding executive compensation.
An emerging growth company also is not subject to the requirement that its auditors attest to the effectiveness of the company’s internal control over financial reporting and can 30 provide scaled disclosure regarding executive compensation.
Commercial and Industrial Lending . We make secured and unsecured commercial and industrial loans, including commercial lines of credit, working capital loans, term loans, equipment financing, acquisition, expansion and development loans, letters of credit and other loan products, principally in our primary market area.
We make secured and unsecured commercial and industrial loans, including commercial lines of credit, working capital loans, term loans, equipment financing, acquisition, expansion and development loans, letters of credit and other loan products, principally in our primary market area.
In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of 7 net operating income to debt service).
In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service).
All of these participation loans were performing in accordance with their original repayment terms at December 31, 2022. We also have sold portions of loans we originate that exceeded our loans-to-one borrower legal lending limit or for risk diversification. Historically, we have not purchased whole loans. Pursuant to our growth strategy, however, we may purchase whole loans in the future.
All of these participation loans were performing in accordance with their original repayment terms at December 31, 2023. We also have sold portions of loans we originate that exceeded our loans-to-one borrower legal lending limit or for risk diversification. Historically, we have not purchased whole loans. Pursuant to our growth strategy, however, we may purchase whole loans in the future.
The following tables set forth certain information at December 31, 2022 regarding the dollar amount of loans maturing in our portfolio based on their contractual terms to maturity, but does not include scheduled payments or potential prepayments. Loans with scheduled maturities are reported in the maturity category in which the loan is due.
The following tables set forth certain information at December 31, 2023 regarding the dollar amount of loans maturing in our portfolio based on their contractual terms to maturity, but does not include scheduled payments or potential prepayments. Loans with scheduled maturities are reported in the maturity category in which the loan is due.
In addition, we may periodically purchase residential loans, which we refer to as brokered mortgages, primarily during periods of reduced loan demand in our primary market areas and at times to support our Community Reinvestment Act lending activities, although we have not purchased any brokered mortgage loans in the last eight years.
In addition, we may periodically purchase residential loans, which we refer to as brokered mortgages, primarily during periods of reduced loan demand in our primary market areas and at times to support our Community Reinvestment Act lending activities, although we have not purchased any brokered mortgage loans in the last nine years.
At December 31, 2022, the Bank was in compliance with the reserve requirements. The Bank is authorized to borrow from the Federal Reserve Bank "discount window." An eligible institution need not exhaust other sources of funds before going to the discount window, nor are there restrictions on the purposes for which the institution can use primary credit.
At December 31, 2023, the Bank was in compliance with the reserve requirements. The Bank is authorized to borrow from the Federal Reserve Bank "discount window." An eligible institution need not exhaust other sources of funds before going to the discount window, nor are there restrictions on the purposes for which the institution can use primary credit.
There are no arrangements or understandings between the officers and any other person pursuant to which he or she was or is to be selected as an officer. Garry D. Kleer (age 67). Mr. Kleer currently serves as Chairman, President and Chief Executive Officer of Richmond Mutual Bancorporation and as Chairman and Chief Executive Officer of First Bank Richmond. Mr.
There are no arrangements or understandings between the officers and any other person pursuant to which he or she was or is to be selected as an officer. Garry D. Kleer (age 68). Mr. Kleer currently serves as Chairman, President and Chief Executive Officer of Richmond Mutual Bancorporation and as Chairman and Chief Executive Officer of First Bank Richmond. Mr.
Institutions that are not well capitalized are subject to certain restrictions on brokered deposits and interest rates on deposits. At December 31, 2022, First Bank Richmond met the criteria to be considered "well capitalized." Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions.
Institutions that are not well capitalized are subject to certain restrictions on brokered deposits and interest rates on deposits. At December 31, 2023, First Bank Richmond met the criteria to be considered "well capitalized." Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions.
As such, it is grouped with any other capital losses for the year to which it is carried and is used to offset any capital gains. Any loss remaining after the five-year carryover period is not deductible. At December 31, 2022, we had no capital loss carryovers. Corporate Dividends.
As such, it is grouped with any other capital losses for the year to which it is carried and is used to offset any capital gains. Any loss remaining after the five-year carryover period is not deductible. At December 31, 2023, we had no capital loss carryovers. Corporate Dividends.
Weinert holds a BA in Economics from Wabash College and an MBA from Butler University. Paul J. Witte (age 51). Mr. Witte, employed by First Bank Richmond since 1996, was promoted to President/Chief Operating Officer of the Bank in January 2023. Mr.
Weinert holds a BA in Economics from Wabash College and an MBA from Butler University. Paul J. Witte (age 52). Mr. Witte, employed by First Bank Richmond since 1996, was promoted to President/Chief Operating Officer of the Bank in January 2023. Mr.
Based on the most recent data provided by the FDIC, there are approximately 11 and 19 other commercial banks and savings banks operating in our Indiana and Ohio market areas, respectively. Additionally, there are approximately 14 and seven credit unions operating in these same respective market areas.
Based on the most recent data provided by the FDIC, there are approximately 11 and 18 other commercial banks and savings banks operating in our Indiana and Ohio market areas, respectively. Additionally, there are approximately 14 and seven credit unions operating in these same respective market areas.
All of these loans were performing in accordance with their repayment terms at December 31, 2022. Our lending is subject to written underwriting standards and origination procedures set forth in First Bank Richmond’s loan policy.
All of these loans were performing in accordance with their repayment terms at December 31, 2023. Our lending is subject to written underwriting standards and origination procedures set forth in First Bank Richmond’s loan policy.
The Financial Accounting Standards Board has adopted a new accounting standard for US GAAP that will be effective for us beginning in 2023. This standard, referred to as Current Expected Credit Loss, or CECL, requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses expected over the life of certain financial assets.
The Financial Accounting Standards Board has adopted a new accounting standard for US GAAP that was effective for us beginning in 2023. This standard, referred to as Current Expected Credit Loss, or CECL, requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses expected over the life of certain financial assets.
As of December 31, 2022, First Insurance Management provided us with various liability and property damage policies for the Company and its related subsidiaries. First Insurance Management is regulated by the State of Nevada Division of Insurance.
As of December 31, 2023, First Insurance Management provided us with various liability and property damage policies for the Company and its related subsidiaries. First Insurance Management is regulated by the State of Nevada Division of Insurance.
We face additional competition for deposits from short-term money market funds, brokerage firms, mutual funds and insurance companies. We also compete with financial technology, or fintech companies. Recent technology advances and other changes have allowed parties to effect financial transactions that previously required the involvement of banks.
We face additional competition for deposits from short-term money market funds, brokerage firms, mutual funds and insurance companies. We also compete with financial technology, or fintech companies. Recent technological advances and other changes have allowed parties to affect financial transactions that previously required the involvement of banks.
First Bank Richmond is required to file reports with, and is periodically examined by, the Federal Deposit Insurance Corporation and the IDFI concerning its activities and financial condition and must obtain regulatory approvals before entering into certain transactions, including, but not limited to, mergers with or acquisitions of other financial institutions.
First Bank Richmond is required to file reports with, and is periodically examined by, the Federal Deposit Insurance Corporation and the IDFI concerning its activities and financial condition and must obtain regulatory approvals before completing certain transactions, including, but not limited to, mergers with or acquisitions of other financial institutions.
Because of uncertainties associated with regional economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that management’s estimate of probable credit losses inherent in the loan and lease portfolio and the related allowance may change materially in the near-term.
Because of uncertainties associated with regional economic conditions, collateral values, and future cash flows on individually analyzed loans, it is reasonably possible that management’s estimate of probable credit losses inherent in the loan and lease portfolio and the related allowance may change materially in the near-term.
Any excess of the recorded value of the loan over the market value of the property is charged against the allowance for loan and lease losses, or, if the existing allowance is inadequate, charged to expense, in either case during the applicable period of such determination. After acquisition, all costs incurred in maintaining the property are expensed.
Any excess of the recorded value of the loan over the market value of the property is charged against the allowance for credit losses, or, if the existing allowance is inadequate, charged to expense, in either case during the applicable period of such determination. After acquisition, all costs incurred in maintaining the property are expensed.
Witte has recently served as Executive Vice President and previously as Senior Vice President of Commercial Lending since 2014 and Commercial Leasing since 2006. Mr. Witte manages the lending and operations functions of the Bank. Mr. Witte is a graduate of Ball State University with a B.S. in Accounting, Corporate Finance and Institutional Finance.
Witte has recently served as Executive Vice President and previously as Senior Vice President of Commercial Lending since 2014 and Commercial Leasing since 2006. Mr. Witte manages the lending and operations functions of the Bank. Mr. Witte is a graduate of Ball State University with a BS in Accounting, Corporate Finance and Institutional Finance.
Upon adoption of CECL, a banking organization must record a one-time adjustment to its credit loss allowances as of the beginning of the fiscal year of adoption equal to the difference, if any, between the amount of credit loss allowances under the current methodology and the amount required under CECL.
Upon adoption of CECL, a banking organization must record a one-time adjustment to its credit loss allowances as of the beginning of the fiscal year of adoption equal to the difference, if any, between 25 the amount of credit loss allowances under the former methodology and the amount required under CECL.
As a Maryland business corporation, Richmond Mutual Bancorporation is required to file an annual report with and pay franchise taxes to the State of Maryland. Employees and Human Capital As of December 31, 2022, we had 181 full-time equivalent employees. Our employees are not represented by any collective bargaining group.
As a Maryland business corporation, Richmond Mutual Bancorporation is required to file an annual report with and pay franchise taxes to the State of Maryland. 31 Employees and Human Capital As of December 31, 2023, we had 176 full-time equivalent employees. Our employees are not represented by any collective bargaining group.
When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances for loan and lease losses in an amount deemed prudent by management and approved by the board of directors.
When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances for credit losses in an amount deemed prudent by management and approved by the board of directors.
The allowance for loan and lease losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories. At the dates indicated, we had no unallocated allowance for loan and lease losses.
The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories. At the dates indicated, we had no unallocated allowance for credit losses.
The unemployment rate in December 2022 was 2.5% in Wayne County, as compared to the national 2 and state unemployment rates of 3.3% and 2.4%, respectively. The top employers in Wayne County include Reid Health, Richmond Community Schools, Belden Wire & Cable, Sugar Creek Brandworthy Food Solutions, Richmond State Hospital, and Primex Plastics Corporation.
The unemployment rate in December 2023 was 2.9% in Wayne County, as compared to the national 2 and state unemployment rates of 3.5% and 2.9%, respectively. The top employers in Wayne County include Reid Health, Richmond Community Schools, Belden Wire & Cable, Sugar Creek Brandworthy Food Solutions, Richmond State Hospital, and Primex Plastics Corporation.
The average balance of our one- to four-family residential loans secured by first mortgages was approximately $125,000 at December 31, 2022. We originate fixed-rate home equity loans and fixed- and variable-rate lines of credit secured either by a first or second lien on the borrower’s primary residence.
The average balance of our one- to four-family residential loans secured by first mortgages was approximately $134,000 at December 31, 2023. We originate fixed-rate home equity loans and fixed- and variable-rate lines of credit secured either by a first or second lien on the borrower’s primary residence.
We do not make speculative construction loans to a builder for homes that are not pre-sold. The average outstanding residential construction loan balance was approximately $267,000 at December 31, 2022. Residential construction loans are made with a maximum loan-to-value ratio of the lower of 80% of the cost or appraised value at completion.
We do not make speculative construction loans to a builder for homes that are not pre-sold. The average outstanding residential construction loan balance was approximately $371,000 at December 31, 2023. Residential construction loans are made with a maximum loan-to-value ratio of the lower of 80% of the cost or appraised value at completion.
The nature of our business requires the use of brokers and third-party originators as it focuses on transactions generally ranging between $2,500 and $200,000 (with an average size of $45,000) with terms of 24 to 72 months, with a weighted average term of 41.7 months as of December 31, 2022.
The nature of our business requires the use of brokers and third-party originators as it focuses on transactions generally ranging between $2,500 and $200,000 (with an average size of $45,000) with terms of 24 to 72 months, with a weighted average term of 41.1 months as of December 31, 2023.
Any material increase in the allowance for loan and lease losses may adversely affect our financial condition and results of operations. For additional information regarding our allowance for loan and lease losses, see "Note 5: Loans, Leases and Allowance" of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K. Investment Activities General .
Any material increase in the allowance for credit losses may adversely affect our financial condition and results of operations. For additional information regarding our allowance for credit losses, see "Note 5: Loans, Leases and Allowance" of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K. 17 Investment Activities General .
First Bank Richmond reviews the cost basis of the FHLB stock for ultimate recoverability regularly. At December 31, 2022, no impairment of the value of the stock has been recognized. As of December 31, 2022, the Bank had $180.0 million of FHLB advances and $10.0 million available on its line of credit with the FHLB. Federal Reserve System.
First Bank Richmond reviews the cost basis of the FHLB stock for ultimate recoverability regularly. At December 31, 2023, no impairment of the value of the stock has been recognized. As of December 31, 2023, the Bank had $271.0 million of FHLB advances and $10.0 million available on its line of credit with the FHLB. Federal Reserve System.
The largest employers in Miami County include Upper Valley Medical Center, Clopay Building Products, F&P America, UTC Aerospace Systems, Meijer Distribution Center, ConAgra Foods, American Honda, and Hobart Brothers. The unemployment rate in Miami County was 3.2% in December 2022 compared to 3.0% in December 2021.
The largest employers in Miami County include Upper Valley Medical Center, Clopay Building Products, F&P America, UTC Aerospace Systems, Meijer Distribution Center, ConAgra Foods, American Honda, and Hobart Brothers. The unemployment rate in Miami County was 2.8% in December 2023 compared to 3.2% in December 2022.
CECL covers a broader range of assets than the current method of recognizing credit losses and generally results in earlier recognition of credit losses.
CECL covers a broader range of assets than the former method of recognizing credit losses and generally results in earlier recognition of credit losses.
As an integral part of their examination process, the IDFI and the FDIC will periodically review our allowance for loan and lease losses, and as a result of such reviews, we may have to adjust our allowance for loan and lease losses.
As an integral part of their examination process, the IDFI and the FDIC will periodically review our allowance for credit losses, and as a result of such reviews, we may have to adjust our allowance for credit losses.
At that date, FB Richmond Holding managed $290.6 million of our total investment portfolio. We may from time to time invest in “special situation” investments in order to earn profits or to hedge against interest rate risk. These investments may include interest rate swaps and/or interest rate caps.
At that date, FB Richmond Holding managed $287.1 million of our total investment portfolio. We may from time to time invest in “special situation” investments in order to earn profits or to hedge against interest rate risk. These investments may include interest rate swaps and/or interest rate caps.
We had 15 other construction and development loans with an outstanding balance in excess of $3.0 million at December 31, 2022, all of which were performing in accordance with their repayment terms at that date except for one $4.9 million loan that is subject to litigation between the developer and other parties. Lease Financing.
We had 18 other construction and development loans with an outstanding balance in excess of $3.0 million at December 31, 2023, all of which were performing in accordance with their repayment terms at that date except for one $4.9 million loan that is subject to litigation between the developer and other parties. 10 Lease Financing.
The Columbus metropolitan area had an estimated population of 2.2 million and ranked as the 32nd most populous metropolitan area in the United States and the second most populous metropolitan area in Ohio, just behind the Cincinnati metropolitan area and slightly ahead of the Cleveland metropolitan area.
The Columbus metropolitan area had an estimated population of 2.2 million and ranked as the 32 nd most populous metropolitan area in the United States and the second most populous metropolitan area in Ohio, just behind the Cincinnati metropolitan area and slightly ahead of the Cleveland metropolitan area.
At December 31, 2022, home equity loans totaled $4.7 million, or 0.5% of our total loan and lease portfolio. Home equity lines of credit may be either fixed- or adjustable-rate and are typically originated in amounts, together with the amount of the existing first mortgage, of up to 89% of the appraised value of the subject property.
At December 31, 2023, home equity loans totaled $6.4 million, or 0.6% of our total loan and lease portfolio. 6 Home equity lines of credit may be either fixed- or adjustable-rate and are typically originated in amounts, together with the amount of the existing first mortgage, of up to 89% of the appraised value of the subject property.
This loan was performing in accordance with its repayment terms at December 31, 2022. We had 44 other commercial and multi-family real estate loans with an outstanding balance in excess of $3.0 million at December 31, 2022, all of which were performing in accordance with their repayment terms at December 31, 2022.
This loan was performing in accordance with its repayment terms at December 31, 2023. We had 50 other commercial and multi-family real estate loans with an outstanding balance in excess of $3.0 million at December 31, 2023, all of which were performing in accordance with their repayment terms at December 31, 2023.
Our second largest leasing relationship was with a drilled pile foundation company located in Florida consisting of four contracts totaling approximately $1.6 million in lease receivables, all of which were performing in accordance with the lease terms. Consumer Lending.
Our second largest leasing relationship was with a drilled pile foundation company located in Florida consisting of three contracts totaling approximately $1.3 million in lease receivables, all of which were performing in accordance with the lease terms. Consumer Lending.
The following table sets forth an analysis of our allowance for loan and lease losses at the dates and for the periods indicated. Average balances of residential loans include loans held for sale.
The following table sets forth an analysis of our allowance for credit losses at the dates and for the periods indicated. Average balances of residential loans include loans held for sale.
FB Richmond Holdings has one active subsidiary, FB Richmond Properties, Inc., which is a Delaware corporation holding approximately $101.8 million in loans. Competition We face significant competition within our market both in making loans and leases and attracting deposits.
FB Richmond Holdings has one active subsidiary, FB Richmond Properties, Inc., which is a Delaware corporation holding approximately $106.1 million in loans. Competition We face significant competition within our market both in making loans and leases and attracting deposits.
An additional amount may be loaned, up to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. At December 31, 2022, based on the 15% limitation, First Bank Richmond’s loans-to-one-borrower limit was approximately $24.7 million.
An additional amount may be loaned, up to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. At December 31, 2023, based on the 15% limitation, First Bank Richmond’s loans-to-one-borrower limit was approximately $26.2 million.
At December 31, 2022, the average loan size of our outstanding multi-family and commercial real estate loans was $1.1 million, and the largest of such loans was a $11.8 million loan secured by a first mortgage on a parking garage and apartment building located in the Columbus, Ohio metropolitan area.
At December 31, 2023, the average loan size of our outstanding multi-family and commercial real estate loans was $1.1 million, and the largest of such loans was an $11.5 million loan secured by a first mortgage on a parking garage and apartment building located in the Columbus, Ohio metropolitan area.
We believe that our 10.6 year average tenure reflects the engagement of our employees in this core talent system tenet. Information about our Executive Officers Officers are elected annually to serve for a one-year term.
We believe that our 11.3 year average tenure reflects the engagement of our employees in this core talent system tenet. Information about our Executive Officers Officers are elected annually to serve for a one-year term.
These loans generally include an interest reserve of 1% to 5% of the loan commitment amount. The average outstanding loan size in our commercial construction loan portfolio was approximately $2.3 million at December 31, 2022.
These loans generally include an interest reserve of 1% to 5% of the loan commitment amount. The average outstanding loan size in our commercial construction loan portfolio was approximately $2.6 million at December 31, 2023.
The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy. As of December 31, 2022, the Bank’s aggregate recorded loan balances for construction, land development and land loans were 84.9% of total regulatory capital.
The guidance provides that the strength of an institution’s lending and risk management practices with respect to such concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy. As of December 31, 2023, the Bank’s aggregate recorded loan balances for construction, land development and land loans were 90.4% of total regulatory capital.
The USA PATRIOT Act includes measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies, and imposes affirmative obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents, and parties registered under the Commodity Exchange Act. Other Regulations.
The USA PATRIOT Act includes measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies, and imposes affirmative obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents, and parties registered under the Commodity Exchange Act. Privacy Standards and Cyber Security.
At December 31, 2022, home equity lines of credit totaled $11.0 million, or 1.1% of our total loan and lease portfolio, with adjustable-rate home equity lines of credit totaling $7.9 million and fixed rate home equity lines making up the remaining balance. At December 31, 2022, unfunded commitments on home equity lines of credit totaled $16.8 million.
At December 31, 2023, home equity lines of credit totaled $10.9 million, or 1.0% of our total loan and lease portfolio, with adjustable-rate home equity lines of credit totaling $7.2 million and fixed rate home equity lines making up the remaining balance. At December 31, 2023, unfunded commitments on home equity lines of credit totaled $16.8 million.
Substantially all of the one- to four-family residential mortgage loans we retain in our portfolio consist of fixed-rate loans that do not satisfy acreage limits, income, credit, conforming loan limits (i.e., jumbo mortgages) or various other requirements imposed by Fannie Mae or are adjustable-rate loans.
See “- Originations, Sales and Purchases of Loans.” Substantially all the one- to four-family residential mortgage loans we retain in our portfolio consist of fixed-rate loans that do not satisfy acreage limits, income, credit, conforming loan limits (i.e., jumbo mortgages) or various other requirements imposed by Fannie Mae or are adjustable-rate loans.
At December 31, 2022, First Bank Richmond complied with these loans-to-one-borrower limitations. At December 31, 2022, First Bank Richmond’s largest aggregate amount of loans to one borrower was $17.3 million. Dividends. Under Indiana law, First Bank Richmond is permitted to declare and pay dividends out of its undivided profits.
At December 31, 2022, First Bank Richmond complied with these loans-to-one-borrower limitations. At December 31, 2023, First Bank Richmond’s largest aggregate amount of loans to one borrower was $19.0 million. Dividends. Under Indiana law, First Bank Richmond is permitted to declare and pay dividends out of its undivided profits.
The President and Chief Executive Officer and the Chief Financial Officer of the Company serve on the board of directors of FB Richmond Holdings. At December 31, 2022, we had, on a consolidated basis, $284.9 million of securities, at fair value, classified as available-for-sale, $6.7 million of securities, at cost, classified as held-to-maturity, and no securities classified as trading.
The President and Chief Executive Officer and the Chief Financial Officer of the Company serve on the board of directors of FB Richmond Holdings. At December 31, 2023, we had, on a consolidated basis, $282.7 million of securities, at fair value, classified as available-for-sale, $4.9 million of securities, at cost, classified as held-to-maturity, and no securities classified as trading.
All FHA, VA and USDA loans we originate are sold on a servicing-released, non-recourse basis in accordance with FHA, VA and USDA guidelines. For the years ended December 31, 2022 and 2021, we sold $28.1 million and $76.2 million of one- to four-family residential real estate loans, respectively.
All FHA, VA and USDA loans we originate are sold on a servicing-released, non-recourse basis in accordance with FHA, VA and USDA guidelines. For the years ended December 31, 2023 and 2022, we sold $19.7 million and $28.1 million of one- to four-family residential real estate loans, respectively.
As of December 31, 2022, approximately 73% of our workforce was female and 27% male, and our average tenure was 10.6 years. As part of our compensation philosophy, we believe that we must offer and maintain market competitive total rewards programs for our employees in order to attract and retain superior talent.
As of December 31, 2023, approximately 73% of our workforce was female and 27% male, and our average tenure was 11.3 years. As part of our compensation philosophy, we believe that we must offer and maintain market competitive total rewards programs for our employees in order to attract and retain superior talent.
While we have the authority under applicable law to invest in derivative securities, we had no investments in derivative securities at December 31, 2022. We held common stock of the FHLB of Indianapolis in connection with our borrowing activities totaling $9.9 million at December 31, 2022.
While we have the authority under applicable law to invest in derivative securities, we had no investments in derivative securities at December 31, 2023. We held common stock of the FHLB of Indianapolis in connection with our borrowing activities totaling $12.6 million at December 31, 2023.
This loan was performing in accordance with its repayment terms at December 31, 2022. We had 20 other commercial and industrial loans with an outstanding balance in excess of $1.0 million at December 31, 2022, all but one of which were performing in accordance with their repayment terms at that date. Construction and Development Lending.
This loan was performing in accordance with its repayment terms at December 31, 2023. We had 21 other commercial and industrial loans with an outstanding balance in excess of $1.0 million at December 31, 2023, all but two of which were performing in accordance with their repayment terms at that date. Construction and Development Lending.
These activities provide an additional source of fee income to First Bank Richmond and in 2022 constituted 12.8% of our total non-interest income. Subsidiary and Other Activities At December 31, 2022, Richmond Mutual Bancorporation had two subsidiaries, First Bank Richmond and First Insurance Management, Inc. First Bank Richmond is our wholly owned banking subsidiary.
These activities provide an additional source of fee income to First Bank Richmond and in 2023 constituted 17.2% of our total non-interest income. Subsidiary and Other Activities At December 31, 2023, Richmond Mutual Bancorporation had two subsidiaries, First Bank Richmond and First Insurance Management, Inc. First Bank Richmond is our wholly owned banking subsidiary.
We also provide trust and wealth management services, including serving as executor and trustee under wills and deeds and as guardian and custodian of employee benefits, and manage private investment accounts for individuals and institutions. Total wealth management assets under management and administration were $138.8 million at December 31, 2022.
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 $170.4 million at December 31, 2023.
At December 31, 2022, this loan was performing according to its repayment terms.
At December 31, 2023, this loan was performing according to its repayment terms.
Trust services are provided to both individual and corporate customers, including personal trust and agency accounts, and employee benefit plans. We also manage private investment accounts for individuals and institutions. Total wealth management assets under management and administration were $138.8 million at December 31, 2022.
Trust services are provided to both individual and corporate customers, including personal trust and agency accounts, and employee benefit plans. We also manage private investment accounts for individuals and institutions. Total wealth management assets under management and administration were $170.4 million at December 31, 2023.
The deposit operations of First Bank Richmond also are subject to, among others, the: • Truth in Savings Act, which requires financial institutions to disclose the terms and conditions of their deposit accounts; • Expedited Funds Availability Act, which requires banks to make funds deposited in transaction accounts available to their customers within specified time frames; • Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; • Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; 28 • Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and • Indiana banking laws and regulations governing deposit powers and other matters.
The deposit operations of First Bank Richmond also are subject to, among others, the: • Truth in Savings Act, which requires financial institutions to disclose the terms and conditions of their deposit accounts; • Expedited Funds Availability Act, which requires banks to make funds deposited in transaction accounts available to their customers within specified time frames; • Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; • Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and • Indiana banking laws and regulations governing deposit powers and other matters.
The growth in the balance of loans and leases primarily occurred in the construction and development and commercial mortgage categories, which is in line with management's strategy to expand these portfolios.
The growth in the balance of loans and leases primarily occurred in the commercial mortgage and direct financing leases categories, which is in line with management's strategy to expand these portfolios.
However, failure to perfect a security interest risks avoidance of the security interest in bankruptcy or subordination to the claims of third parties. At December 31, 2022, approximately $41.7 million or 31.2% of the aggregate dollar amount of our lease portfolio was concentrated in four states: California at 9.4%; New York at 9.3%; Florida at 6.3% and Arkansas at 6.2%.
However, failure to perfect a security interest risks avoidance of the security interest in bankruptcy or subordination to the claims of third parties. At December 31, 2023, approximately $52.4 million or 33.3% of the aggregate dollar amount of our lease portfolio was concentrated in four states: California at 12.7%; New York at 8.2%; Florida at 6.2% and Arkansas at 6.2%.
At December 31, 2022, First Bank Richmond had an active investment subsidiary, FB Richmond Holdings, which is a Nevada corporation that holds substantially all of First Bank Richmond's investment portfolio. As of December 31, 2022, the market value of securities managed was $290.5 million.
At December 31, 2023, First Bank Richmond had an active investment subsidiary, FB Richmond Holdings, which is a Nevada corporation that holds substantially all of First Bank Richmond's investment portfolio. As of December 31, 2023, the market value of securities managed was $287.1 million.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeBecause the repayment of these types of loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment can be affected by factors outside the borrower's control, such as adverse conditions in the real estate market or the economy, disruptions in supply chains, or change in government regulations. 34 In recent years, commercial real estate markets have been experiencing substantial growth, and increased competitive pressures have contributed significantly to historically low capitalization rates and rising property values.
Biggest changeFactors outside the borrower’s control, including adverse market conditions, economic downturns, supply chain disruptions, or shifts in government regulations, among other factors, can significantly impact the repayment ability of these loans. Recent years have witnessed substantial growth in commercial real estate markets, compounded by intensified competitive pressures that have led to historically low capitalization rates and surging property valuations.
Our ability to borrow also could be impaired by factors that are not specific to us, such as a disruption in the financial markets, negative views and expectations about the prospects for the financial services industry or deterioration in credit markets. We use estimates in determining the fair value of certain assets, such as mortgage servicing rights (“MSRs”).
Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets, negative views and expectations about the prospects for the financial services industry or deterioration in credit markets. We use estimates in determining the fair value of certain assets, such as mortgage servicing rights (“MSRs”).
As a result, any payment of dividends in the future by Richmond Mutual Bancorporation may depend on First Bank Richmond’s ability to satisfy these regulatory restrictions and its earnings, capital requirements, financial condition and other factors. Item 1B. Unresolved Staff Comments Not applicable.
As a result, any payment of dividends in the future by Richmond Mutual Bancorporation may depend on First Bank 42 Richmond’s ability to satisfy these regulatory restrictions and its earnings, capital requirements, financial condition and other factors. Item 1B. Unresolved Staff Comments Not applicable.
Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on our customers and impact the communities in which we operate. Overall, climate change, its effects and the resulting, unknown impact could have a material adverse effect on our financial condition and results of operations.
Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on our customers and 41 impact the communities in which we operate. Overall, climate change, its effects and the resulting, unknown impact could have a material adverse effect on our financial condition and results of operations.
We believe the net proceeds of our recent initial public offering will be sufficient to permit us to maintain regulatory compliance for the foreseeable future. Nevertheless, we may elect to raise more capital to support our business or to finance acquisitions, if any, or we may otherwise elect or be required to raise additional capital in the future.
We believe the net proceeds of our initial public offering will be sufficient to permit us to maintain regulatory compliance for the foreseeable future. Nevertheless, we may elect to raise more capital to support our business or to finance acquisitions, if any, or we may otherwise elect or be required to raise additional capital in the future.
In addition to the risks and uncertainties described 32 below, other risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, capital levels, cash flows, liquidity, results of operations and prospects.
In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, capital levels, cash flows, liquidity, results of operations and prospects.
If we issue additional preferred stock in the future that has a preference over the common stock with respect to the payment of dividends or upon liquidation, dissolution or winding-up, or if we issue additional preferred stock with voting rights that dilute the voting power of the common stock, the rights of holders of the common stock or the market value of the common stock could be adversely affected.
If we issue preferred stock in the future that has a preference over the common stock with respect to the payment of dividends or upon liquidation, dissolution or winding-up, or if we issue preferred stock with voting rights that dilute the voting power of the common stock, the rights of holders of the common stock or the market value of the common stock could be adversely affected.
If our reputation is negatively affected by the actions of our employees, by our inability to conduct our operations in a manner that is appealing to current or prospective customers, or otherwise, our business and, therefore, our operating results may be materially adversely affected.
If our reputation is negatively affected by the actions of our employees, by our inability to conduct our 38 operations in a manner that is appealing to current or prospective customers, or otherwise, our business and, therefore, our operating results may be materially adversely affected.
This risk of loss also includes 38 the potential legal actions that could arise as a result of operational deficiencies or as a result of non-compliance with applicable regulatory standards or customer attrition due to potential negative publicity.
This risk of loss also includes the potential legal actions that could arise as a result of operational deficiencies or as a result of non-compliance with applicable regulatory standards or customer attrition due to potential negative publicity.
Our access to funding sources in amounts adequate to finance our activities or on terms that are acceptable to us could be impaired by factors that affect us specifically, or the financial services industry or economy in general.
Our access to funding sources in amounts adequate to finance our 37 activities or on terms that are acceptable to us could be impaired by factors that affect us specifically, or the financial services industry or economy in general.
A large portion of our commercial loan portfolio is unseasoned, meaning they were originated recently. Our limited experience with these borrowers does not provide us with a significant payment history pattern with which to judge future collectability. Further, these loans have not been subjected to unfavorable economic conditions.
A large portion of our commercial loan portfolio is unseasoned, meaning loans were originated recently. Our limited experience with these borrowers does not provide us with a significant payment history pattern with which to judge future collectability. Further, these loans may not have been subjected to unfavorable economic conditions.
If our allowance for loan and lease losses is not sufficient to cover actual losses, our earnings could decrease. We periodically review our allowance for loan and lease losses for adequacy considering economic conditions and trends, collateral values and credit quality indicators, including past charge-off experience and levels of past due loans and nonperforming assets.
If our allowance for credit losses is not sufficient to cover actual losses, our earnings could decrease. We periodically review our allowance for credit losses for adequacy considering economic conditions and trends, collateral values and credit quality indicators, including past charge-off experience and levels of past due loans and nonperforming assets.
We cannot be certain that our allowance for loan and lease losses will be adequate over time to cover credit losses in our portfolio because of unanticipated adverse changes in the economy, market conditions or events adversely affecting specific customers, industries or markets, and changes in borrower behaviors.
We cannot be certain that our allowance for credit losses will be adequate over time to cover credit losses in our portfolio because of unanticipated adverse changes in the economy, market conditions or events adversely affecting specific customers, industries or markets, and changes in borrower behaviors.
Richmond Mutual Bancorporation will depend primarily upon the proceeds it retained from the offering as well as earnings of First Bank Richmond to provide funds to pay dividends on our common stock. The payment of dividends by First Bank Richmond also is subject to certain regulatory restrictions.
Richmond Mutual Bancorporation will depend primarily upon the proceeds it retained from the initial public offering as well as earnings of First Bank Richmond to provide funds to pay dividends on our common stock. The payment of dividends by First Bank Richmond is also subject to certain regulatory restrictions.
A deterioration in economic conditions in the market areas we serve as a result of inflation, a recession, the effects of COVID-19 variants or other factors could result in the following consequences, any of which could have a material adverse effect on our business, financial condition and results of operations: • demand for our products and services may decline; • loan delinquencies, problem assets and foreclosures may increase; • collateral for loans, especially real estate, may decline in value, thereby reducing customers’ future borrowing power, and reducing the value of assets and collateral associated with existing loans; and • the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us.
A deterioration in economic conditions in the market areas we serve as a result of inflation, a recession, 33 or other factors could result in the following consequences, any of which could have a material adverse effect on our business, financial condition and results of operations: • demand for our products and services may decline; • loan delinquencies, problem assets and foreclosures may increase; • collateral for loans, especially real estate, may decline in value, thereby reducing customers’ future borrowing power, and reducing the value of assets and collateral associated with existing loans; and • the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us.
The effects of climate change continue to create an alarming level of concern for the state of the global environment. As a result, the global business community has increased its political and social awareness surrounding the issue, and the United States has entered into international agreements in an attempt to reduce global temperatures, such as reentering the Paris Agreement.
The effects of climate change continue to create an alarming level of concern for the state of the global environment. As a result, the global business community has increased its political and social awareness surrounding the issue, and the United States has entered into international agreements in an attempt to reduce global temperature increases, such as reentering the Paris Agreement.
Similar and even more expansive initiatives are expected under the current administration, including potentially increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change.
Similar and even more expansive initiatives have occurred under the current administration, including increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change.
Revenue generated from our leasing business accounted for 15.4% and 16.3% of our total revenue for the years ended December 31, 2022 and 2021, respectively. 35 We rely solely on brokers and other third-party originators to generate our lease transactions.
Revenue generated from our leasing business accounted for 15.3% and 15.4% of our total revenue for the years ended December 31, 2023 and 2022, respectively. We rely solely on brokers and other third-party originators to generate our lease transactions.
Declines in market value could result in other-than-temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels. As of December 31, 2022, we had no securities that were deemed impaired.
Declines in market value could result in impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels. As of December 31, 2023, we had no securities that were deemed impaired.
If our investment in the Federal Home Loan Bank of Indianapolis becomes impaired, our earnings and stockholders’ equity could decrease. At December 31, 2022, we owned $9.9 million in Federal Home Loan Bank (“FHLB”) of Indianapolis stock. We are required to own this stock to be a member of and to obtain advances from the FHLB of Indianapolis.
If our investment in the Federal Home Loan Bank of Indianapolis becomes impaired, our earnings and stockholders’ equity could decrease. At December 31, 2023, we owned $12.6 million in Federal Home Loan Bank (“FHLB”) of Indianapolis stock. We are required to own this stock to be a member of and to obtain advances from the FHLB of Indianapolis.
As a result, cyber-security and the continued development and enhancement of our controls, processes and practices designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority. Our information systems may experience failure, interruption or breach in security.
As a result, cyber-security and the continued development and enhancement of our controls, processes and practices designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain an area of substantial concern. Our information systems may experience failure, interruption or breach in security.
Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan and lease losses.
Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our 40 allowance for credit losses.
At December 31, 2022, the book value of our MSRs was $2.0 million. We use a 37 financial model that uses, wherever possible, quoted market prices to value our MSRs. This model is complex and also uses assumptions related to interest and discount rates, prepayment speeds, delinquency and foreclosure rates and ancillary fee income.
At December 31, 2023, the book value of our MSRs was $1.9 million. We use a financial model that uses, wherever possible, quoted market prices to value our MSRs. This model is complex and also uses assumptions related to interest and discount rates, prepayment speeds, delinquency and foreclosure rates and ancillary fee income.
Our commercial loan portfolio, which includes commercial and multi-family real estate loans, commercial and industrial loans and construction loans, has increased to $663.3 million, or 68.0% of total loans and leases, at December 31, 2022 from $226.9 million, or 48.5% of total loans and leases, at December 31, 2016.
Our commercial loan portfolio, which includes commercial and multi-family real estate loans, commercial and industrial loans and construction loans, has increased to $753.6 million, or 68.0% of total loans and leases, at December 31, 2023 from $226.9 million, or 48.5% of total loans and leases, at December 31, 2016.
Factors that could detrimentally impact our access to liquidity sources include adverse regulatory action against us or a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated.
Factors that could detrimentally impact our access to liquidity sources include adverse regulatory action against us, a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated, or a decrease in the confidence of our depositors in our ability to meet withdrawal demands.
As a result, we cannot assure you that our profitability or the demand for our leasing services from our customers will be maintained at historical levels. Moreover, approximately $41.7 million or 31.2% of our total lease portfolio is to customers located in California, New York, Florida, and Arkansas.
As a result, we cannot assure you that our profitability or the demand for our leasing services from our customers will be maintained at historical levels. 36 Moreover, approximately $52.4 million or 33.3% of our total lease portfolio is to customers located in California, New York, Florida, and Arkansas.
The yields we earn on our assets and the rates we pay on our liabilities are generally fixed for a contractual period of time. Like many financial institutions, our liabilities generally have shorter contractual maturities than our assets. This imbalance can create significant earnings volatility because market interest rates change over time.
The yields we earn on our assets and the rates we pay on our liabilities are generally fixed for a contractual period of time. Like many financial institutions, our liabilities generally have shorter contractual maturities than our assets. This mismatch exposes us to significant earnings volatility as market interest rates fluctuate.
At December 31, 2022, our top 25 brokers/third party originators collectively accounted for 80% of our total direct financing lease portfolio, with our largest broker/third party originator accounting for 12.4% of the portfolio.
At December 31, 2023, our top 25 brokers/third party originators collectively accounted for 81.7% of our total direct financing lease portfolio, with our largest broker/third party originator accounting for 10.9% of the portfolio.
During 2022, of our total $70.3 million in lease originations, the top five brokers/third party originators accounted for approximately 50.3% of our total volume of lease originations, one of whom accounted for approximately 15.6% of our total volume of lease originations.
During 2023, of our $89.7 million in lease originations, the top five brokers/third party originators accounted for approximately 45.6% of our total volume of lease originations, one of whom accounted for approximately 13.3% of our total volume of lease originations.
These regulations, along with the currently existing tax, accounting, securities, insurance, and monetary laws, regulations, rules, standards, policies, and interpretations control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. These laws, regulations, rules, standards, policies, and interpretations are constantly evolving and may change significantly over time.
These regulations may sometimes impose significant limitations on our operations. These regulations, along with the currently existing tax, accounting, securities, insurance, and monetary laws, regulations, rules, standards, policies, and interpretations control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures.
These third-party vendors are sources of operational and informational security risks to us, including risks associated with operational errors, information system failures, interruptions or breaches and unauthorized disclosures of sensitive or confidential client or customer information.
We rely on certain external vendors to provide products and services necessary to maintain our day-to-day operations. These third-party vendors are sources of operational and informational security risks to us, including risks associated with 39 operational errors, information system failures, interruptions or breaches and unauthorized disclosures of sensitive or confidential client or customer information.
We are subject to environmental liability risk associated with lending activities or properties we own. A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect to one or more of these properties, or with respect to properties that we own in operating our business.
A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect to one or more of these properties, or with respect to properties that we own in operating our business. During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans.
Furthermore, an inverted interest rate yield curve, where short-term interest rates (which are usually the rates at which financial institutions borrow funds) are higher than long-term interest rates (which are usually the rates at which financial institutions lend funds for fixed-rate loans) can reduce a financial institution’s net interest margin and create financial risk for financial institutions that originate longer-term, fixed-rate mortgage loans.
Moreover, an inverted interest rate yield curve, wherein short-term interest rates (which are usually the rates at which financial institutions borrow funds) surpass long-term rates (which are usually the rates at which financial institutions lend funds for fixed-rate loans), can compress a financial institution's net interest margin.
Our policies, which require us to perform an environmental review before initiating any foreclosure action on non-residential real property, may not be sufficient to detect all potential environmental hazards.
Our policies, which require us to perform an environmental review before initiating any foreclosure action on non-residential real property, may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on us.
Our portfolio of loans with a higher risk of loss is increasing and the unseasoned nature of our commercial loan portfolio may result in errors in judging its collectability, which may lead to additional provisions for loan losses or charge-offs, which would hurt our profits.
Our portfolio of loans with a higher risk of loss is increasing and the unseasoned nature of such loans could lead to misjudgments in collectability, triggering additional provisions or charge-offs, impacting our profits.
Our leasing business exposes us to different credit risks than our real estate secured lending. At December 31, 2022, direct financing leases totaled $133.5 million, or 13.7% of our total loan and lease portfolio. Our direct financing leases, while short term in nature, are inherently risky as they are secured by assets that depreciate rapidly.
At December 31, 2023, direct financing leases totaled $156.6 million, or 14.1% of our total loan and lease portfolio. Our direct financing leases, while short term in nature, are inherently risky as they are secured by assets that depreciate rapidly.
The market value of our common stock could decline as a result of sales by us of a large number of shares of common stock or preferred stock or similar securities in the market or the perception that such sales could occur. 42 Our board of directors is authorized to allow us to issue additional common stock, as well as classes or series of preferred stock, generally without any action on the part of the stockholders.
The market value of our common stock could decline as a result of sales by us of a large number of shares of common stock or preferred stock or similar securities in the market or the perception that such sales could occur.
If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Any substantial prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations.
Should the interest rates associated with our deposits and borrowings increase at a faster pace than the rates received from loans and other investments, our net interest income and overall earnings might be adversely affected. A sustained and substantial change in market interest rates could significantly impact our financial condition, liquidity, and operational results.
Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings. Fluctuations in market value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand. Management evaluates securities for other-than-temporary impairment on a quarterly basis, with more frequent evaluation for selected issues.
Changes in the valuation of our securities portfolio could hurt our profits and reduce our capital levels. Our securities portfolio is impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings. Fluctuations in market value may be caused by changes in market interest rates, lower market prices for securities and limited investor demand.
We have focused on growing our construction and development loan portfolio in recent years which adds additional risks to our loan portfolio.
We have focused on growing our construction and development loan portfolio in recent years which adds additional risks to our loan portfolio. As of December 31, 2023, our construction and development loans totaled $157.8 million, accounting for approximately 14.2% of our total loan portfolio.
During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties.
In doing so, there is a risk that hazardous or toxic substances could be found on these properties.
Net interest income makes up a majority of our net income and is based on the difference between the interest income we earn on interest-earning assets, such as loans and securities, and the interest expense we pay on interest-bearing liabilities, such as deposits and borrowings.
The core component of our net income is driven by net interest income, which centers on the variance between the interest income accrued from interest-earning assets, such as loans and securities, and the interest expense incurred on interest-bearing liabilities, including deposits and borrowings.
At December 31, 2022, we had $314.3 million in certificates of deposit that mature within one year and $544.5 million in noninterest bearing, NOW checking, savings and money market accounts. We would incur a higher cost of funds to retain these deposits in a rising interest rate environment.
As of December 31, 2023, our deposit composition included $349.6 million in certificates of deposit maturing within one year and $523.0 million in noninterest-bearing, NOW checking, savings, and money market accounts. In an increasing interest rate environment, retaining these deposits could lead to a higher cost of funds.
Furthermore, commercial real estate markets have been particularly impacted by the economic disruption resulting from the COVID-19 pandemic. The COVID-19 pandemic has also been a catalyst for the evolution of various remote work options which could impact the long-term performance of some types of office properties within our commercial real estate portfolio.
The economic disruption spurred by the COVID-19 pandemic has particularly affected commercial real estate markets. Additionally, the pandemic has accelerated the adoption of remote work options, potentially influencing the long-term performance of certain office properties within our commercial real estate portfolio.
Changes in the level of interest rates also may negatively affect the value of our assets and liabilities and ultimately affect our earnings. Inflationary pressures and rising prices may affect our results of operations and financial condition. Inflation has risen sharply since the end of 2021 and throughout 2022 at levels not seen for over 40 years.
Furthermore, fluctuations in interest rates may adversely affect the valuation of our assets and liabilities, ultimately affecting our earnings. Inflationary pressures and rising prices may affect our results of operations and financial condition. Inflation has surged markedly since the close of 2021 and continued its ascent throughout 2022, marking the highest levels experienced in over four decades.
The banking industry is extensively regulated. Federal banking regulations are designed primarily to protect the deposit insurance funds and consumers, not to benefit a company's shareholders. These regulations may sometimes impose significant limitations on our operations.
Regulatory and Accounting Related Risks We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations that could increase our costs of operations. The banking industry is extensively regulated. Federal banking regulations are designed primarily to protect the deposit insurance funds and consumers, not to benefit a company's shareholders.
Risk of loss on a construction loan also depends upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions.
Loans granted for properties not yet approved for planned development or improvements pose the risk of potential denials or delays in necessary approvals. Additionally, the risk of loss on a construction loan heavily relies on the accuracy of initial property value estimates upon completion compared to the estimated construction costs (inclusive of interest) and other assumptions.
In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. Any failure, interruption or breach in security of these systems could result in significant disruption to our operations.
Our business heavily relies on electronic communication and information systems, serving as the backbone for our operations and storage of sensitive data. Any disruption, failure, or breach in the security of these systems could significantly disrupt our operations. Cybersecurity threats encompass a range of incidents, including unauthorized access attempts, data breaches, computer viruses, and denial-of-service attacks.
Net income is the amount by which net interest income and non-interest income exceed non-interest expense, the provision for loan and lease losses and taxes.
Our net income is primarily derived from the excess of net interest income and non-interest income over non-interest expenses, provisions for credit losses, and taxes.
These changes could materially impact, potentially even retroactively, how we report our financial condition and results of operations. The Company’s reported financial results depend on management’s selection of accounting methods and certain assumptions and estimates, which, if incorrect, could cause unexpected losses in the future.
These changes could materially impact, potentially even retroactively, how we report our financial condition and results of operations. We are subject to an extensive body of accounting rules and best practices. Periodic changes to such rules may change the treatment of critical financial line items and affect our profitability.
Removed
In addition, changes in interest rates can affect the average life of loans and mortgage-backed and related securities. In a period of rising interest rates, the interest income we earn on our assets may not increase as rapidly as the interest we pay on our liabilities.
Added
Shifts in interest rates can also impact the average lifespan of loans and mortgage-backed securities. In periods of rising interest rates, the growth rate of interest income from our assets might lag behind the accelerating interest expenses on liabilities. Conversely, declining interest rates can trigger increased loan prepayments and mortgage-backed security redemptions as borrowers seek lower borrowing costs through refinancing.
Removed
A decline in interest rates results in increased prepayments of loans and mortgage-backed and related securities as borrowers refinance their debt to reduce their borrowing costs. This creates reinvestment risk, which is the risk that we may not be able to reinvest prepayments at rates that are comparable to the rates we earned on the prepaid loans or securities.
Added
This introduces reinvestment risk, where the challenge lies in reinvesting prepayments at rates comparable to those initially earned on the prepaid loans or securities.
Removed
At December 31, 2022, 41.5% of our loan and lease portfolio consisted of fixed-rate loans and leases. 33 As is the case with many banks our emphasis on increasing core deposits has resulted in an increasing percentage of our deposits being comprised of deposits bearing no or a relatively low rate of interest and having a shorter duration than our assets.
Added
This occurrence poses financial risks, particularly for institutions that originate longer-term, fixed-rate mortgage loans. As of December 31, 2023, approximately 43.9% of our loan and lease portfolio consisted of fixed-rate loans and leases, potentially exposing us to these risks.
Removed
Inflationary pressures are currently expected to remain elevated throughout 2023. Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economics of scale to mitigate cost pressures compared to larger businesses.
Added
Inflationary pressures persisted at elevated rates through 2023, creating challenges for businesses, particularly small to medium-sized enterprises that lack the scale advantages enjoyed by larger corporations. This discrepancy in leveraging economies of scale may intensify cost pressures for smaller businesses.
Removed
Consequently, the ability of our business customers to repay their loans may deteriorate, and in some cases this deterioration may occur quickly, which would adversely impact our results of operations and financial condition.
Added
The heightened inflationary environment could potentially impact our business customers' ability to repay loans, especially among those facing swift deteriorations in financial conditions. Consequently, our operational and financial standings 34 may face adverse effects.
Removed
Furthermore, a prolonged period of inflation could cause wages and other costs to the Company to increase, which could adversely affect our results of operations and financial condition. The economic impact of the COVID-19 pandemic could continue to affect our financial condition and results of operations.
Added
Moreover, a sustained period of inflation holds the potential to drive up wages and other expenses for the Company, further posing risks to our operational performance and financial health. Considering the continued inflationary landscape and its associated impacts, our business outlook could be significantly affected.
Removed
The COVID-19 pandemic could continue to pose risks and could harm our business, our results of operations and the prospects of the Company. The COVID-19 pandemic has adversely impacted the global and national economy and certain industries and geographies in which our clients operate.
Added
As of December 31, 2023, our portfolio included commercial real estate, multi-family real estate, and commercial and industrial loans totaling $595.8 million, constituting approximately 53.8% of our total loans and leases.
Removed
Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on the business of the Company, its clients, employees and third-party service providers. The extent of such impact will depend on future developments, which are highly uncertain.
Added
While these loan types typically offer higher potential profitability compared to residential mortgage loans, they inherently carry heightened sensitivity to regional and local economic conditions, posing challenges in accurately forecasting potential losses. Further, these loans often involve substantial balances granted to individual borrowers or related groups, elevating their risk profile, particularly when considering the complexity of the underlying collateral.
Removed
Additionally, the responses of various governmental and nongovernmental authorities and consumers to the pandemic may have material long-term effects on the Company and its clients which are difficult to quantify.
Added
Commercial and multi-family real estate, as well as commercial and industrial loans, entail higher risk levels compared to our one- to four-family residential real estate loans. The repayment of such loans depends significantly on the effective management and operation of borrowers’ properties or related businesses.
Removed
We could be subject to a number of risks as the result of the continuing COVID-19 pandemic and COVID 19 variants, any of which could have a material, adverse effect on our business, financial condition, liquidity, results of operations, ability to execute our growth strategy and ability to pay dividends.
Added
Moreover, the federal banking regulatory agencies have raised concerns about vulnerabilities within the current commercial real estate market, recognizing the risks associated with these assets. Unlike residential mortgage loans, commercial and industrial loans may be backed by collateral beyond real estate, such as inventory and accounts receivable.
Removed
These risks include, but are not limited to, changes in demand for our products and services; increased loan losses or other impairments in our loan portfolios and increases in our allowance for loan losses; a decline in collateral for our loans, especially real estate; unanticipated unavailability of employees; increased cyber security risks as employees work remotely; a prolonged weakness in economic conditions resulting in a reduction of future projected earnings could necessitate a valuation allowance against our current outstanding deferred tax assets and increased costs as the Company and our regulators, customers and vendors adapt to evolving pandemic conditions.
Added
The valuation and liquidation of such collateral may pose challenges and are subject to fluctuations in value, especially during defaults. Failures in our risk management policies, procedures, and controls could impede our ability to effectively manage this portfolio, potentially leading to increased delinquencies and higher losses, thereby materially impacting our business, financial condition, and operational performance.
Removed
At December 31, 2022, our commercial real estate, multi-family real estate and commercial and industrial loans totaled $523.4 million, or 53.7% of our total loans and leases. While these types of loans are potentially more profitable than residential mortgage loans, they are generally more sensitive to regional and local economic conditions, making loss levels more difficult to predict.
Added
This comprises $148.5 million in commercial construction loans and $9.3 million in residential real estate construction loans, reflecting a substantial increase from the $58.4 million, constituting 7.8% of total loans, reported at December 31, 2020. Engaging in construction lending inherently carries higher credit risk compared to long-term financing for improved, owner-occupied real estate.
Removed
These loans also generally have relatively large balances to single borrowers or related groups of borrowers. Given their larger balances and the complexity of the underlying collateral, commercial and multi-family real estate and commercial and industrial loans generally have more risk than the one- to four-family residential real estate loans we originate.
Added
Inaccurate cost estimates may necessitate additional fund disbursements beyond the committed amount to protect the property's value. Moreover, misjudgment in estimating the completed project's value may result in the borrower holding a property insufficient to fully repay the construction loan upon its sale.
Removed
Accordingly, the federal banking regulatory agencies have expressed concerns about weaknesses in the current commercial real estate market.
Added
Delays or cost overruns in construction can compound risks, especially when repayments rely on property sales or rentals to third parties, which may not transpire as anticipated. The sale of properties under construction is often challenging and typically requires completion for successful transactions, complicating the handling of problematic construction loans.
Removed
Further, unlike residential mortgage loans, commercial and industrial loans may be secured by collateral other than real estate, such as inventory and accounts receivable, the value of which may depreciate over time, may be more difficult to appraise or liquidate and may be more susceptible to fluctuation in value at default.
Added
Speculative construction loans carry additional risks, including the borrower's ability to secure a take-out commitment for a permanent loan. Loans associated with undeveloped land or future construction also present added risks due to the lack of 35 income generation from the property and its potential illiquid nature as collateral.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of December 31, 2022, the net book value of our real properties, including land, was $13.7 million. See also Note 6 in the Notes to Consolidated Financial Statements contained in Item 8 of this report on Form 10-K. In the opinion of management, the facilities are adequate and suitable for our current needs.
Biggest changeAs of December 31, 2023, the net book value of our real properties, including land, was $13.3 million. See also Note 6 in the Notes to Consolidated Financial Statements contained in Item 8 of this report on Form 10-K. In the opinion of management, the facilities are adequate and suitable for our current needs.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at December 31, 2022, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations. Item 4.
Biggest changeItem 3. Legal Proceedings We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at December 31, 2023, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations. Item 4.
Mine Safety Disclosures Not applicable. 43 PART II
Mine Safety Disclosures Not applicable. 44 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table sets forth information with respect to our repurchases of our outstanding common shares during the three months ended December 31, 2022: Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs Maximum number of shares that may yet be purchased under the plans or programs October 1, 2022 - October 31, 2022 5,151 $ 13.60 5,151 1,135,423 November 1, 2022 - November 30, 2022 3,876 13.26 3,876 1,131,547 December 1, 2022 - December 31, 2022 9,151 12.76 9,151 1,122,396 18,178 $ 13.11 18,178 Item 6. [Reserved]
Biggest changeThe following table sets forth information with respect to our repurchases of our outstanding common shares during the three months ended December 31, 2023: Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs Maximum number of shares that may yet be purchased under the plans or programs (1) October 1, 2023 - October 31, 2023 35,646 $ 10.28 35,646 923,965 November 1, 2023 - November 30, 2023 32,753 10.46 32,753 891,212 December 1, 2023 - December 31, 2023 23,176 11.53 23,176 868,036 91,575 $ 10.66 91,575 (1) 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.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The common stock of Richmond Mutual Bancorporation is listed on The NASDAQ Capital Market under the symbol "RMBI." There were approximately 453 shareholders of record of our common stock as of March 29, 2023.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The common stock of Richmond Mutual Bancorporation is listed on The NASDAQ Capital Market under the symbol "RMBI." There were approximately 440 shareholders of record of our common stock as of March 29, 2024.
Our cash dividend payout policy is reviewed regularly by management and the Board of Directors. During the year ended December 31, 2022, the Company paid cash dividends equal to $0.40 per common share.
Our cash dividend payout policy is reviewed regularly by management and the Board of Directors. During the year ended December 31, 2023, the Company paid cash dividends equal to $0.56 per common share.
Removed
On May 19, 2021, the Board of Directors authorized a third stock repurchase program for up to 1,263,841 shares, or approximately 10% of its outstanding shares. This repurchase program expired on July 3, 2022 with a total of 817,984 shares being repurchased.
Removed
On July 21, 2022, the Company announced that the Board of Directors authorized a fourth stock repurchase program for up to 1,184,649 shares, or approximately 10% of its then outstanding shares. The fourth stock repurchase program will expire in July 2023, unless completed sooner.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

87 edited+28 added−30 removed39 unchanged
Biggest changeImportant factors that could cause our actual results to differ materially from the results anticipated or projected, include, but are not limited to, the following: • potential adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company's business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth caused by increasing political instability from acts of war including Russia’s invasion of Ukraine, as well as increasing prices and supply chain disruptions, and any governmental or societal responses to the COVID-19 pandemic, including new COVID-19 variants; • general economic conditions, either nationally or in our market areas, that are worse than expected; • changes in the level and direction of loan or lease delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan and lease losses; • our ability to access cost-effective funding; • fluctuations in real estate values, and residential, commercial and multifamily real estate market conditions; • demand for loans and deposits in our market area; • our ability to implement and change our business strategies; • competition among depository and other financial institutions and equipment financing companies; • inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans and leases we have made and make; • 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 the third-party vendors who perform several of our critical processing functions; • 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; • the transition away from LIBOR toward new interest rate benchmarks; • our ability to enter new markets successfully and capitalize on growth opportunities; 45 • our ability to retain key employees; • our compensation expense associated with equity allocated or awarded to our 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 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 such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and its implementing regulations that adversely affect our business, and the availability of resources to address such changes; • our ability to pay dividends on our common stock; • other economic, competitive, governmental, regulatory, and technical factors affecting our operations, pricing, products and services; and • the other risks described elsewhere in this Form 10 K and our other reports filed with the U.S.
Biggest changeImportant factors that could cause our actual results to differ materially from the results anticipated or projected, include, but are not limited to, the following: • potential adverse impacts to economic conditions in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company's business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth; • changes in the interest rate environment, including the recent past increases in the Federal Reserve benchmark rate and duration at which such elevated interest rate levels are maintained, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; • the impact of continuing high inflation and the current and future monetary policies of the Federal Reserve in response thereto; • the effects of any federal government shutdowns; • general economic conditions, either nationally or in our market areas, which are worse than expected; • changes in the level and direction of loan or lease delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses; • our ability to access cost-effective funding; • fluctuations in real estate values, and residential, commercial and multifamily real estate market conditions; • demand for loans and deposits in our market area; • our ability to implement and change our business strategies; • competition among depository and other financial institutions and equipment financing companies; • inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans and leases we have made and make; • 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 the third-party vendors who perform several of our critical processing functions; • 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; 46 • our ability to retain key employees; • our compensation expense associated with equity allocated or awarded to our 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 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 such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and its implementing regulations that adversely affect our business, and the availability of resources to address such changes; • our ability to pay dividends on our common stock; • the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business; • other economic, competitive, governmental, regulatory, and technical factors affecting our operations, pricing, products and services; and • the other risks described elsewhere in this Form 10 K and our other reports filed with and furnished to the U.S.
Banking regulations may limit the amount of dividends that may be to us paid by First Bank Richmond. "Note 17: 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.
Banking regulations may limit the amount of dividends that may be paid to us by First Bank Richmond. "Note 17: 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.
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.
We believe that maintaining a strong capital position safeguards the long-term interests of First Bank Richmond. 49 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.
Average balances have been calculated using daily balances. Average balances of loans and leases receivable include loans held for sale. Non-accruing 54 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.
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.
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; 44 • statements regarding the quality of our loan and investment portfolios; and • estimates of our risks and future costs and benefits.
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; • statements regarding the quality of our loan and investment portfolios; and 45 • estimates of our risks and future costs and benefits.
In order to maintain what we believe to be acceptable levels of net interest income in 48 varying interest rate environments, we actively manage our interest rate risk and assume a moderate amount of interest rate risk consistent with board policies.
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.
The amount of dividends, if any, we may pay may be limited as more fully discussed in "Note 17: Regulatory Capital" in the accompanying notes to consolidated financial statements contained in Item 8 of this Form 10-K. 56 Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans.
The amount of dividends, if any, we may pay may be limited as more fully discussed in "Note 17: Regulatory Capital" in the accompanying notes to consolidated financial statements contained in Item 8 of this Form 10-K. 57 Stock Repurchase Plans. From time to time, our board of directors has authorized stock repurchase plans.
(2) Net interest margin represents net interest income divided by average total interest-earning assets. 55 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.
(2) Net interest margin represents net interest income divided by average total interest-earning assets. 56 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.
At December 31, 2022, 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.
At December 31, 2023, First Bank Richmond’s regulatory capital exceeded the FDIC regulatory requirements, and First Bank Richmond was well-capitalized under regulatory prompt corrective action standards. Consistent with our goals to operate a sound and profitable organization, our policy is for First Bank Richmond to maintain well-capitalized status.
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, 2022.
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, 2023.
As of December 31, 2022, 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.
As of December 31, 2023, 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.
Selected Consolidated Financial and Other Data The Financial Condition Data and Operating Data as of and for the years ended December 31, 2022 and 2021 are derived from the audited financial statements and related notes included elsewhere in this Form 10-K.
Selected Consolidated Financial and Other Data The Financial Condition Data and Operating Data as of and for the years ended December 31, 2023 and 2022 are derived from the audited financial statements and related notes included elsewhere in this Form 10-K.
If Richmond Mutual Bancorporation was subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at December 31, 2022, 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 December 31, 2023, it would have exceeded all regulatory capital requirements.
At December 31, 2022, 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.
At December 31, 2023, the Bank’s CET1 capital exceeded the required capital conservation buffer. 59 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.
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. Provision for Loan and Lease Losses .
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. Provision for Credit Losses .
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 0.94% at December 31, 2022. Capital Position.
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 0.72% at December 31, 2023. Capital Position.
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 loan and lease losses is charged to operations based on our periodic evaluation of the necessary allowance balance.
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.
(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. 50 Financial Condition at December 31, 2022 Compared to December 31, 2021 General.
(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. 51 Financial Condition at December 31, 2023 Compared to December 31, 2022 General.
These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs. As of December 31, 2022, we had approximately $5.6 million held in an interest-bearing account at the Federal Reserve. We also have the ability to borrow funds as a member of the FHLB.
These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs. As of December 31, 2023, we had approximately $6.7 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.
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 loan and lease losses) as of the dates indicated.
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.
In evaluating the possible impairment of securities, consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and our ability and intent to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
In evaluating the possible impairment of securities, consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and our ability and intent to retain our investment in the issuer for a period of time sufficient to allow for any 48 anticipated recovery in fair value.
At December 31, 2022, Richmond Mutual Bancorporation, on an unconsolidated basis, had $26.2 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs. 57 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.
At December 31, 2023, Richmond Mutual Bancorporation, on an unconsolidated basis, had $13.2 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.
We will continue 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 69.9% of our total deposits as of December 31, 2022. Balance Sheet Growth .
We will continue 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 68.7% of our total deposits as of December 31, 2023. Balance Sheet Growth .
At December 31, 2022, 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%.
At December 31, 2023, 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.
Assuming continued payment during 2023 at the current dividend rate of $0.10 per share, our average total dividend paid each quarter would be approximately $1.2 million based on the number of our current outstanding shares at December 31, 2022.
Assuming continued payment during 2024 at the current dividend rate of $0.14 per share, our average total dividend paid each quarter would be approximately $1.6 million based on the number of our current outstanding shares at December 31, 2023.
As of December 31, 2022, based upon available, pledgeable collateral, our total remaining borrowing capacity with the FHLB was approximately $66.7 million. Furthermore, at December 31, 2022, we had approximately $198.5 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 December 31, 2023, based upon available, pledgeable collateral, our total remaining borrowing capacity with the FHLB was approximately $86.4 million. Furthermore, at December 31, 2023, we had approximately $147.3 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.
The increase in nonperforming loans was primarily attributable to a $1.3 million increase in commercial and industrial loans, primarily due to one loan of $1.3 million secured by business assets and a second mortgage past due more than 90 days and still accruing.
The decrease in nonperforming loans was primarily attributable to a $1.3 million decrease in commercial and industrial loans, primarily due to one loan of $1.3 million secured by business assets and a second mortgage, previously past due more than 90 days and still accruing that was paid off in 2023.
For the year ended December 31, 2022, we reported net income of $ 13.0 million, compared with net income of $11.1 million for 2021. 46 Critical Accounting Estimates We prepare our consolidated financial statements in accordance with GAAP. In doing so, we have to make estimates and assumptions.
For the year ended December 31, 2023, we reported net income of $9.5 million, compared with net income of $13.0 million for 2022. 47 Critical Accounting Estimates We prepare our consolidated financial statements in accordance with GAAP. In doing so, we have to make estimates and assumptions.
At December 31, 2022, on a consolidated basis, we had $1.3 billion in assets, $961.7 million in loans, $1.0 billion in deposits and $133.0 million in stockholders’ equity. First Bank Richmond’s risk-based capital ratio at December 31, 2022 was 14.3%, exceeding the 10.0% requirement for a well-capitalized institution.
At December 31, 2023, on a consolidated basis, we had $ 1.5 billion in assets, $1.1 billion in loans, $1.0 billion in deposits and $134.9 million in stockholders’ equity. First Bank Richmond’s risk-based capital ratio at December 31, 2023 was 14.1%, exceeding the 10.0% requirement for a well-capitalized institution.
Since March 2022, in response to inflation, the Federal Open Market Committee (“FOMC”) of the Federal Reserve System has increased the target range for the federal funds rate by 425 basis points, including 125 basis points during the fourth quarter of 2022, to a range of 4.25% to 4.50%.
Since March 2022, in response to inflation, the Federal Open Market Committee (“FOMC”) of the Federal Reserve System has increased the target range for the federal funds rate by 500 basis points, including 100 basis points during 2023, to a range of 5.25% to 5.50%.
At December 31, 2022, our commercial loan portfolio, which includes commercial and multi-family real estate loans, commercial and industrial loans and construction loans, totaled $663.3 million, or 68.0% of total loans and leases, with approximately $210.1 million of these loans, or 21.6% of our total loans and leases, located in the Columbus, Ohio market. Deposit Services.
At December 31, 2023, our commercial loan portfolio, which includes commercial and multi-family real estate loans, commercial and industrial loans and construction loans, totaled $753.6 million, or 68.0% of total loans and leases, with approximately $253.5 million of these loans, or 33.6% of our total loans and leases, located in the Columbus, Ohio market. Deposit Services.
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 Loan and Lease Losses .
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 loan and lease losses to cover probable incurred credit losses at the balance sheet date. Loan and lease losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
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.
The decrease was primarily due to a $61.4 million downward mark-to-market adjustment in the fair value of securities available for sale and proceeds from maturities and paydowns of securities of $32.2 million, partially offset by the purchase of $22.5 million in securities. Deposits.
The decrease was primarily due to maturities and paydowns of securities of $22.5 million, partially offset by a $8.5 million upward mark-to-market adjustment in the fair value of securities available for sale and the purchase of $11.2 million of new securities. Deposits.
As such, fair value is determined using discounted cash flow analysis models, incorporating default rates, estimation of prepayment characteristics and implied volatilities. We evaluate all securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, for determining if any other-than-temporary-impairments (“OTTI”) exist pursuant to guidelines established in ASC 320.
As such, fair value is determined using discounted cash flow analysis models, incorporating default rates, estimation of prepayment characteristics and implied volatilities. We evaluate all securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, for determining if any impairment exists as defined in ASC 326.
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, 2022 (Dollars in thousands) Total risk-based capital (to risk weighted assets) $ 164,804 14.3 % $ 92,134 8.0 % $ 115,168 10.0 % Tier 1 risk-based capital (to risk weighted assets) 152,391 13.2 69,101 6.0 92,134 8.0 Common equity tier 1 capital (to risk weighted assets) 152,391 13.2 51,826 4.5 74,859 6.5 Tier 1 leverage (core) capital (to adjusted tangible assets) 152,391 11.2 54,421 4.0 68,026 5.0 As of December 31, 2021 Total risk-based capital (to risk weighted assets) $ 169,589 17.3 % $ 78,590 8.0 % $ 98,238 10.0 % Tier 1 risk-based capital (to risk weighted assets) 157,481 16.0 58,943 6.0 78,590 8.0 Common equity tier 1 capital (to risk weighted assets) 157,481 16.0 44,207 4.5 63,855 6.5 Tier 1 leverage (core) capital (to adjusted tangible assets) 157,481 12.5 50,284 4.0 62,855 5.0 Pursuant to the capital regulations of the FDIC and the other federal banking agencies, First Bank Richmond must maintain a capital conservation buffer consisting of additional common equity tier 1 (“CET1”) capital greater than 2.5% of risk-weighted assets above the required minimum levels of risk-based CET1 capital, tier 1 capital and total capital in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses.
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, 2023 (Dollars in thousands) 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 As of December 31, 2022 Total risk-based capital (to risk weighted assets) $ 164,804 14.3 % $ 92,134 8.0 % $ 115,168 10.0 % Tier 1 risk-based capital (to risk weighted assets) 152,391 13.2 69,101 6.0 92,134 8.0 Common equity tier 1 capital (to risk weighted assets) 152,391 13.2 51,826 4.5 74,859 6.5 Tier 1 leverage (core) capital (to adjusted tangible assets) 152,391 11.2 54,421 4.0 68,026 5.0 Pursuant to the capital regulations of the FDIC and the other federal banking agencies, First Bank Richmond must maintain a capital conservation buffer consisting of additional common equity tier 1 (“CET1”) capital greater than 2.5% of risk-weighted assets above the required minimum levels of risk-based CET1 capital, tier 1 capital and total capital in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses.
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.
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.
Years Ended December 31, 2022 2021 (In thousands) Selected Operations Data: Total interest income $ 51,858 $ 45,926 Total interest expense 10,219 7,682 Net interest income 41,639 38,244 Provision for loan and lease losses 600 1,430 Net interest income after provision for loan and lease losses 41,039 36,814 Service charges on deposit accounts 1,050 882 Card fee income 1,210 1,087 Loan and lease servicing fees 862 (84) Gain on loan and lease sales 639 2,450 Gain on sales of securities — 56 Other income 1,105 1,025 Total non-interest income 4,866 5,416 Total non-interest expenses 30,157 28,649 Income before provision for income taxes 15,748 13,581 Provision for income taxes 2,783 2,436 Net income $ 12,965 $ 11,145 49 At or For the Years Ended December 31, 2022 2021 Selected Financial Ratios and Other Data: Performance ratios: Return on average assets (ratio of net income to average total assets) 1.01 % 0.94 % Return on average equity (ratio of net income to average equity) 8.79 % 6.03 % Yield on interest-earning assets 4.18 % 4.01 % Rate paid on interest-bearing liabilities 1.01 % 0.89 % Interest rate spread information: Average during period 3.17 % 3.12 % End of period 3.09 % 2.91 % Net interest margin (1) 3.36 % 3.34 % Operating expense to average total assets 2.35 % 2.42 % Average interest-earning assets to average interest-bearing liabilities 122.34 % 131.81 % Efficiency ratio (2) 64.85 % 65.70 % Asset quality ratios: Non-performing assets to total assets (3) 0.69 % 0.64 % Non-performing loans and leases to total gross loans and leases (4) 0.94 % 0.95 % Allowance for loan and lease losses to non-performing loans and leases (4) 135.28 % 150.76 % Allowance for loan and lease losses to loans and leases 1.27 % 1.43 % Net charge-offs/(recoveries) to average outstanding loans and leases during the period 0.03 % (0.01 %) Capital ratios: Common equity tier 1 capital (to risk weighted assets) (5) 13.23 % 16.02 % Tier 1 leverage (core) capital (to adjusted tangible assets) (5) 11.20 % 12.53 % Tier 1 risk-based capital (to risk weighted assets) (5) 13.23 % 16.02 % Total risk-based capital (to risk weighted assets) (5) 14.31 % 17.25 % Equity to total assets at end of period 10.01 % 14.27 % Average equity to average assets 11.51 % 15.64 % Per share data: Basic earnings per share $ 1.20 $ 0.98 Diluted earnings per share 1.17 0.96 Cash dividends paid 0.40 0.78 Book value at year end 11.28 14.55 Tangible book value at year end (6) 11.28 14.55 Other data: Number of full-service offices 12 12 Full-time equivalent employees 181 173 _____________________ (1) Net interest income divided by average interest earning assets.
Years Ended December 31, 2023 2022 (In thousands) Selected Operations Data: Total interest income $ 67,410 $ 51,858 Total interest expense 29,748 10,219 Net interest income 37,662 41,639 Provision for credit losses 532 600 Net interest income after provision for credit losses 37,130 41,039 Service charges on deposit accounts 1,115 1,050 Card fee income 1,259 1,210 Loan and lease servicing fees 448 862 Gain on loan and lease sales 518 639 Other income 1,271 1,105 Total non-interest income 4,611 4,866 Total non-interest expenses 30,738 30,157 Income before provision for income taxes 11,003 15,748 Provision for income taxes 1,516 2,783 Net income $ 9,487 $ 12,965 50 At or For the Years Ended December 31, 2023 2022 Selected Financial Ratios and Other Data: Performance ratios: Return on average assets (ratio of net income to average total assets) 0.68 % 1.01 % Return on average equity (ratio of net income to average equity) 7.36 % 8.79 % Yield on interest-earning assets 4.98 % 4.18 % Rate paid on interest-bearing liabilities 2.59 % 1.01 % Interest rate spread information: Average during period 2.39 % 3.17 % End of period 2.27 % 3.09 % Net interest margin (1) 2.78 % 3.36 % Operating expense to average total assets 2.20 % 2.35 % Average interest-earning assets to average interest-bearing liabilities 117.81 % 122.34 % Efficiency ratio (2) 72.71 % 64.85 % Asset quality ratios: Non-performing assets to total assets (3) 0.56 % 0.69 % Non-performing loans and leases to total gross loans and leases (4) 0.72 % 0.94 % Allowance for credit losses on loans and leases to non-performing loans and leases (4) 195.80 % 135.28 % Allowance for credit losses on loans and leases to total gross loans and leases 1.42 % 1.27 % Net charge-offs to average outstanding loans and leases during the period 0.06 % 0.03 % Capital ratios: Common equity tier 1 capital (to risk weighted assets) (5) 12.85 % 13.23 % Tier 1 leverage (core) capital (to adjusted tangible assets) (5) 10.64 % 11.20 % Tier 1 risk-based capital (to risk weighted assets) (5) 12.85 % 13.23 % Total risk-based capital (to risk weighted assets) (5) 14.10 % 14.31 % Equity to total assets at end of period 9.23 % 10.01 % Average equity to average assets 9.20 % 11.51 % Per share data: Basic earnings per share $ 0.91 $ 1.20 Diluted earnings per share 0.91 1.17 Cash dividends paid 0.56 0.40 Book value at year end 12.03 11.28 Tangible book value at year end (6) 12.03 11.28 Other data: Number of full-service offices 12 12 Full-time equivalent employees 176 181 _____________________ (1) Net interest income divided by average interest earning assets.
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.
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.
The Company evaluated its exposure to potential loan and lease losses as of December 31, 2022, which evaluation included consideration of a potential recession due to inflation, rising interest rates, stock market volatility, and the Russia-Ukraine conflict. Credit metrics are being reviewed and stress testing is being performed on the loan portfolio on an ongoing basis.
The Company evaluated its exposure to potential loan and lease losses as of December 31, 2023, which evaluation included consideration of persistent inflation, higher interest rates, a weakened economic growth and unemployment outlook, stock market volatility, and increased geopolitical risk. Credit metrics are being reviewed and stress testing is being performed on the loan portfolio on an ongoing basis.
We paid regular quarterly cash dividends of $0.10 per common share during 2022, and regular quarterly cash dividends of $0.07 per share and a special dividend of $0.50 per share during 2021. This equates to a dividend payout ratio of 34.0% in 2022 and 83.8% in 2021.
We paid regular quarterly cash dividends of $0.14 per common share during 2023, compared to $0.10 per share during 2022. This equates to a dividend payout ratio of 62.4% in 2023 and 34.0% in 2022.
The determination of the allowance is inherently subjective, as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on other classified loans and pools of homogeneous loans, and consideration of past loan loss experience, 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.
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.
The provision for loan and lease losses in 2022 was $600,000, an $830,000, or 58.0%, decrease compared to $1.4 million in 2021. The provision for loan and lease losses reflects the amount required to maintain the allowance for loan and leases losses at an appropriate level based upon management’s evaluation of the adequacy of collective and individual loss reserves.
The provision for credit losses in 2023 was $532,000, a $68,000, or 11.3%, decrease compared to $600,000 in 2022. 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.
The average balance of interest-bearing checking accounts increased $10.3 million, or 6.6%, to $165.2 million in 2022 from $154.9 million in 2021, while the average rate paid on interest-bearing checking accounts increased nine basis points to 0.32% in 2022 from 0.23% in 2021, resulting in a $172,000 increase in interest expense.
The average balance of interest-bearing checking accounts decreased $17.2 million, or 10.4%, to $148.0 million in 2023 from $165.2 million in 2022, while the average rate paid on interest-bearing checking accounts increased 39 basis points to 0.71% in 2023 from 0.32% in 2022, resulting in a $520,000 increase in interest expense.
Interest expense on borrowings, consisting solely of FHLB advances, increased $345,000, or 12.6%, due to an 18 basis point increase on the average rate paid to 1.72% in 2022 from 1.54% in 2021, and a $1.4 million, or 0.8%, increase in the average balance of borrowings to $180.0 million in 2022 from $178.5 million in 2021. Net Interest Income .
Interest expense on borrowings, consisting solely of FHLB advances, increased $3.8 million, or 124.4%, due to a 146 basis point increase on the average rate paid to 3.18% in 2023 from 1.72% in 2022, and a $38.1 million, or 21.1%, increase in the average balance of borrowings to $218.0 million in 2023 from $180.0 million in 2022.
Shareholders' equity totaled $133.0 million at December 31, 2022 and $180.5 million at December 31, 2021. In addition to net income of $13.0 million, other sources of capital during 2022 included $799,000 related to the allocation of ESOP shares during the year and $1.5 million related to stock-based compensation.
Shareholders' equity totaled $134.9 million at December 31, 2023 and $132.4 million at December 31, 2022. In addition to net income of $9.5 million, other sources of capital during 2023 included $612,000 related to the allocation of ESOP shares during the year, $1.6 million related to stock-based compensation and a decrease in AOCL of $6.7 million.
Potentially higher risk segments of the portfolio, such as hotels and restaurants, continue to be closely monitored. Investment Securities. Investment securities decreased $75.0 million, or 20.5%, to $291.6 million at December 31, 2022, from $366.6 million at December 31, 2021.
Potentially higher risk segments of the portfolio, such as hotels and restaurants, are being closely monitored. Investment Securities. Investment securities decreased $3.9 million, or 1.3%, to $287.6 million at December 31, 2023, from $291.6 million at December 31, 2022.
The decrease was primarily driven by a decrease in net gains on loan and lease sales of $1.8 million, or 73.9%, to $639,000 in 2022 from $2.5 million in 2021, as mortgage banking activity declined due to lower refinancing activity, a lower supply of houses for sale in the Bank’s market area, and increases in residential mortgage rates.
Net gains on loan and lease sales decreased $121,000, or 19.0%, to $518,000 in 2023 from $639,000 in 2022, as mortgage banking activity declined due to lower refinancing activity, a lower supply of houses for sale in the Bank's 54 market area, and increases in residential mortgage rates.
At December 31, 2022 2021 (In thousands) Selected Financial Condition Data: Total assets $ 1,328,620 $ 1,267,640 Loans and leases, net (1) 961,691 832,846 Securities available for sale, at fair value 284,900 357,538 Investment securities, at amortized cost 6,672 9,041 FHLB stock 9,947 9,992 Deposits 1,005,261 900,175 FHLB advances 180,000 180,000 Stockholders’ equity 132,978 180,481 _____________________ (1) Net of allowances for loan and lease losses, loans in process and deferred loan fees.
At December 31, 2023 2022 (In thousands) Selected Financial Condition Data: Total assets $ 1,461,024 $ 1,328,026 Loans and leases, net (1) 1,090,073 961,691 Securities available for sale, at fair value 282,688 284,900 Investment securities, at amortized cost 4,950 6,672 FHLB stock 12,647 9,947 Deposits 1,041,140 1,005,261 FHLB advances 271,000 180,000 Stockholders’ equity 134,860 132,385 _____________________ (1) Net of allowances for credit losses, loans in process and deferred loan fees.
The average balance of savings and money market accounts increased $37.3 million, or 15.1%, to $284.7 million in 2022 compared to $247.4 million in 2021, while the rate paid on these accounts increased 25 basis points to 0.76% in 2022 from 0.51% in 2021, resulting in a $897,000 increase in interest expense.
The average rate paid on savings and money market accounts increased 106 basis points to 1.82% from 0.76% in 2022, while the average balance of those accounts decreased $10.2 million, or 3.6%, to $274.5 million in 2023 compared to $284.7 million in 2022, resulting a $2.8 million increase in interest expense.
We also experienced a $17.5 million, or 16.3%, increase in multi-family loans, a $15.8 million, or 11.2%, increase in residential real estate loans (including home equity lines of credit), a $6.7 million, or 5.3%, increase in direct financing leases, and a $5.1 million, or 32.3%, increase in consumer loans.
We also experienced a $13.8 million, or 11.1%, increase in multi-family loans, a $15.9 million, or 10.1%, increase in residential real estate loans (including home equity lines of credit), a $17.9 million, or 12.8%, increase in construction and development loans, a $15.0 million, or 14.9% increase in commercial and industrial loans, and a $2.2 million, or 10.5%, increase in consumer loans.
Interest earned on investment securities, including FHLB stock, increased $1.8 million, or 34.3%, due to a 58 basis point increase in the average yield, partially offset by a $5.5 million decrease in the average balance of the portfolio.
Interest earned on investment securities, excluding FHLB stock, increased $491,000, or 7.3%, due to a 42 basis point increase in the average yield, partially offset by a $33.3 million decrease in the average balance of the portfolio. Dividends on FHLB stock increased $452,000, or 113.3%, during 2023 compared to the prior year.
Years Ended December 31, 2022 2021 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 $ 897,918 $ 44,594 4.97 % $ 786,686 $ 40,579 5.16 % Securities 318,917 6,712 2.10 % 324,372 5,022 1.55 % FHLB stock 9,856 399 4.05 % 9,281 273 2.94 % Cash and cash equivalents and other 13,739 153 1.11 % 23,750 52 0.22 % Total interest-earning assets 1,240,430 51,858 4.18 % 1,144,089 45,926 4.01 % Non-earning assets 40,659 38,840 Total assets 1,281,089 1,182,929 Interest-bearing liabilities: Savings and money market accounts 284,725 2,153 0.76 % 247,431 1,256 0.51 % Interest-bearing checking accounts 165,213 534 0.32 % 154,938 362 0.23 % Certificate accounts 384,038 4,441 1.16 % 287,051 3,318 1.16 % Borrowings 179,966 3,091 1.72 % 178,540 2,746 1.54 % Total interest-bearing liabilities 1,013,942 10,219 1.01 % 867,960 7,682 0.89 % Noninterest-bearing demand deposits 111,990 108,374 Other liabilities 7,686 22,458 Stockholders' equity 147,471 184,137 Total liabilities and stockholders' equity 1,281,089 1,182,929 Net interest income $ 41,639 $ 38,244 Net earning assets $ 226,488 $ 276,129 Net interest rate spread (1) 3.17 % 3.12 % Net interest margin (2) 3.36 % 3.34 % Average interest-earning assets to average interest-bearing liabilities 122.34 % 131.81 % _____________________ (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.
Years Ended December 31, 2023 2022 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 $ 1,044,471 $ 58,794 5.63 % $ 897,918 $ 44,594 4.97 % Securities 285,600 7,203 2.52 % 318,917 6,712 2.10 % FHLB stock 10,750 851 7.92 % 9,856 399 4.05 % Cash and cash equivalents and other 13,728 562 4.09 % 13,739 153 1.11 % Total interest-earning assets 1,354,549 67,410 4.98 % 1,240,430 51,858 4.18 % Non-earning assets 45,212 40,659 Total assets 1,399,761 1,281,089 Interest-bearing liabilities: Savings and money market accounts 274,497 4,989 1.82 % 284,725 2,153 0.76 % Interest-bearing checking accounts 147,964 1,054 0.71 % 165,213 534 0.32 % Certificate accounts 509,316 16,767 3.29 % 384,038 4,441 1.16 % Borrowings 218,025 6,938 3.18 % 179,966 3,091 1.72 % Total interest-bearing liabilities 1,149,802 29,748 2.59 % 1,013,942 10,219 1.01 % Noninterest-bearing demand deposits 107,192 111,990 Other liabilities 13,924 7,686 Stockholders' equity 128,843 147,471 Total liabilities and stockholders' equity 1,399,761 1,281,089 Net interest income $ 37,662 $ 41,639 Net earning assets $ 204,747 $ 226,488 Net interest rate spread (1) 2.39 % 3.17 % Net interest margin (2) 2.78 % 3.36 % Average interest-earning assets to average interest-bearing liabilities 117.81 % 122.34 % _____________________ (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.
Average Balances, Interest and Average Yields/Cost The following tables set forth for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities.
The decline in the effective tax rate primarily was due to the use of a pooled captive insurance company, which was formed during 2022, that allows the Company to assume more control over insurance risks, as well as tax deductions related to the employee stock ownership plan. 55 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.
Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and we have the ability to hold the securities to maturity.
Management determines the appropriate classification at the time of purchase. The classification of securities is significant since it directly impacts the accounting for unrealized gains and losses on securities. Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and we have the ability to hold the securities to maturity.
These increases were partially offset by a decrease of $7.9 million, or 6.9%, in noninterest-bearing demand deposits, a $6.9 million, or 4.2%, decrease in interest-bearing demand deposits, and a $42.9 million, or 17.5%, decrease in non-brokered time deposits.
These increases were partially offset by a decrease of $23.9 million, or 8.5%, in savings and money market accounts, and a $5.6 million, or 3.6%, decrease in interest-bearing demand deposits.
Net income totaled $13.0 million for 2022 compared to $11.1 million in 2021, an increase of $1.8 million or 16.3%.
Net income totaled $9.5 million for 2023 compared to $13.0 million in 2022, a decrease of $3.5 million or 26.8%.
Net charge-offs in 2022 were $295,000 compared to net recoveries of $92,000 in 2021. The allowance as a percentage of the total loan and lease portfolio was 1.27% at year-end 2022, compared to 1.43% at year-end 2021.
The allowance for credit losses on loans and leases as a percentage of the total loan and lease portfolio was 1.42% at year-end 2023, compared to 1.27% at year-end 2022. Net charge-offs in 2023 equaled 0.06% of total average loans and leases outstanding compared to net charge-offs of 0.03% of total average loans and leases outstanding in 2022.
The increase in net income was due to a $5.9 million, or 12.9%, increase in interest income, an $830,000, or 58.0%, reduction in the provision for loan losses, partially offset by a $2.5 million, or 33.0%, increase in interest expense, a $549,000, or 10.1%, decrease in non-interest income, and a $1.5 million, or 5.3%, increase in non-interest expense.
The decrease in net income was due to a $19.5 million, or 191.1%, increase in interest expense, a $256,000, or 5.3%, decrease in non-interest income and a $583,000, or 1.9%, increase in non-interest expense, partially offset by a $15.6 million, or 30.0%, increase in interest income and a $1.3 million, or 45.5%, decrease in income tax expense. Interest Income .
At December 31, 2022 2021 Amount Percent Amount Percent (Dollars in thousands) Real estate loans: Residential mortgage (1) $ 146,129 14.99 % $ 134,155 15.86 % Home equity lines of credit 11,010 1.13 7,146 0.84 Multi-family 124,914 12.81 107,421 12.70 Commercial mortgage 298,087 30.57 261,202 30.88 Construction and development 139,923 14.35 93,678 11.07 Total real estate loans 720,063 73.85 603,602 71.35 Consumer loans 21,048 2.16 15,905 1.88 Commercial business loans and leases: Commercial and industrial 100,420 10.30 99,682 11.78 Leases 133,469 13.69 126,762 14.98 Total commercial business loans and leases 233,889 23.99 226,444 26.77 Total loans and leases 975,000 100.00 % 845,951 100.00 % Less: Deferred fees and discounts 896 997 Allowance for loan and lease losses 12,413 12,108 Total loans and leases, net $ 961,691 $ 832,846 _____________________ (1) Includes $4.7 million and $3.2 million of loans secured by second mortgages on residential properties at December 31, 2022 and 2021, respectively.
At December 31, 2023 2022 Amount Percent Amount Percent (Dollars in thousands) Real estate loans: Residential mortgage (1) $ 162,123 14.65 % $ 146,129 14.99 % Home equity lines of credit 10,904 0.99 11,010 1.13 Multi-family 138,757 12.54 124,914 12.81 Commercial mortgage 341,633 30.87 298,087 30.57 Construction and development 157,805 14.26 139,923 14.35 Total real estate loans 811,222 73.31 720,063 73.85 Consumer loans 23,264 2.10 21,048 2.16 Commercial business loans and leases: Commercial and industrial 115,428 10.43 100,420 10.30 Leases 156,598 14.15 133,469 13.69 Total commercial business loans and leases 272,026 24.58 233,889 23.99 Total loans and leases 1,106,512 100.00 % 975,000 100.00 % Less: Deferred fees and discounts 776 896 Allowance for credit losses on loans and leases 15,663 12,413 Total loans and leases, net $ 1,090,073 $ 961,691 _____________________ (1) Includes $6.4 million and $4.7 million of loans secured by second mortgages on residential properties at December 31, 2023 and 2022, respectively. 52 Nonperforming loans and leases, consisting of nonaccrual loans and leases and accruing loan and leases more than 90 days past due, totaled $8.0 million, or 0.72% of total loans and leases at December 31, 2023, compared to $9.2 million, or 0.94% of total loans and leases at December 31, 2022.
The increase in loans was primarily funded by a $105.1 million, or 11.7%, increase in deposits. Loans and Leases. Our loan and lease portfolio, net of allowance for loan and lease losses, increased $128.8 million, or 15.5%, to $961.7 million at December 31, 2022 from $832.8 million at December 31, 2021.
Our loan and lease portfolio, net of allowance for credit losses on loans and leases, increased $128.4 million, or 13.3%, to $1.1 billion at December 31, 2023 from $961.7 million at December 31, 2022.
If we do not intend to sell the security and it is more likely than not that we will not be required to sell the security before recovery of its amortized cost basis less any current period loss, the OTTI will be separated into the amount representing the credit loss and the amount related to all other factors.
If we do not intend to sell the security and it is more likely than not that we will not be required to sell the security before recovery of its amortized cost basis, the present values of expected cash flows to be collected from the security will be compared against the amortized cost basis of the security.
The majority of the growth occurred in construction and development loans which increased $46.2 million, or 49.4%, to $139.9 million, and in commercial real estate loans which increased $36.9 million, or 14.1%, to $298.1 million at December 31, 2022 compared to the prior year.
The majority of the growth occurred in commercial real estate loans which increased $43.5 million, or 14.6%, to $341.6 million, and in direct financing leases which increased $23.1 million, or 17.3%, to $156.6 million at December 31, 2023 compared to the prior year.
Income Tax Expense . Income tax expense increased $348,000 in 2022 compared to 2021. This increase in income tax expense was primarily due to pretax income increasing $2.2 million, or 16.0%, partially offset by a lower effective tax rate in 2022. The effective tax rate for the year ended 2022 was 17.7% compared to 17.9% in 2021.
Income tax expense decreased $1.3 million in 2023 compared to 2022. This decrease in income tax expense was primarily due to pretax income decreasing $4.7 million, or 30.1%, and a lower effective tax rate in 2023. The effective tax rate for the year ended 2023 was 13.8% compared to 17.7% in 2022.
This increase was driven by a $128.8 million, or 15.5%, increase in the loan and lease portfolio, net of allowance for loan and lease losses, partially offset by a $75.0 million, or 20.5% decrease in investment securities, and a $7.1 million, or 30.9% decrease in cash and cash equivalents.
Total assets increased $133.0 million, or 10.0%, to $1.5 billion at December 31, 2023 from December 31, 2022. The increase was driven by a $128.4 million, or 13.3%, increase in the loan and lease portfolio, net of allowance for credit losses on loans and leases, partially offset by a $3.9 million, or 1.3% decrease in investment securities.
Total deposits increased $105.1 million, or 11.7%, to $1.0 billion at December 31, 2022 from $900.2 million at December 31, 2021. This increase in deposits was primarily due to an increase in brokered deposits of $136.1 million, or 111.8%, as well as an increase in savings and money market accounts of $26.7 million, or 10.5%.
Total deposits increased $35.9 million, or 3.6%, to $1.0 billion at December 31, 2023 compared to December 31, 2022. This increase was primarily due to an increase in non-brokered time deposits of $46.4 million, or 22.9%, as well as an increase in brokered time deposits of $10.9 million, or 4.2%.
Net interest income before provision for loan and lease losses increased $3.4 million, or 8.9%, to $41.6 million in 2022 compared to $38.2 million in 2021, primarily due to a five basis point increase in the average interest rate spread, partially offset by the growth in average interest-bearing liabilities exceeding the growth in average interest-bearing assets.
Net Interest Income . Net interest income before provision for credit losses decreased $4.0 million, or 9.5%, to $37.7 million in 2023 compared to $41.6 million in 2022, primarily due to a 78 basis point decrease in the average interest rate spread.
We have an established process to determine the adequacy of the allowance for loan and lease losses.
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.
Securities . Under Financial Accounting Standards Board ("FASB") Codification Topic 320 (ASC 320), Investments-Debt, investment securities must be classified as held to maturity, available for sale or trading. Management determines the appropriate classification at the time of purchase. The classification of securities is significant since it directly impacts the accounting for unrealized gains and losses on securities.
A provision for credit losses for unfunded commitments is charged to operations periodically upon evaluation of the necessary balance in the allowance. Available for Sale Securities . Under Financial Accounting Standards Board (“FASB”) Codification Topic 320 (ASC320), Investments-Debt, investment securities must be classified as held to maturity, available for sale or trading.
The decrease in stockholders’ equity from December 31, 2021 primarily was the result of a reduction in accumulated comprehensive income of $48.5 million due to a greater mark-to-market adjustment to the investment portfolio as a result of higher interest rates, the payment of $4.4 million in dividends to Company stockholders, and the repurchase of $9.9 million of Company common stock, partially offset by net income of $13.0 million.
The increase in stockholders’ equity primarily was the result of net income of $9.5 million and a decrease in Accumulated Other Comprehensive Loss (“AOCL”) of $6.7 million, partially offset by the payment of $5.9 million in dividends to Company stockholders, the repurchase of $6.3 million of Company common stock, and the one-time adjustment to retained earnings of $3.8 million for the adoption of CECL during the first quarter.
At December 31, 2022, brokered deposits equaled 25.7% of total deposits compared to $121.8 million, or 13.5% of total deposits at December 31, 2021. At December 31, 2022, noninterest-bearing deposits totaled $106.4 million, or 10.6% of total deposits, compared to $114.3 million, or 12.7%, of total deposits at December 31, 2021. Borrowings.
At December 31, 2023, noninterest-bearing deposits totaled $114.4 million, or 11.0% of total deposits, compared to $106.4 million, or 10.6%, of total deposits at December 31, 2022. As of December 31, 2023, approximately $216.0 million of our deposit portfolio, or 20.7% of total deposits, excluding collateralized public deposits, was uninsured.
First Bank Richmond’s tangible common equity ratio and its risk-based capital ratios exceeded “well-capitalized” levels as defined by all regulatory standards as of December 31, 2022. Comparison of Results of Operations for the Years Ended December 31, 2022 and 2021 General .
The AOCL impact to equity, after tax effecting the unrealized loss, was $43.0 million at December 31, 2023, compared to $49.8 million at December 31, 2022. First Bank Richmond was considered “well-capitalized” as defined by all regulatory standards as of December 31, 2023. 53 Comparison of Results of Operations for the Years Ended December 31, 2023 and 2022 General .
Average balances of certificates of deposit increased $97.0 million, or 33.8% in 2022 from $287.1 million in 2021, while the rate paid on certificates of deposit remained the same in 2022 as 2021, resulting in a $1.1 million increase in interest expense.
The average rate paid on certificate of deposit accounts increased 213 basis points to 3.29% from 1.16% in 2022, while the average balance of certificate of deposit accounts increased $125.3 million, or 32.6%, to $509.3 million in 2023 compared to $384.0 million in 2022, resulting a $12.3 million increase in interest expense.
Service charges on deposit accounts increased $168,000, or 19.1%, to $1.0 million during 2022 compared to $882,000 during 2021 as a result of higher overdraft fees and ATM fees.
Service charges on deposit accounts increased $65,000, or 6.2%, to $1.1 million during 2023 compared to $1.0 million during 2022 as a result of increased demand deposit account service fees and non-sufficient funds fees. In addition, card fee income increased $49,000, or 4.1%, due to increased debit card usage. Non-interest Expenses .
At December 31, 2022, the allowance for loan and lease losses totaled 1.27% of total loans and leases outstanding compared to 1.43% at December 31, 2021. Net charge-offs during the year ended 2022 were $295,000, or 0.03% of average loans and leases outstanding, compared to net recoveries of $92,000, or 0.01% of average loans and leases outstanding, during 2021.
The allowance for credit losses on loans and leases totaled $15.7 million, or 1.42% of total loans and leases outstanding at December 31, 2023. At December 31, 2022, prior to the adoption of CECL, the allowance for loan and lease losses totaled $12.4 million, or 1.27% of total loans and leases outstanding.
Years Ended December 31, 2022 vs. 2021 Increase/ (decrease) due to Total increase/ (decrease) Volume Rate (In thousands) Interest-earning assets: Loans and leases receivable $ 5,713 $ (1,698) $ 4,015 Securities (86) 1,776 1,690 FHLB stock 17 109 126 Cash and cash equivalents and other (22) 123 101 Total interest-earning assets $ 5,622 $ 310 $ 5,932 Interest-bearing liabilities: Savings and money market accounts $ 189 $ 708 $ 897 Interest-bearing checking accounts 24 148 172 Certificate accounts 1,123 — 1,123 Borrowings 22 323 345 Total interest-bearing liabilities $ 1,358 $ 1,179 $ 2,537 Change in net interest income $ 3,395 Capital and Liquidity Capital.
Years Ended December 31, 2023 vs. 2022 Increase/ (decrease) due to Total increase/ (decrease) Volume Rate (In thousands) Interest-earning assets: Loans and leases receivable $ 7,295 $ 6,905 $ 14,200 Securities (687) 1,178 491 FHLB stock 36 416 452 Cash and cash equivalents and other — 409 409 Total interest-earning assets $ 6,644 $ 8,908 $ 15,552 Interest-bearing liabilities: Savings and money market accounts $ (78) $ 2,914 $ 2,836 Interest-bearing checking accounts (55) 575 520 Certificate accounts 1,456 10,870 12,326 Borrowings 656 3,191 3,847 Total interest-bearing liabilities $ 1,979 $ 17,550 $ 19,529 Change in net interest income $ (3,977) Capital and Liquidity Capital.
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.
As of December 31, 2023, the Company had approximately 868,036 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.
Interest Income . Total interest income for 2022 increased $5.9 million or 12.9% over 2021.
Non-interest Income . Total non-interest income decreased $256,000, or 5.3%, to $4.6 million for 2023 compared to $4.9 million for 2022.
The increase primarily was a result of a $111.2 million increase in the average balance of loans and leases outstanding year-over-year, partially offset by a 19 basis point decrease in average yield on loans and leases, resulting in a $4.0 million increase in interest income on loans and leases.
Total interest income for 2023 increased $15.6 million or 30.0% over 2022. The increase primarily was a result of an 80 basis point increase in the average yield on interest earning assets, alongside $114.1 million increase in the average balance of interest earning assets.
Our net interest margin in 2022 was 3.36%, an increase of two basis points compared to 2021. During the year, the recognition of deferred fees related to PPP loan forgiveness had a positive impact on the net interest margin.
Our net interest margin in 2023 was 2.78%, a decrease of 58 basis points compared to 2022 as a result of a decline in net interest income coupled with an increase in average-interest earning assets during the year.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+1 added−1 removed11 unchanged
Biggest changeChange in Interest Rates (basis points) (1) Net Interest Income Year 1 Forecast Year 1 Change from Level (Dollars in thousands) +300 $ 35,190 (2.11) % +200 35,581 (1.02) +100 35,754 (0.54) Level 35,949 — -100 36,492 1.51 -200 36,920 2.70 -300 38,255 6.41 _________________________ (1) Assumes an immediate uniform change in interest rates at all maturities. 59 Economic Value of Equity.
Biggest changeChange in Interest Rates (basis points) (1) Net Interest Income Year 1 Forecast Year 1 Change from Level (Dollars in thousands) +300 $ 34,771 (2.71) % +200 35,220 (1.46) +100 35,476 (0.74) Level 35,741 — -100 36,513 2.16 -200 37,379 4.58 -300 39,578 10.74 _________________________ (1) Assumes an immediate uniform change in interest rates at all maturities. 60 Economic Value of Equity.
Our Asset/Liability Committee is responsible for 58 evaluating the interest rate risk inherent in our balance sheet, for determining the appropriate level of risk given our business strategy, operating environment, capital and liquidity, and for managing this risk consistent with our policies and guidelines.
Our Asset/Liability Committee is responsible for evaluating the interest rate risk inherent in our balance sheet, for determining the appropriate level of risk given our business strategy, operating environment, capital and liquidity, and for managing this risk consistent with our policies and guidelines.
We generally manage our balance sheet based on potential changes to net interest income under various rate scenarios. The EVE ratio is useful in long-term planning; but management gives more weight to changes in net interest income under various rate scenarios. IRR projections are tested annually, and the model is subject to a third-party review annually. 60
We generally manage our balance sheet based on potential changes to net interest income under various rate scenarios. The EVE ratio is useful in long-term planning; but management gives more weight to changes in net interest income under various rate scenarios. IRR projections are tested annually, and the model is subject to a third-party review annually. 61
The table below sets forth, as of December 31, 2022, the estimated changes in our EVE that would result from instantaneous changes in market interest rates. This table assumes an instantaneous uniform change in interest rates at all maturities.
The table below sets forth, as of December 31, 2023, the estimated changes in our EVE that would result from instantaneous changes in market interest rates. This table assumes an instantaneous uniform change in interest rates at all maturities.
The table below sets forth, as of December 31, 2022, the calculation of the estimated changes in our net interest income that results from the designated immediate changes in the United States Treasury yield curve.
The table below sets forth, as of December 31, 2023, the calculation of the estimated changes in our net interest income that results from the designated immediate changes in the United States Treasury yield curve.
Removed
Basis Point (“bp”) Change in Interest Rates (1) Estimated Increase (Decrease) in EVE Estimated EVE (2) Amount Percent (Dollars in thousands) +300 $ 66,515 $ (64,211) (49.12) % +200 93,219 (37,507) (28.69) +100 111,535 (19,191) (14.68) Level 130,726 — — -100 162,887 32,161 24.60 -200 185,920 55,194 42.22 -300 197,601 66,875 51.16 _____________________ (1) Assumes an instantaneous uniform change in interest rates at all maturities.
Added
Basis Point (“bp”) Change in Interest Rates (1) Estimated Increase (Decrease) in EVE Estimated EVE (2) Amount Percent (Dollars in thousands) +300 $ 91,055 $ (44,673) (32.91) % +200 108,951 (26,777) (19.73) +100 121,703 (14,025) (10.33) Level 135,728 — — -100 155,610 19,882 14.65 -200 167,204 31,476 23.19 -300 184,073 48,345 35.62 _____________________ (1) Assumes an instantaneous uniform change in interest rates at all maturities.

Other RMBI 10-K year-over-year comparisons