Richmond Mutual Bancorporation, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022; unaudited consolidated results. The company operates First Bank Richmond, a community bank serving Indiana and Ohio, with commercial and consumer lending, direct financing leases, deposits, and wealth management. It reported $1.3 billion in assets at quarter-end.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Interest income | $12.4 million | $11.1 million | $24.4 million | $22.0 million |
| Net interest income | $10.5 million | $9.2 million | $20.6 million | $18.2 million |
| Net income | $3.5 million | $2.8 million | $6.5 million | $5.3 million |
| Diluted EPS | $0.31 | $0.24 | $0.58 | $0.45 |
| Net interest margin | 3.45% | 3.27% | 3.36% | 3.32% |
- Q2 net income increased 25.3%; first-half net income increased 21.7%. Growth reflected higher net interest income and lower loan-loss provision, partly offset by reduced noninterest income and higher expenses.
- At June 30, loans and leases, net of allowance, were $891.9 million, up 7.1% from year-end 2021; deposits were $945.3 million, up 5.0%. Total assets were $1.272 billion, up 0.3%.
- Cash and cash equivalents were $14.4 million, down from $23.0 million at year-end. First-half operating cash flow was $10.0 million, investing cash outflow $52.5 million, and financing cash inflow $33.9 million.
- FHLB advances remained $180.0 million. The allowance for loan and lease losses was $12.4 million, or 1.37% of loans and leases, versus 1.43% at year-end. Nonperforming loans and leases were $8.1 million, or 0.89% of the portfolio.
- Stockholders’ equity was $138.9 million, down 23.0% from year-end, principally reflecting a $38.0 million after-tax other comprehensive loss on available-for-sale securities, as well as $9.0 million in repurchases and $2.2 million in dividends, partly offset by earnings. Equity-to-assets was 10.9%.
Material changes and management commentary
- Loan growth was driven mainly by commercial real estate, multifamily, and construction and development lending. The company used security maturities and paydowns in part to fund loan growth.
- Available-for-sale securities declined to $302.6 million from $357.5 million at year-end. Their unrealized losses increased substantially as market interest rates rose. Management considered the declines temporary and stated it did not intend, and was not more likely than not required, to sell the securities before recovery of amortized cost.
- Noninterest income fell 28.3% in Q2 and 27.7% in the first half, primarily because lower refinancing activity and housing supply reduced loan-sale gains. Noninterest expenses increased 4.0% in Q2 and 4.6% year to date.
- Brokered deposits rose to $153.0 million, or 16.2% of deposits, from $121.8 million, or 13.5%, at year-end. Management attributed deposit mix changes partly to customers anticipating higher deposit rates.
- Management cited $70.0 million of remaining FHLB borrowing capacity and $206.2 million of unpledged securities available to support additional borrowing. It reported no known events likely to materially adversely affect liquidity or capital resources.
Outlook, risks, and unusual items
- No specific earnings or financial guidance was provided. Management expected to continue its regular quarterly dividend practice at $0.10 per share, subject to board discretion.
- The Bank’s total risk-based capital ratio was 16.72%, above the 10.0% well-capitalized threshold; its Tier 1 leverage ratio was 12.7%, above the 5.0% threshold. Management said the Bank exceeded regulatory capital requirements.
- Management highlighted uncertainty from inflation, higher interest rates, COVID-19-related business and supply-chain effects, the war in Ukraine, borrower repayment capacity, deposit funding costs, real estate values, and credit quality. Hotels and restaurants were identified as higher-risk segments being monitored.
- CECL was scheduled to become effective for the company in 2023. Management was evaluating its methodology but said the effect on the financial statements could not yet be quantified.
- First Insurance Management, a Nevada captive insurance subsidiary, began operations in June 2022. The filing reported no material pending legal proceedings and no material changes to previously disclosed risk factors.
- The company repurchased 552,082 shares for $9.0 million in the first half. The third repurchase program was completed July 7, 2022; a fourth program for up to 1,184,649 shares was announced July 21. A further 32,054 shares were purchased after quarter-end through August 12.
Investor items to verify
- Whether higher rates improve asset yields enough to offset deposit repricing and other funding costs, and how net interest margin develops.
- The severity and duration of unrealized securities losses, liquidity needs, and the company’s ability and intent to hold securities through recovery.
- Loan growth, delinquency and nonperforming-asset trends, allowance adequacy, and exposure to commercial real estate and higher-risk industries.
- The pace and cost of brokered-deposit funding, FHLB usage, and the holding company’s capacity to fund dividends and repurchases.
- The eventual CECL adoption impact and any subsequent change in regulatory capital, dividend, or buyback plans.