Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
Certain statements contained in this Form 10-K may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact and are based on certain assumptions and expectations regarding future events. These statements are generally identified by words such as “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook,” or similar expressions, or by future or conditional verbs such as “may,” “will,” “should,” “would,” or “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, lease, and investment portfolios;
• statements regarding the expected benefits of proposed transactions, including our proposed merger with Farmers Bancorp; and
• estimates of our risks and future costs and benefits.
You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements are based on our current beliefs and expectations and are inherently subject to significant business, economic, competitive, and regulatory uncertainties and contingencies, many of which are beyond our control. They are also subject to assumptions regarding future business strategies and decisions that are subject to change.
Important factors that could cause our actual results to differ materially from the results anticipated or projected, include, but are not limited to, the following:
• adverse impacts to economic conditions in our local market areas and other markets where we have lending relationships;
• effects of employment levels, labor shortages and inflation, a recession, or slowed economic growth;
• changes in the interest rate levels and volatility, and the timing and pace of such changes including actions by the Federal Reserve in response thereto;
• the impact of inflation and the monetary and fiscal policy responses thereto, and their impact on consumer and business behavior;
• the effects of a federal government shutdown, debt ceiling standoff, or other fiscal policy uncertainty;
• changes in the level and direction of loan or lease delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses;
• our ability to access cost-effective funding including maintaining the confidence of depositors;
• unexpected outflows of uninsured deposits may require us to sell investment securities at a loss;
• fluctuations in real estate values, and residential, commercial, and multi-family real estate market conditions;
• competitive pressures among depository institutions, including repricing and competitors' pricing initiatives, and their impact on our market position, loan, and deposit products;
• our ability to implement and change our business strategies;
• competition among depository and other financial institutions and equipment financing companies;
• the impact of bank failures or other adverse developments at banks and related negative publicity about the banking industry in general on investor and depositor sentiment;
• inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on our loans and leases;
• adverse changes in the securities or secondary mortgage markets;
• changes in the quality or composition of our loan, lease or investment portfolios;
• our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, "denial of service" attacks, "hacking" and identity theft, and other attacks on our information technology systems or on our third-party vendors;
• results of examinations by regulatory authorities and potential requirements to increase credit loss allowances, write-down assets, reclassify assets, change our regulatory capital position, or affect our liquidity and earnings;
• the inability of third-party providers to perform as expected;
• our ability to manage market risk, credit risk and operational risk in the current economic environment;
• our ability to enter new markets successfully and capitalize on growth opportunities;
• our ability to attract and retain key employees;
• changes in the financial condition, results of operations or future prospects of issuers of securities that we own;
• our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;
• changes in consumer spending, borrowing and savings habits;
• changes in accounting policies and practices, as may be adopted by banking regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission ("SEC") or the Public Company Accounting Oversight Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods;
• legislative or regulatory changes, including but not limited to shifts in capital requirements, banking regulation, tax laws, or consumer protection laws;
• our ability to pay dividends on our common stock;
• our ability to adapt to rapid technological changes, including advancements related to artificial intelligence, digital banking platforms, and cybersecurity;
• geopolitical developments and international conflicts, or the imposition of new or increased tariffs and trade restrictions, which may disrupt financial markets, global supply chains, commodity prices, or economic activity in specific industry sectors;
• other economic, competitive, governmental, regulatory, and technical factors affecting our operations, pricing, products and services;
• the effects of climate change, severe weather, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, domestic political unrest, and other external events; and
• the other risks described elsewhere in this Form 10 K and our other reports filed with and furnished to the U.S. Securities and Exchange Commission (“SEC”).
Further, statements regarding the potential effects of the proposed merger with Farmers Bancorp on our business, financial results and condition may also constitute forward-looking statements. Actual results may differ materially due to risks and uncertainties, including:
• events, changes, or circumstances that could give rise to the right of either party to terminate the merger agreement;
• the possibility that the merger may not be completed on the anticipated terms, within the expected timeframe, or at all;
• failure to obtain required regulatory or shareholder approvals, or the imposition of conditions that could adversely affect the combined company or expected benefits;
• challenges in meeting expectations regarding the timing, completion, accounting, and tax treatment of the merger;
• the potential that anticipated cost savings, synergies, or revenue enhancements may not be realized to the extent anticipated, or at all, or may take longer to achieve;
• higher-than-expected transaction costs, integration costs, or unexpected events related to the transaction and subsequent integration;
• dilution from the issuance of additional Richmond Mutual common stock in connection with the merger;
• potential litigation or other legal proceedings related to the merger;
• restrictions during the pendency of the transaction that may limit business opportunities or strategic initiatives;
• the ability to successfully integrate operations, systems, personnel, and technologies post-merger;
• disruption to customer, employee, or vendor relationships, including key community relationships;
• diversion of management’s attention from ongoing operations and strategic initiatives;
• lower-than-expected revenues or profitability following the merger;
• changes in credit, capital markets, or economic, political, or regulatory conditions;
• competition from banks and other financial service providers;
• the Company’s, Farmers Bancorp’s or the combined company’s success at managing the risks involved in the foregoing items; and
• other factors detailed in Richmond Mutual’s filings with the SEC.
These forward-looking statements are based on information known to us as of the date of this Form 10-K and speak only as of that date. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances, except as required by law. In light of the risks and uncertainties described above, actual results may differ materially from those expressed or implied in the forward-looking statements.
Additional factors that may affect our results are discussed under Part I, Item 1A in this document under the heading “Risk Factors.”
General
Our principal business consists of attracting deposits from the general public, as well as brokered deposits, and investing those funds primarily in loans secured by first mortgages on owner-occupied, one- to four-family residences, a variety of consumer loans, direct financing leases, commercial and industrial loans, and loans secured by commercial and multi-family real estate. We also obtain funds by utilizing FHLB advances. Funds not invested in loans generally are invested in investment securities, including mortgage-backed and mortgage-related securities and agency and municipal bonds. Richmond Mutual Bancorporation's primary business activities are currently limited to one significant business segment, which is community banking.
Our results of operations are primarily dependent on net interest income. Net interest income is the difference between interest income, which is the income that is earned on loans and investments, and interest expense, which is the interest that is paid on deposits and borrowings. Other significant sources of pre-tax income are service charges (mostly from service charges on deposit accounts and loan servicing fees), and fees from the sale of residential mortgage loans originated for sale in the secondary market. We may also recognize income from the sale of investment securities.
At December 31, 2025, on a consolidated basis, we had $1.5 billion in assets, $1.2 billion in loans, $1.1 billion in deposits, and $145.8 million in stockholders’ equity. First Bank Richmond’s risk-based capital ratio at December 31, 2025 was 14.6%, exceeding the 10.0% requirement for a well-capitalized institution. For the year ended December 31, 2025, we reported net income of $11.6 million, compared with net income of $9.4 million for 2024.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with GAAP. In doing so, we have to make estimates and assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We have reviewed our critical accounting estimates with the audit committee of our Board of Directors.
See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our financial statements.
Allowance for Credit Losses . The allowance for credit losses applies to all financial instruments carried at amortized cost. We maintain an allowance for credit losses on loans and leases based on expected future credit losses at the balance sheet date. Loan and lease losses are charged against the allowance when management believes the uncollectibility of a loan or lease balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off. A provision for credit losses for loans and leases is charged to operations based on our periodic evaluation of the necessary balance in the allowance.
Determining the appropriateness of the allowance for credit losses is complex and requires judgment by management on future factors that are unknown. We have an established process to determine the adequacy of the allowance for credit losses. The determination of the allowance is inherently subjective, as it requires significant estimates, including the amounts and timing of expected future cash flows on similarly-risked loans in their respective segments, the amounts and timing of expected future cash flows on collateral-dependent loans, movement through risk-ratings, economic forecasts, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors, all of which may be susceptible to significant change.
Management Strategy
We are a community-oriented financial institution dedicated to serving the needs of customers in our primary market area. Our commitment is to offer a full array of consumer and commercial banking products and services to meet the needs of our customers. We offer mortgage lending products to qualified borrowers to give them the broadest access to home ownership in our markets. We offer commercial lending products and services tailored to complement their businesses. Our goal is to maintain asset quality while continuing to build our strong capital position while looking for growth opportunities in the markets we serve. In furtherance of these objectives, we have entered into a definitive agreement to merge with Farmers Bancorp, which we believe will enhance our scale, expand our market presence, and improve our ability to serve customers across a broader geographic footprint. To achieve these goals, we will focus on the following strategies:
Lending. We believe that commercial lending offers an opportunity to enhance our profitability while managing credit, interest rate and operational risk. We seek quality commercial loan opportunities in our existing markets and purchase loan participations that complement our existing portfolios. We will continue to focus our efforts on our existing markets. In connection with our pending merger, we expect to expand our commercial and consumer lending presence into the markets served by Farmers Bancorp and evaluate opportunities to leverage combined lending expertise and customer relationships. We anticipate that the majority of our commercial and multi-family real estate and commercial construction loan originations will range in size from $1.0 million to $8.0 million, while the majority of our commercial and industrial loan originations will range in size from $250,000 to $1.5 million. At December 31, 2025, our commercial loan portfolio, which includes commercial and multi-family real estate loans, commercial and industrial loans, and construction loans, totaled $837.4 million, or 70.2% of total loans and leases, with approximately $223.1 million of these loans, or 18.7% of our total loans and leases, located in the Columbus, Ohio market.
Deposit Services. Deposits are our primary source of funds for lending and investment. We intend to continue to focus on increasing core deposits (which we define as all deposits except for certificates of deposit of $250,000 or more and brokered certificates of deposit) in our primary market area, with a particular emphasis on noninterest-bearing deposits. We will continue 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. Following the completion of the pending acquisition, we expect to leverage the combined branch network and customer base to enhance core deposit growth and broaden our funding base. Core deposits represented 71.3% of our total deposits as of December 31, 2025.
Balance Sheet Growth . As a result of our efforts to build our management and infrastructure, we believe we are well-positioned to increase the size of our balance sheet without a proportional increase in overhead expense or operating risk. Accordingly, we intend to increase, on a managed basis, our assets and liabilities, particularly loans and deposits. The pending merger is expected to accelerate balance sheet growth and provide opportunities for cost efficiencies and operating leverage, subject to regulatory approval and successful integration.
Asset Quality. We believe that strong asset quality is a key to long-term financial success. Our strategy for credit risk management focuses on an experienced team of credit professionals, well-defined credit policies and procedures, appropriate loan underwriting criteria and active credit monitoring. Non-performing loans increased during 2025 compared to the prior year, primarily reflecting stress in certain commercial real estate relationships and the migration of a limited number of commercial credits to nonaccrual status. We are actively monitoring these credits and have taken steps, including enhanced oversight and collection efforts, to address these matters. Our non-performing loans to total loans ratio was 1.46% at December 31, 2025.
Capital Position. Our policy has always been to protect the safety and soundness of First Bank Richmond through credit and operational risk management, balance sheet strength, and sound operations. The end result of these activities has been a capital ratio in excess of the well-capitalized standards set by our regulators. We believe that maintaining a strong capital position safeguards the long-term interests of First Bank Richmond. We expect to maintain capital levels consistent with "well-capitalized" regulatory standards following the completion of the pending merger.
Interest Rate Risk Management. Changes in interest rates are our primary market risk as our balance sheet is almost entirely comprised of interest-earning assets and interest-bearing liabilities. As such, fluctuations in interest rates have a significant impact not only upon our net income but also upon the cash flows related to those assets and liabilities and the market value of our assets and liabilities. 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. We will evaluate the combined balance sheet profile following the completion of the merger to ensure continued alignment with our board-approved interest rate risk parameters.
Selected Consolidated Financial and Other Data
The Financial Condition Data and Operating Data as of and for the years ended December 31, 2025 and 2024 are derived from the audited financial statements and related notes included elsewhere in this Form 10-K. The following information is only a summary and is qualified in its entirety by the detailed information included elsewhere herein and should be read along with Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.
At December 31,
(In thousands)
Selected Financial Condition Data:
Total assets
Loans and leases, net (1)
Securities available for sale, at fair value
Investment securities, at amortized cost
FHLB stock
Deposits
FHLB advances
Stockholders’ equity
(1) Net of allowance for credit losses, loans in process and deferred loan fees.
Years Ended December 31,
(In thousands)
Selected Operations Data:
Total interest income
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Service charges on deposit accounts
Card fee income
Loan and lease servicing fees
Gain on loan and lease sales
Loss on sales of securities
Other income
Total non-interest income
Total non-interest expenses
Income before provision for income taxes
Provision for income taxes
Net income
At or For the
Years Ended December 31,
Selected Financial Ratios and Other Data:
Performance ratios:
Return on average assets (ratio of net income to average total assets)
Return on average equity (ratio of net income to average equity)
Yield on interest-earning assets
Rate paid on interest-bearing liabilities
Interest rate spread information:
Average during period
End of period
Net interest margin (1)
Operating expense to average total assets
Average interest-earning assets to average interest-bearing liabilities
Efficiency ratio (2)
Asset quality ratios:
Non-performing assets to total assets (3)
Non-performing loans and leases to total gross loans and leases (4)
Allowance for credit losses on loans and leases to non-performing loans and leases (4)
Allowance for credit losses on loans and leases to total gross loans and leases
Net charge-offs to average outstanding loans and leases during the period
Capital ratios:
Common equity tier 1 capital (to risk weighted assets) (5)
Tier 1 leverage (core) capital (to adjusted tangible assets) (5)
Tier 1 risk-based capital (to risk weighted assets) (5)
Total risk-based capital (to risk weighted assets) (5)
Equity to total assets at end of period
Average equity to average assets
Per share data:
Basic earnings per share
Diluted earnings per share
Cash dividends paid
Book value at year end
Tangible book value at year end (6)
Other data:
Number of full-service offices
Full-time equivalent employees
(1) Net interest income divided by average interest earning assets.
(2) Total non-interest expenses as a percentage of net interest income and total non-interest income.
(3) Non-performing assets consist of nonaccrual loans and leases, accruing loans and leases more than 90 days past due, and foreclosed assets.
(4) Non-performing loans and leases consist of nonaccrual loans and leases and accruing loans and leases more than 90 days past due.
(5) Capital ratios are for First Bank Richmond.
(6) Tangible book value per share is a non-GAAP measure used by management and others within the financial services industry. Tangible book value per share is calculated by dividing tangible common equity by the number of shares outstanding.
Financial Condition at December 31, 2025 Compared to December 31, 2024
General. Total assets increased $20.9 million, or 1.4%, to $1.5 billion at December 31, 2025 from December 31, 2024. The increase was driven by a $17.9 million, or 1.5%, increase in the loan and lease portfolio, net of allowance for credit losses on loans and leases, partially offset by a $7.0 million, or 2.7% decrease in investment securities. The increase in loans and leases was primarily funded by a $21.0 million, or 1.9%, increase in deposits, driven largely by growth in core retail deposit categories and a reduction in reliance on brokered deposits.
Loans and Leases. Our loan and lease portfolio, net of allowance for credit losses on loans and leases, increased $17.9 million, or 1.5%, to $1.2 billion at December 31, 2025 from $1.2 billion at December 31, 2024. The majority of the growth occurred in commercial real estate loans which increased $42.6 million, or 11.5%, to $414.3 million, and in multi-family loans which increased $23.0 million, or 12.4%, to $208.9 million at December 31, 2025 compared to the prior year. We also experienced a $16.1 million, or 12.8%, increase in commercial and industrial loans, and a $1.7 million, or 0.9%, increase in residential real estate loans (including home equity lines of credit), which was attributable to a $3.3 million increase in home equity lines of credit, partially offset by a $1.6 million decrease in residential mortgage loans. Offsetting these increases were a $60.7 million, or 45.9%, decrease in construction and development loans, a $2.3 million, or 1.6%, decrease in direct financing leases, and a $1.9 million, or 9.1%, decrease in consumer loans. The decrease in construction and development loans was primarily due to completed projects converting to permanent financing.
The following table presents information concerning the composition of our loan and lease portfolio in dollar amounts and in percentages (before deductions for loans in process, deferred fees and discounts and allowances for credit losses on loans and leases) as of the dates indicated.
At December 31,
Amount
Percent
Amount
Percent
(Dollars in thousands)
Real estate loans:
Residential mortgage (1)
Home equity lines of credit
Multi-family
Commercial mortgage
Construction and development
Total real estate loans
Consumer loans
Commercial business loans and leases:
Commercial and industrial
Leases
Total commercial business loans and leases
Total loans and leases
Less:
Deferred fees and discounts
Allowance for credit losses on loans and leases
Total loans and leases, net
(1) Includes $8.6 million and $8.3 million of loans secured by second mortgages on residential properties at December 31, 2025 and 2024, respectively.
Nonperforming loans and leases, consisting of nonaccrual loans and leases and accruing loan and leases 90 days or more past due, totaled $17.4 million, or 1.46% of total loans and leases at December 31, 2025, compared to $6.8 million, or 0.58% of total loans and leases at December 31, 2024. Nonaccrual loans and leases totaled $13.2 million at December 31, 2025, compared to $5.1 million at December 31, 2024. The increase was primarily attributable to one commercial real estate loan of $6.7 million, which had a loan-to-value ratio of approximately 32.2% and was in the process of foreclosure proceedings. Accruing loans and leases past due 90 days or more totaled $4.2 million at December 31, 2025, up from $1.7 million at December 31, 2024. The increase was largely due to one multi-family loan of $2.4 million that became 90 days past due during 2025 but remained accruing at December 31, 2025 due to an anticipated payoff. The loan was placed on nonaccrual status in early 2026 as a result of no payment being received by the bank.
Allowance for Credit Losses. The allowance for credit losses on loans and leases totaled $16.5 million, or 1.38% of total loans and leases outstanding at December 31, 2025, compared to $15.8 million, or 1.34%, of total loans and leases at December 31, 2024. Net charge-offs during 2025 were $1.7 million, compared to net charge-offs of $1.5 million during 2024. The Company's allowance for credit losses on unfunded commitments, which is reported in other liabilities on the Condensed Consolidated Balance Sheets, totaled $328,000 and $558,000 at December 31, 2025 and December 31, 2024, respectively. The decrease in the allowance for credit losses on unfunded commitments was primarily due to lower unfunded loan commitments.
Management regularly analyzes conditions within its geographic markets and evaluates its loan and lease portfolio. The Company evaluated its exposure to potential loan and lease losses as of December 31, 2025, which evaluation included consideration of a potential recession due to inflation, stock market volatility, and overall geopolitical tensions. Credit metrics are being reviewed and stress testing is being performed on the loan portfolio on an ongoing basis. Potentially higher risk segments of the portfolio, such as hotels and restaurants, are being closely monitored.
Investment Securities. Investment securities decreased $7.0 million, or 2.7%, to $254.7 million at December 31, 2025, from $261.7 million at December 31, 2024. The decrease was primarily due to maturities and paydowns of securities of $19.3 million and the sale of $6.8 million of available-for-sale securities, partially offset by a $14.2 million upward mark-to-market adjustment in the fair value of securities available for sale due to a reduction in market rates of interest.
Deposits. Total deposits increased $21.0 million, or 1.9%, to $1.1 billion at December 31, 2025 compared to December 31, 2024. This increase was primarily due to increases in retail (non-brokered) time deposits of $26.0 million, or 9.0%, savings and money market accounts of $18.0 million, or 6.0%, and interest-bearing demand deposits of $8.6 million, or 6.3%. These increases were partially offset by a decrease of $21.6 million, or 8.4%, in brokered time deposits, and a $10.0 million, or 10.0%, decrease in noninterest-bearing demand deposits. At December 31, 2025, brokered deposits equaled $235.9 million, or 21.2% of total deposits compared to $257.6 million, or 23.5% of total deposits at December 31, 2024. At December 31, 2025, noninterest-bearing deposits totaled $100.1 million, or 9.0% of total deposits, compared to $110.1 million, or 10.1%, of total deposits at December 31, 2024.
As of December 31, 2025, approximately $268.2 million of our deposit portfolio, or 24.1% of total deposits, excluding collateralized public deposits, was uninsured. The uninsured amounts are estimated based on the methodologies and assumptions used for First Bank Richmond’s regulatory reporting requirements.
Borrowings. Borrowings, consisting primarily of FHLB advances, totaled $252.0 million at December 31, 2025, compared to $265.0 million at December 31, 2024. In addition to FHLB advances, other borrowings, consisting entirely of federal funds purchased, totaled $12.0 million at December 31, 2025. There were no federal funds purchased at December 31, 2024.
Stockholders’ Equity. Stockholders’ equity totaled $145.8 million at December 31, 2025, an increase of $12.9 million, or 9.7%, from December 31, 2024. The increase in stockholders’ equity primarily was the result of net income of $11.6 million and an $11.2 million decrease in Accumulated Other Comprehensive Loss ("AOCL"), partially offset by the payment of $5.8 million in dividends to Company stockholders and the repurchase of $5.6 million of Company common stock. The decrease in AOCL was primarily due to increases in mark-to-market values associated with our available for sale investment securities portfolio, resulting from a reduction in market rates of interest. At December 31, 2025, the available for sale portfolio had a net unrealized loss of $43.7 million compared to a net unrealized loss of $58.0 million at December 31, 2024. The AOCL impact to equity, after tax effecting the unrealized loss, was $34.6 million at December 31, 2025, compared to $45.8 million at December 31, 2024. First Bank Richmond was considered “well-capitalized” as defined by all regulatory standards as of December 31, 2025.
Comparison of Results of Operations for the Years Ended December 31, 2025 and 2024
General . Net income totaled $11.6 million for 2025 compared to $9.4 million in 2024, an increase of $2.2 million or 23.5%. The increase in net income was due to a $5.1 million, or 13.3%, increase in net interest income and a $304,000 increase in noninterest income, partially offset by a $1.6 million, or 291.3%, increase in provision for credit losses, a $1.1 million, or 3.3%, increase in noninterest expense, and a $590,000, or 39.7%, increase in income tax expense.
Interest Income . Total interest income for 2025 increased $5.4 million, or 6.7%, over 2024. The increase primarily was a result of a 28 basis point increase in the average yield on interest earning assets, alongside a $22.3 million increase in the average balance of interest earning assets. Interest earned on loans and leases increased $5.8 million, or 8.1%, due to a $37.9 million increase in the average balance of and a 29 basis point increase in the average yield earned on loans and leases. Interest earned on investment securities, excluding FHLB stock, decreased $401,000, or 5.8%, due to an $18.9 million decrease in the average balance of the portfolio. Dividends on FHLB stock increased $4,000 during 2025 compared to the prior year. The average yield on FHLB stock during 2025 and 2024 was 8.89%, while the average balance of FHLB stock outstanding during 2025 and 2024 was $13.9 million. Interest on cash and cash equivalents decreased $9,000 due to a 74 basis point decrease in the average yield, partially offset by a $3.2 million increase in the average balance.
Interest Expense . Total interest expense increased $242,000, or 0.6%, to $42.1 million during 2025 compared to $41.8 million during 2024. The increase primarily was the result of an increase in the average rate paid on borrowings, and an increase in average balance of borrowings and savings and money market accounts. The average rate paid on borrowings, consisting primarily of FHLB advances, increased 20 basis points to 4.13% from 3.93% in 2024, while the average balance of borrowings increased $6.1 million, or 2.4%, to $262.1 million in 2025 compared to $256.0 million in 2024, resulting in a $745,000 increase in interest expense. The average rate paid on savings and money market accounts decreased nine basis points to 2.30% from 2.39% in 2024, while the average balance of those accounts increased $26.3 million, or 9.2%, to $312.3 million in 2025 compared to $285.9 million in 2024, resulting in a $341,000 increase in interest expense. The average balance of certificate of deposit accounts decreased $13.5 million, or 2.4%, to $543.7 million in 2025 from $557.2 million in 2024, while the average rate paid on certificate of deposit accounts decreased three basis points to 4.15% in 2025 from 4.18% in 2024, resulting in a $742,000 decrease in interest expense. The average balance of interest-bearing checking accounts decreased $748,000, or 0.5%, to $141.2 million in 2025 from $141.9 million in 2024, while the average rate paid on interest-bearing checking accounts decreased six basis points to 1.07% in 2025 from 1.13% in 2024, resulting in a $102,000 decrease in interest expense.
Net Interest Income . Net interest income before the provision for credit losses increased $5.1 million, or 13.3%, to $43.8 million in 2025 compared to $38.7 million in 2024, primarily due to a 31 basis point increase in the average interest rate spread, and a $4.1 million increase in average net earning assets. The improved spread reflects a favorable shift in asset yields outpacing the increase in funding costs, as loans and investment securities repriced or were originated at higher market rates.
Net interest margin was 2.97% for 2025, compared to 2.67% for 2024. The increase in net interest margin was primarily driven by higher yields on interest-earning assets and, to a lesser extent, lower rates paid on interest-bearing liabilities. This margin expansion was supported by growth in higher-yielding asset categories, particularly commercial and multi-family loans.
During 2025, interest rate trends were influenced by monetary policy actions taken by the Federal Open Market Committee (“FOMC”) of the Federal Reserve. In the second half of calendar 2025, the FOMC reduced the target range for the federal funds rate three times, most recently to a range of 3.50% to 3.75% at December 31, 2025. Despite the decline in market rates, asset yields increased due to the origination of new loans at higher rates and upward repricing of adjustable-rate loans. At the same time, funding costs declined at a slower pace, which moderated the overall benefit to our net interest margin.
Provision for Credit Losses . The provision for credit losses in 2025 was $2.2 million, a $1.6 million, or 291.3%, increase compared to $550,000 in 2024. 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 and reflects higher required reserves driven by the significant increase in nonperforming loans during 2025. Additionally, growth in the commercial real estate, multi-family, and commercial and industrial loan portfolios increased the allowance, as these portfolios generally carry higher reserve requirements relative to other segments. Net charge-offs during 2025 were $1.7 million, compared to net charge-offs of $1.5 million in 2024. The allowance for credit losses on loans and leases as a percentage of the total loan and lease portfolio was 1.38% at year-end 2025, compared to 1.34% at year-end 2024. Net charge-offs in 2025 equaled 0.14% of total average loans and leases outstanding compared to net charge-offs of 0.13% of total average loans and leases outstanding in 2024.
Non-interest Income . Total non-interest income increased $304,000, or 6.4%, to $5.1 million for 2025 compared to $4.8 million for 2024. The increase was primarily driven by an increase in other income and loan and lease servicing fees. Other income increased $230,000, or 17.5%, to $1.5 million in 2025 as compared to 2024, due to increased wealth management income. Loan and lease servicing fees increased $217,000, or 46.9%, to $681,000 in 2025 as compared to 2024, due to increased fees from the payoff of serviced loans. Partially offsetting these increases were net losses recognized on the sale of securities available-for-sale of $156,000, compared to net losses of $51,000 recognized in 2024. Net gains on loan and lease sales decreased $145,000, or 26.2%, to $409,000 in 2025 as compared to 2024, due to reduced mortgage banking activity.
Non-interest Expenses . Total non-interest expense increased $1.1 million, or 3.3%, to $33.1 million during 2025 compared to 2024, primarily due to increases in other expenses, salaries and employee benefits, data processing fees, and net occupancy expenses, partially offset by a decrease in deposit insurance expense.
Other expenses increased $836,000, or 22.9%, to $4.5 million in 2025 from $3.7 million in 2024, primarily due to $467,000 of merger-related expenses associated with the pending acquisition of Farmers Bancorp, as well as one-time expenses associated with contract negotiations related to the renewal of our core service provider agreement. Salaries and employee benefits increased $196,000, or 1.1%, to $18.5 million in 2025 from $18.3 million in 2024, primarily due to annual merit increases and increased staffing to support business growth and operational needs. Data processing fees increased $174,000, or 4.8%, to $3.8 million in 2025 from $3.6 million in 2024, primarily due to increased software implementation and and technology upgrade expenses. Net occupancy expenses increased $101,000, or 7.4%, to $1.5 million in 2025 from $1.4 million in 2024, primarily due to increased building maintenance expenses. Deposit insurance expense decreased $337,000, or 22.0%, to $1.2 million in 2025 from $1.5 million in 2024, due to shifts in the Bank's asset and deposit mix and related assessments. Equipment expenses increased $74,000, or 8.0%, to $1.0 million in 2025 from $927,000 in 2024, primarily due to equipment expenses associated with our Columbus, Ohio branch opening.
Income Tax Expense . Income tax expense increased $590,000 in 2025 compared to 2024. This increase in income tax expense was primarily due to pretax income increasing $2.8 million, or 25.7%. The effective tax rate for the year ended 2025 was 15.2% compared to 13.7% in 2024.
Average Balances, Interest and Average Yields/Cost
The following tables set forth for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities. Average balances have been calculated using daily balances. Average balances of loans and leases receivable include loans held for sale. Non-accruing loans have been included in the table as loans carrying a zero yield. Loan fees are included in interest income on loans and are not material.
Years Ended December 31,
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
Securities
FHLB stock
Cash and cash equivalents and other
Total interest-earning assets
Non-earning assets
Total assets
Interest-bearing liabilities:
Savings and money market accounts
Interest-bearing checking accounts
Certificate accounts
Borrowings
Total interest-bearing liabilities
Noninterest-bearing demand deposits
Other liabilities
Stockholders' equity
Total liabilities and stockholders' equity
Net interest income
Net earning assets
Net interest rate spread (1)
Net interest margin (2)
Average interest-earning assets to average interest-bearing liabilities
(1) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
(2) Net interest margin represents net interest income divided by average total interest-earning assets.
Rate/Volume Analysis
The following schedule presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and that due to the changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.
Years Ended
December 31,
Increase/
(decrease)
due to
Total
increase/ (decrease)
Volume
Rate
(In thousands)
Interest-earning assets:
Loans and leases receivable
Securities
FHLB stock
Cash and cash equivalents and other
Total interest-earning assets
Interest-bearing liabilities:
Savings and money market accounts
Interest-bearing checking accounts
Certificate accounts
Borrowings
Total interest-bearing liabilities
Change in net interest income
Capital and Liquidity
Capital. Shareholders' equity totaled $145.8 million at December 31, 2025 and $132.9 million at December 31, 2024. In addition to net income of $11.6 million, other sources of capital during 2025 included an $11.2 million decrease in AOCL, $738,000 related to the allocation of ESOP shares during the year, and $816,000 related to stock-based compensation. The decrease in AOCL primarily was due to the improvement in mark-to-market values associated with the Company's available-for-sale investment securities portfolio. Uses of capital during 2025 included $5.8 million of dividends paid on common stock and $5.6 million of stock repurchases.
We paid regular quarterly cash dividends of $0.15 per common share during 2025, compared to $0.14 per common share in 2024. This equates to a dividend payout ratio of 50.4% in 2025 and 60.8% in 2024. We currently expect to continue the current practice of paying quarterly cash dividends on common stock subject to the Board of Directors' discretion to modify or terminate this practice at any time and for any reason without prior notice. Assuming continued payment during 2026 at the current dividend rate of $0.15 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, 2025. The amount of dividends, if any, we may pay may be limited as more fully discussed in "Note 18: Dividend and Capital Restrictions" and "Note 19: Regulatory Capital" in the accompanying notes to consolidated financial statements contained in Item 8 of this Form 10-K.
Stock Repurchase Plans. From time to time, our Board of Directors has authorized stock repurchase plans. In general, stock repurchase plans allow us to proactively manage our capital position and return excess capital to shareholders. Shares purchased under such plans also provide us with shares of common stock necessary to satisfy obligations related to stock compensation awards. On June 6, 2023, the Company announced that the Board of Directors approved an amendment to the Company's existing stock repurchase program authorizing the purchase of up to 321,386 shares of the Company's issued and outstanding common stock in addition to the 827,554 shares that remained available for the repurchase at that date under the existing program, and extended the stock repurchase program's expiration date to June 6, 2024, unless completed sooner. On May 16, 2024, the Company announced that the Board of Directors approved an extension of the Company's existing stock repurchase program, which expired on June 6, 2025.
As of December 31, 2025, the Company did not have a publicly announced stock repurchase program in place. See Part II, Item 5 - "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities."
Liquidity. Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in deposits and to take advantage of interest rate market opportunities. The ability of a financial institution to meet its current financial obligations is a function of its balance sheet structure, its ability to liquidate assets and its access to alternative sources of funds. The objective of our liquidity management is to manage cash flow and liquidity reserves so that they are adequate to fund our operations and to meet obligations and other commitments on a timely basis and at a reasonable cost. We seek to achieve this objective and ensure that funding needs are met by maintaining an appropriate level of liquid funds through asset/liability management, which includes managing the mix and time to maturity of financial assets and financial liabilities on our balance sheet. Our liquidity position is enhanced by our ability to raise additional funds as needed in the wholesale markets.
Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will mature in the near future. Liquid assets generally include cash, interest-bearing deposits in banks, securities available for sale, maturities and cash flow from securities held to maturity, sales of fixed rate residential mortgage loans in the secondary market, and federal funds sold and resell agreements. Liability liquidity generally is provided by access to funding sources which include core deposits and advances from the FHLB and other borrowing relationships with third party financial institutions.
Our liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs.
As of December 31, 2025, we had approximately $21.4 million held in an interest-bearing account at the Federal Reserve. We also have the ability to borrow funds as a member of the FHLB. As of December 31, 2025, based upon available, pledgeable collateral, our total remaining borrowing capacity with the FHLB was approximately $129.2 million. Furthermore, at December 31, 2025, we had approximately $139.8 million in securities that were unencumbered by a pledge and could be used to support additional borrowings through repurchase agreements or the Federal Reserve discount window, as needed. As of December 31, 2025, management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us.
In the ordinary course of business we have entered into contractual obligations and have made other commitments to make future payments. Refer to the accompanying notes to consolidated financial statements elsewhere in this report for the expected timing of such payments as of December 31, 2025. These include payments related to (i) long-term borrowings (Note 12: Borrowings), (ii) time deposits with stated maturity dates (Note 11: Deposits) and (iii) commitments to extend credit and standby letters of credit (Note 15: Commitments and Contingent Liabilities).
We also incur capital expenditures on an ongoing basis to expand and improve our product offerings, enhance and modernize our technology infrastructure, and to introduce new technology-based products to compete effectively in our markets. We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment. The amount of capital investment is influenced by, among other things, current and projected demand for our services and products, cash flow generated by operating activities, cash required for other purposes and regulatory
considerations. Based on our current capital allocation objectives for 2026, management does not expect cash expenditures for capital investment in premises and equipment to have a material effect on our liquidity, capital resources or operations.
Richmond Mutual Bancorporation is a separate legal entity from First Bank Richmond and must provide for its own liquidity. In addition to its own operating expenses, Richmond Mutual Bancorporation is responsible for paying for any stock repurchases, dividends declared to its stockholders, and other general corporate expenses. Since Richmond Mutual Bancorporation is a holding company and does not conduct operations, its primary sources of liquidity are interest on investment securities purchased with proceeds from our initial public offering, dividends upstreamed from First Bank Richmond, and borrowings from outside sources. Banking regulations may limit the amount of dividends that may be paid to us by First Bank Richmond. "Note 19: Regulatory Capital" in the accompanying notes to consolidated financial statements contained in Part II, Item 8 and "How We Are Regulated - Dividends" contained in Part I, Item I of this Form 10-K. At December 31, 2025, Richmond Mutual Bancorporation, on an unconsolidated basis, had $3.0 million in cash, noninterest-bearing deposits, and liquid investments generally available for its cash needs.
See also the "Consolidated Statements of Cash Flows" included in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K for further information.
Regulatory Capital Requirements. First Bank Richmond is subject to minimum capital requirements imposed by the FDIC. The FDIC may require us to have additional capital above the specific regulatory levels if it believes we are subject to increased risk due to asset problems, high interest rate risk and other risks. At December 31, 2025, First Bank Richmond’s regulatory capital exceeded the FDIC regulatory requirements, and First Bank Richmond was well-capitalized under regulatory prompt corrective action standards. Consistent with our goals to operate a sound and profitable organization, our policy is for First Bank Richmond to maintain well-capitalized status.
Actual
Minimum for Capital Adequacy Purposes
Minimum to be Categorized as "Well-Capitalized" Under Prompt Corrective Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
As of December 31, 2025
(Dollars in thousands)
Total risk-based capital (to risk weighted assets)
Tier 1 risk-based capital (to risk weighted assets)
Common equity tier 1 capital (to risk weighted assets)
Tier 1 leverage (core) capital (to adjusted tangible assets)
As of December 31, 2024
Total risk-based capital (to risk weighted assets)
Tier 1 risk-based capital (to risk weighted assets)
Common equity tier 1 capital (to risk weighted assets)
Tier 1 leverage (core) capital (to adjusted tangible assets)
Pursuant to the capital regulations of the FDIC and the other federal banking agencies, First Bank Richmond must maintain a capital conservation buffer consisting of additional common equity tier 1 (“CET1”) capital greater than 2.5% of risk-weighted assets above the required minimum levels of risk-based CET1 capital, tier 1 capital and total capital in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses. At December 31, 2025, the Bank’s CET1 capital exceeded the required capital conservation buffer.
For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank only basis and the Federal Reserve Board expects the holding company’s subsidiary banks to be well capitalized under the prompt corrective action regulations. If Richmond Mutual Bancorporation was subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at December 31, 2025, it would have exceeded all regulatory capital requirements.
