Richmond Mutual Bancorporation, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are to the year ended December 31, 2021 unless noted. The company is a bank holding company for First Bank Richmond, serving markets in Indiana and Ohio and conducting equipment leasing nationwide.
Financial performance and condition
| Metric | 2022 | 2021 |
|---|---|---|
| Total assets, year-end | $1.329 billion | $1.268 billion |
| Loans and leases, net, year-end | $961.7 million | $832.8 million |
| Deposits, year-end | $1.005 billion | $900.2 million |
| Net interest income | $41.6 million | $38.2 million |
| Provision for loan and lease losses | $0.6 million | $1.4 million |
| Non-interest income | $4.9 million | $5.4 million |
| Non-interest expense | $30.2 million | $28.6 million |
| Net income | $13.0 million | $11.1 million |
| Diluted earnings per share | $1.17 | $0.96 |
| Net interest margin | 3.36% | 3.34% |
- Net income rose 16.3%. Higher interest income and a lower loan-loss provision more than offset increased funding and operating costs and weaker mortgage-sale gains.
- Net cash provided by operating activities was $18.2 million; investing activities used $116.1 million, mainly reflecting loan growth; financing activities provided $90.8 million. Cash and cash equivalents ended the year at $15.9 million, down from $23.0 million.
- Stockholders’ equity declined to $133.0 million from $180.5 million, principally due to a $48.5 million after-tax unrealized loss on available-for-sale securities, alongside $4.4 million of dividends and $9.9 million of share repurchases. The securities-related mark reduced GAAP equity; the filing says the net unrealized loss is excluded from regulatory capital.
- First Bank Richmond’s total risk-based capital ratio was 14.3%, above the 10.0% well-capitalized threshold. Deposits funded most liabilities; FHLB advances were $180.0 million, unchanged year over year. The filing reports approximately $66.7 million of remaining FHLB borrowing capacity and $198.5 million of unencumbered securities.
Material changes and portfolio developments
- Net loans and leases grew 15.5%, with notable expansion in construction and development loans (up 49.4%) and commercial mortgage loans (up 14.1%). Total commercial, multifamily, construction and C&I lending represented a substantial share of the portfolio; management reports commercial loans, including construction, at 68.0% of loans and leases.
- Deposits increased 11.7%, but brokered deposits more than doubled to $257.9 million, or 25.7% of deposits, from $121.8 million, or 13.5%. Core deposits fell to 69.9% of deposits from 79.6%. Average deposit cost increased to 1.4% from 0.5%.
- Nonperforming loans and leases were $9.2 million, or 0.94% of total loans and leases, versus $8.0 million, or 0.95%. The allowance was $12.4 million, or 1.27% of loans and leases, compared with 1.43% a year earlier; net charge-offs were $295,000 versus net recoveries of $92,000.
- The largest nonaccrual loan was a $4.9 million commercial construction loan involved in litigation between the developer and other parties. A $1.3 million C&I loan was more than 90 days past due but still accruing. The filing reports no accruing troubled debt restructurings at year-end.
- Available-for-sale securities had $63.0 million of gross unrealized losses at year-end, primarily attributed by management to interest rates and illiquidity rather than credit deterioration. Management stated it did not intend, and was not more likely than not required, to sell the securities before recovery.
Outlook, commentary and key risks
- Management’s strategy is to grow loans and deposits in a managed way, develop commercial lending and the Columbus, Ohio market, expand core deposits, and maintain asset quality and strong capital. The filing provides no formal earnings or revenue guidance.
- Management said rising rates supported asset yields but increased the cost of shorter-duration deposits and borrowings. Its year-one model estimated net interest income would decline 2.11% under an immediate 300-basis-point increase, while increasing 1.51% under a 100-basis-point decrease. The filing cautions that actual results may differ from model estimates.
- CECL became effective for the company on January 1, 2023. Management estimated the transition would increase the loan and lease allowance by $2.3–$3.0 million and establish a separate $1.8–$2.5 million reserve for unfunded commitments. Expected losses on held-to-maturity securities were assessed as immaterial. The estimates were subject to change at adoption.
- Key exposures include commercial real estate, construction and development lending, and a growing, relatively unseasoned commercial portfolio. Commercial real estate loans under regulatory guidance were 338.5% of bank regulatory capital, although construction, land development and land loans were 84.9% of regulatory capital. Management highlighted monitoring of higher-risk segments, including hotels and restaurants.
- Other material risks include deposit repricing and reliance on brokered funding, inflation or recession affecting borrowers and collateral, interest-rate-driven securities valuation changes, cybersecurity and third-party operational risks, and the transition away from LIBOR. The filing also identifies potential deposit-insurance cost increases.
- The company paid $0.40 per share in 2022 dividends and repurchased $9.9 million of stock. Management expected to continue quarterly dividends at $0.10 per share during 2023, subject to board discretion, regulatory restrictions and financial conditions.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2022; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Whether brokered deposits can be renewed or replaced at acceptable cost, especially as certificates mature, and how uninsured deposits evolve.
- Post-CECL allowance and unfunded-commitment reserve at adoption, and subsequent changes in credit quality, provisions and charge-offs.
- Performance and collateral values in commercial real estate and construction lending, including resolution of the $4.9 million litigation-related loan and status of the C&I delinquency.
- Whether securities unrealized losses recover as expected and how continued rate changes affect tangible equity, liquidity and earnings.
- Actual net interest margin and deposit costs against management’s interest-rate sensitivity estimates, as well as the company’s capacity to maintain dividends and repurchases.