Executive Summary / Key Takeaways

• Richmond Mutual Bancorporation (RMBI) is undergoing a significant transformation, with its recently announced merger with The Farmers Bancorp poised to create a $2.6 billion asset community bank, enhancing scale and competitive positioning.
• The company demonstrated robust financial performance in the third quarter and first nine months of 2025, driven by substantial net interest income growth and margin expansion, reflecting effective asset repricing and disciplined funding management.
• RMBI maintains a strong capital position and a strategic focus on high-growth markets in Indiana and Ohio, leveraging its community-centric model and investments in operational technology to drive efficiency and customer experience.
• While facing broader economic uncertainties and competitive pressures from larger regional banks and fintechs, the merger is expected to unlock higher lending limits, broaden product offerings, and deliver significant earnings per share accretion.
• Investors should monitor the successful integration of the merger, the company's ability to manage credit quality amidst economic shifts, and its continued efforts to optimize funding costs in a dynamic interest rate environment.

A Regional Banking Ascendance Fueled by Strategic Consolidation

Richmond Mutual Bancorporation, Inc. (RMBI) stands at a pivotal juncture, evolving from a deeply rooted community institution into a more formidable regional banking entity. Tracing its origins to 1887 with the establishment of First Bank Richmond, RMBI has a long history of adapting to market demands, expanding its footprint through strategic acquisitions like Mutual Federal Savings Bank in 2007 and diversifying its offerings to include a nationwide equipment leasing business and a robust trust and wealth management division. This foundational journey has culminated in a strategic move designed to significantly reshape its future: a transformative merger with The Farmers Bancorp.

The broader regional banking industry is currently experiencing a dynamic period, marked by a positive outlook for 2025 and 2026. This optimism is underpinned by several tailwinds, including a steepening yield curve, an anticipated acceleration in mergers and acquisitions, and easing credit concerns. While some headwinds are projected for net interest income in 2026 due to potentially lower rates and a slowing economy, deposit costs are expected to continue their decline. This environment sets a compelling stage for RMBI's strategic initiatives. The company strategically focuses its growth in key markets such as Columbus, Ohio, Cincinnati/Dayton/Springfield, Ohio, and Indianapolis, Indiana, which consistently exhibit above-average population and employment growth, strong commercial activity, and resilient real estate fundamentals.

RMBI's strategic investments in operational technology are central to its efficiency and customer experience. The company has incurred increased software implementation and technology upgrade expenses, reflecting an ongoing commitment to modernizing its infrastructure. A recently renegotiated core service provider agreement is anticipated to yield meaningful cost savings over its term, simultaneously reducing costs on existing services and introducing new products aimed at enhancing operational efficiency and the customer experience. This strategic move also aims to reduce reliance on third-party vendors. These technological enhancements, while not proprietary product innovations, are critical for improving internal processes, streamlining customer interactions, and supporting the bank's relationship-based lending model, particularly in its commercial real estate lending focus within its strategic growth markets.

The Transformative Merger: Scaling for the Future

The most significant development for RMBI is the announced "transformational strategic merger" with The Farmers Bancorp on November 12, 2025. This combination is set to create a premier $2.6 billion asset community bank with an expanded network of 24 branches across key markets in Central and East Central Indiana, as well as Western and Central Ohio. The strategic rationale behind this merger is multifaceted, aiming to unlock higher lending limits, broaden product offerings for customers, and improve trading liquidity for the combined entity.

Management anticipates the merger will deliver approximately 35% earnings per share accretion for Richmond Mutual shareholders, following the full realization of expected cost savings. For Farmers Bancorp shareholders, the transaction is projected to result in dividend per share accretion of about 27.5%. The merger, expected to be completed in the second quarter of 2026, is seen as a natural fit, combining two culturally aligned banks dedicated to client experience and community support. Garry Kleer, Chairman, President, and CEO of Richmond Mutual, emphasized that this union will provide the necessary scale to invest further in technology and deliver an even better experience for customers.

Financial Performance: Margin Expansion and Prudent Growth

RMBI's recent financial performance underscores its operational effectiveness and strategic positioning. For the three months ended September 30, 2025, net income surged by $1.10 million, or 45.5%, to $3.60 million, compared to the same period in 2024. This growth was primarily fueled by a $1.90 million increase in net interest income. Similarly, for the first nine months of 2025, net income rose by $1.30 million, or 18.3%, to $8.20 million.

The company's net interest margin (NIM) has shown significant expansion. The annualized NIM improved to 3.07% for the third quarter of 2025, up from 2.60% in the comparable 2024 quarter. For the nine-month period, the annualized NIM reached 2.93%, compared to 2.66% a year prior. This margin expansion is attributed to improved asset yields, particularly on loans and leases, outpacing funding costs. RMBI benefited from a favorable asset repricing environment following Federal Reserve rate cuts in late 2024, which helped reduce deposit costs while asset yields remained elevated. Interest income on loans and leases increased as new originations occurred at higher rates and existing variable-rate loans adjusted upward.

Total assets grew by $20.70 million, or 1.40%, to $1.50 billion at September 30, 2025. This increase was primarily driven by a $19.40 million, or 1.70%, rise in loans and leases, net of allowance for credit losses, to $1.20 billion. This loan growth was concentrated in commercial real estate, multi-family, and commercial and industrial loans. Total deposits also increased by $24.30 million, or 2.20%, to $1.10 billion, reflecting customer demand for higher yields, leading to a shift from transaction accounts to time deposits. Management strategically utilized proceeds from maturing investment securities to fund loan growth, prioritizing higher-yielding assets.

Furthermore, total borrowings, consisting solely of FHLB advances, decreased by $11 million, or 4.20%, to $254 million, as the company allowed higher-cost advances to mature, reducing reliance on wholesale funding.

Stockholders' equity increased by $7.20 million, or 5.40%, to $140 million, largely due to net income and a $7.70 million decrease in accumulated other comprehensive loss, reflecting improved fair values in the available-for-sale investment portfolio. The company also returned value to shareholders through dividends, paying $0.15 per common share in Q3 2025, and repurchased 425,823 shares of common stock for $5.60 million during the first nine months of 2025.

Credit Quality and Risk Management: Vigilance in an Uncertain Economy

Despite positive financial trends, RMBI operates with vigilance in a complex economic landscape. The allowance for credit losses on loans and leases increased by $574,000, or 3.60%, to $16.40 million at September 30, 2025. This increase was primarily due to changes in portfolio composition, particularly growth in commercial real estate and commercial and industrial loans, which generally carry higher reserve requirements. Updated economic forecasts, including expectations for slowing GDP growth and rising unemployment, also contributed to a more cautious provisioning approach.

Nonaccrual loans and leases increased to $6.40 million at September 30, 2025, from $5.10 million at December 31, 2024, primarily due to one commercial real estate loan. Accruing loans past due 90 days or more also rose to $4.40 million. Management acknowledges that persistent inflation, slowing economic growth, labor market uncertainty, and geopolitical tensions are creating a challenging operating environment that could affect borrower performance and credit demand. The company actively reviews credit metrics and performs stress testing on its loan portfolio to manage these risks.

Competitive Positioning: A Community-Centric Approach Amidst Larger Rivals

RMBI occupies a distinct niche within the regional banking sector, characterized by its deep community ties and localized service model. This approach fosters strong customer relationships and provides unique distribution channels, potentially leading to more robust growth in fee-based services and superior margins from stable deposits. For example, RMBI's community focus may translate into better pricing power for local loans. Its offerings, such as multi-family and residential real estate loans, benefit from personalized service in its markets.

However, RMBI operates alongside larger regional competitors such as Fifth Third Bancorp (FITB), Huntington Bancshares (HBAN), PNC Financial Services Group (PNC), and KeyCorp (KEY). These larger institutions benefit from greater scale, broader geographic reach, and often more extensive investments in digital innovation. While RMBI excels in operational execution within its regional footprint and in cultivating customer loyalty, it generally lags in overall growth trajectory and financial health compared to these larger rivals, who often demonstrate stronger revenue growth and profitability through economies of scale. Analyst commentary suggests RMBI lacks a competitive edge and is highly exposed to interest rates, limiting its growth prospects and investment appeal. Its efficiency ratio has improved but remains below peers, and efforts to diversify revenue streams beyond net interest income have been largely unsuccessful.

The merger with The Farmers Bancorp is a direct strategic response to these competitive dynamics. By combining forces, the unified entity aims to gain the resources necessary to compete more effectively, expand product offerings, and invest further in technology and innovation. This increased scale is crucial for unlocking higher lending limits and enhancing the ability to attract and retain customers in a competitive landscape that also includes indirect threats from online banks and fintech companies offering digital-only services and lower-cost lending options.

Outlook and Investment Thesis: Growth Through Scale and Strategic Focus

The outlook for Richmond Mutual Bancorporation is largely defined by its strategic merger and its continued focus on disciplined growth within its target markets. The regional banking industry is expected to see double-digit annual earnings growth in 2025 and 2026, driven by strong revenue growth. RMBI's management anticipates that future estimates for the allowance for credit losses may fluctuate throughout the remainder of 2025, reflecting ongoing economic uncertainties. The company also expects to continue its practice of paying regular quarterly cash dividends, with an average total dividend of approximately $1.60 million per quarter based on current outstanding shares.

The core investment thesis for RMBI centers on its transformation through strategic consolidation. The merger with The Farmers Bancorp is not merely an expansion but a fundamental shift designed to enhance RMBI's competitive standing, improve its financial performance through accretion, and provide the necessary scale for future growth and technological investment. This move positions the company to leverage its community-centric strengths more effectively while addressing the challenges posed by larger rivals and evolving customer preferences. The successful integration of the merger, coupled with prudent credit risk management and ongoing operational efficiency initiatives, will be critical determinants of RMBI's long-term value creation for shareholders.

Conclusion

Richmond Mutual Bancorporation is embarking on a significant journey, transitioning from a well-established local bank to a more robust regional player through its strategic merger with The Farmers Bancorp. This consolidation is set to redefine RMBI's scale, competitive capabilities, and financial trajectory, promising enhanced lending capacity, diversified product offerings, and substantial earnings accretion. The company's recent financial performance, marked by impressive net interest income and margin expansion, demonstrates its ability to generate value in a dynamic interest rate environment, supported by a disciplined approach to asset and liability management.

While the broader economic outlook presents inherent complexities and competitive pressures from larger institutions and agile fintechs persist, RMBI's commitment to its strategic growth markets and its ongoing investments in operational technology underscore a proactive approach to future challenges. The successful integration of the merger and the realization of its anticipated benefits will be paramount. For discerning investors, RMBI represents a compelling opportunity to participate in the growth story of a regional bank strategically leveraging consolidation and operational efficiency to forge a stronger, more competitive future.