Richmond Mutual Bancorporation, Inc. annual report, FY2023

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Richmond Mutual Bancorporation, Inc. — FY 2023 Form 10-K

Reporting period: Fiscal year ended December 31, 2023; comparisons are with FY 2022. The company is a bank holding company whose principal subsidiary, First Bank Richmond, operates in Indiana and Ohio. Its business centers on deposit-taking, commercial and real estate lending, equipment leasing, and wealth management.

Financial performance and position

  • Scale: Year-end assets were $1.461 billion, up 10.0%; net loans and leases were $1.090 billion, up 13.3%; deposits were $1.041 billion, up 3.6%; and stockholders’ equity was $134.9 million.
  • Income and profitability: Net income was $9.49 million versus $12.97 million, down 26.8%. Total interest income was $67.4 million, while non-interest income was $4.6 million. Net interest income fell 9.5% to $37.7 million. Net interest margin declined to 2.78% from 3.36%; return on average assets was 0.68% versus 1.01%, and diluted EPS was $0.91 versus $1.17.
  • Drivers: Interest expense rose 191.1% to $29.7 million, more than offsetting a 30.0% increase in interest income. The average cost of interest-bearing liabilities increased to 2.59% from 1.01%. Non-interest expense rose 1.9% to $30.7 million.
  • Credit quality: Nonperforming loans and leases declined to $8.0 million, or 0.72% of gross loans and leases, from $9.2 million, or 0.94%. The allowance for credit losses was $15.7 million, or 1.42% of gross loans and leases. Net charge-offs increased to $678,000 from $295,000.
  • Funding and liquidity: FHLB advances increased to $271.0 million from $180.0 million; cash and cash equivalents were $20.2 million. The Bank reported $86.4 million of remaining FHLB borrowing capacity, including a $10 million credit line, and $147.3 million of unencumbered securities available to support additional funding. Brokered deposits were $268.8 million, 25.8% of deposits; estimated uninsured deposits were $216.0 million, or 20.7%.
  • Cash flow: Operating activities provided $12.1 million, compared with $18.2 million in 2022. Investing activities used $122.5 million, principally reflecting loan growth; financing activities provided $114.7 million. Year-end cash and equivalents increased by $4.3 million to $20.2 million.
  • Capital and shareholder returns: First Bank Richmond’s total risk-based capital ratio was 14.1%, above the 10.0% well-capitalized threshold. The company paid $0.56 per share in dividends and repurchased $6.3 million of stock during 2023.

Material changes versus FY 2022

  • Loan and lease balances grew 13.3%, led by commercial real estate and direct financing leases. Originations fell 23.3% to $372.9 million, reflecting higher rates and slower housing activity, as well as lower commercial real estate and construction lending.
  • Deposit growth was modest and shifted toward time deposits as customers sought higher rates. Certificates of deposit totaling $349.6 million mature in 2024.
  • The cost of funding rose sharply, reducing net interest income and margin despite higher yields on earning assets. Net income fell 26.8%.
  • The fair-value net unrealized loss on available-for-sale securities improved to $54.5 million from $63.0 million; the after-tax accumulated other comprehensive loss was $43.0 million.
  • The company adopted CECL on January 1, 2023. Adoption reduced retained earnings by $3.8 million after tax, including a $2.0 million net-of-tax adjustment for loan and lease allowances and a $1.8 million net-of-tax adjustment for unfunded commitments. The filing states the comparative credit-loss provisions are not directly comparable.

Outlook, risks, and unusual items

  • Management describes a strategy of managed balance-sheet growth, expanding commercial lending in existing markets and Columbus, Ohio, and increasing core deposits, especially noninterest-bearing accounts. No specific earnings or growth guidance is provided.
  • Management cited persistent inflation, higher interest rates, weaker growth and unemployment prospects, and geopolitical risks as factors that could affect borrowers and the allowance for credit losses in 2024. It expects to continue monitoring credit metrics and stress-testing the loan portfolio.
  • Credit exposures warrant attention: commercial, multifamily, and construction lending are substantial; CRE loans under regulatory guidance were 298% of Bank regulatory capital. A $4.9 million nonaccrual construction loan is subject to litigation between the developer and other parties. One additional construction loan of $4.9 million was disclosed as subject to litigation in the business discussion; the filing does not clearly reconcile whether this is the same exposure.
  • Interest-rate sensitivity remains material. The company estimates a 300-basis-point immediate rate increase would reduce first-year net interest income by 2.71% and economic value of equity by 32.91%; these are model estimates, not forecasts.
  • Other risks include reliance on brokered deposits and third-party lease originators, commercial property and construction performance, securities valuation, and cybersecurity/vendor disruptions. The company reported no material cybersecurity incidents during the reporting period and no legal proceedings expected to materially affect its financial condition or results.
  • The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal control effectiveness. The filing also notes immaterial revisions to 2022 deferred tax asset and retained-earnings amounts.

Important facts for investors to verify

  1. How deposit pricing, 2024 certificate maturities, brokered-deposit reliance, and borrowing costs affect funding and net interest margin.
  2. Updates on the $4.9 million nonaccrual construction loan and any other litigation-related credit exposure, including collateral values and potential losses.
  3. Trends in commercial real estate and construction concentrations, loan participations, delinquency, and the adequacy of CECL allowances.
  4. Whether the $54.5 million securities unrealized loss, uninsured deposits, and available contingent liquidity change materially.
  5. Whether management’s core-deposit and growth strategy sustains profitability, capital, dividends, and repurchases without increasing credit or funding risk.