Richmond Mutual Bancorporation, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are with December 31, 2021. The company operates primarily through First Bank Richmond, serving Indiana and Ohio markets, with lending, direct-financing leases, deposits, and wealth-management services.
Financial results and position
- Earnings: Net income was $3.02 million, up 17.8% from $2.56 million; diluted EPS was $0.26 versus $0.22. Pretax income was $3.64 million. Income tax expense was $618,000, with a 17.0% effective tax rate versus 18.7%.
- Interest income and margins: Interest income rose 9.7% to $11.94 million. Net interest income increased 11.7% to $10.05 million, while annualized net interest margin declined to 3.26% from 3.38%; net interest rate spread was 3.11% versus 3.13%.
- Credit costs and other revenue: Provision for loan and lease losses was $200,000, down from $400,000. Noninterest income fell 27.0% to $1.12 million, mainly because net gains on loan and lease sales dropped to $243,000 from $965,000.
- Expenses: Noninterest expense increased 5.1% to $7.33 million. Data-processing and other expenses rose, while salaries and benefits were broadly unchanged.
- Assets and lending: Total assets were $1.256 billion, down 0.9% from year-end. Net loans and leases increased 2.1% to $850.0 million. Total loans and leases before the allowance were $863.1 million; the allowance was $12.3 million, or 1.43% of loans.
- Credit quality: Nonperforming loans and leases were approximately $8.0 million, or 0.92% of loans and leases, versus 0.95% at year-end. Allowance coverage of nonperforming loans and leases was 154.9%. Net recoveries were $9,000; there were no new TDRs or COVID-related modifications outstanding.
- Deposits and borrowings: Deposits rose 1.0% to $909.5 million. Brokered deposits were $120.1 million, or 13.2% of deposits. FHLB advances totaled $182.0 million, up $2.0 million.
- Liquidity and cash flow: Cash and cash equivalents were $19.6 million at quarter-end. Operating cash flow was positive $3.9 million; investing cash flow was negative $16.1 million; financing cash flow was positive $8.7 million. Management reported approximately $70.0 million of remaining FHLB borrowing capacity and $204.5 million of unencumbered securities available to support additional funding.
- Capital and shareholder returns: Stockholders’ equity was $157.3 million, down 12.8%, and the equity-to-assets ratio was 12.5%. First Bank Richmond’s total risk-based capital ratio was 16.8%, above the 10.0% well-capitalized threshold. The company paid $1.1 million in dividends ($0.10 per share) and repurchased 90,191 shares for approximately $1.5 million during the quarter.
Material changes and unusual items
- Available-for-sale securities declined to $326.8 million; total investment securities fell to $335.0 million. Unrealized losses on available-for-sale securities were $24.1 million after tax for the quarter, driving accumulated other comprehensive loss to $25.3 million and materially reducing equity. Management attributed the market-value decline primarily to higher interest rates and judged the losses temporary; no securities sales were reported.
- Loan growth was concentrated in multifamily, construction and development, and leases. PPP loans outstanding declined to approximately $6.0 million as loans were forgiven; PPP-related interest and fee contribution also decreased year over year.
- Average loan and lease yield fell to 4.83% from 5.17%, while average investment-securities yield increased to 1.80% from 1.44%. Management said the yield on interest-earning assets fell faster than funding costs, reducing margin.
- Mortgage banking activity weakened: loans sold were $10.6 million versus $25.8 million in the prior-year quarter, reflecting lower refinancing activity and limited housing supply in the company’s market area.
- After quarter-end through May 13, 2022, the company repurchased an additional 355,348 shares; 554,014 shares remained available under the program.
Outlook, commentary, and risks
- The filing provides no specific earnings, growth, or margin guidance. Management said it expects to continue regular quarterly dividends at the current $0.10-per-share rate, subject to board discretion.
- Management reported that it was monitoring the potential lingering effects of COVID-19, loan and lease credit metrics, and higher-risk sectors such as hotels and restaurants. It stated that liquidity and capital sources were adequate for reasonably foreseeable needs.
- Interest-rate changes pose a material exposure: they affected securities values and could influence margins, funding costs, mortgage activity, loan demand, defaults, and prepayments. Other identified risks include local and national economic conditions, real-estate values, deposit funding, competition, cybersecurity, third-party service providers, and regulatory or accounting changes.
- The company was evaluating implementation of CECL, effective for it for fiscal years beginning after December 15, 2022. Management said the impact could not yet be quantified. Adoption of the new lease standard in January 2022 did not have a material impact.
- No material legal proceedings or material changes to previously disclosed risk factors were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the substantial securities-related unrealized losses remain temporary as rates and market conditions change, and how they affect capital and funding flexibility.
- Whether net interest margin stabilizes as asset yields, deposit rates, and FHLB funding costs reprice.
- Trends in nonperforming loans, past-due balances, allowance adequacy, and exposure to higher-risk industries.
- The effect of CECL adoption on the allowance, retained earnings, and reported credit costs; the filing does not provide a clear quantified estimate.
- Future deposit mix and brokered-deposit reliance, liquidity capacity, and the pace of share repurchases and dividends.