Richmond Mutual Bancorporation, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are with December 31, 2022. The company is a bank holding company operating principally through First Bank Richmond, serving Indiana and Ohio and making commercial real estate, residential, consumer, commercial and lease-related loans.
Key financial metrics
| Metric | Q1 2023 / March 31, 2023 | Comparison |
|---|---|---|
| Total assets | $1.362 billion | Up 2.5% from year-end 2022 |
| Loans and leases, net | $989.1 million | Up 2.9% from year-end 2022 |
| Deposits | $1.030 billion | Up 2.5% from year-end 2022 |
| FHLB advances | $183.5 million | Up $3.5 million from year-end 2022 |
| Net interest income | $9.87 million | Down 1.8% from Q1 2022 |
| Net interest margin | 3.04% | 3.26% in Q1 2022 |
| Net income / diluted EPS | $2.90 million / $0.27 | Net income down 3.8%; diluted EPS was $0.26 in Q1 2022 |
| Operating cash flow | $3.59 million | $3.88 million in Q1 2022 |
| Stockholders’ equity | $136.1 million | Up 2.4% from year-end 2022 |
| Bank total risk-based capital ratio | 14.4% | Above the 10.0% well-capitalized threshold |
Results and material changes
- Interest income rose 27.2% to $15.19 million, led by loan and lease income, which increased 28.5% to $13.19 million. The average loan and lease yield rose to 5.36% from 4.83%.
- Interest expense increased to $5.32 million from $1.89 million. The average cost of interest-bearing deposits rose to 1.79% from 0.63%; management said funding costs increased faster than asset yields, reducing net interest margin and spread.
- Provision for credit losses was $170,000 versus $200,000. Noninterest income declined 1.7% to $1.10 million, including lower gains on loan and lease sales as higher mortgage rates reduced mortgage banking activity. Noninterest expense was nearly flat at $7.36 million.
- Deposits grew, but the mix shifted toward higher-cost time deposits: brokered deposits increased to $291.1 million, or 28.3% of deposits, from $257.9 million, or 25.7%. Noninterest-bearing deposits fell to $96.8 million from $106.4 million.
- Available-for-sale securities had $55.2 million of gross unrealized losses at quarter-end, primarily attributed by management to interest-rate changes. The company reported no credit-loss allowance on these securities and said it did not expect to be required to sell them before recovery.
- Cash and cash equivalents were $17.4 million. Investing activities used $27.9 million, chiefly reflecting loan growth; financing activities provided $25.7 million. Liquid cash and available-for-sale securities totaled $309.1 million. Management reported $75.9 million of remaining FHLB borrowing capacity and $143.8 million of unpledged securities.
Outlook, risks and unusual items
- The company adopted CECL on January 1, 2023. Adoption increased the loan and lease allowance by $2.7 million and established a $2.4 million allowance for off-balance-sheet commitments; related net-of-tax cumulative adjustments reduced retained earnings by approximately $3.8 million. The loan allowance was $15.5 million, or 1.54% of loans and leases, at March 31.
- Management cited persistent inflation, higher interest rates, weaker growth and employment outlook, geopolitical risk, and market-liquidity events as factors that could adversely affect borrowers and credit conditions. It cautioned that economic assumptions and future credit-loss estimates could vary significantly. Hotels and restaurants were among the portfolio segments receiving close monitoring.
- Nonperforming loans and leases were $8.6 million, or 0.86% of loans and leases, versus $9.2 million, or 0.94%, at year-end. Management reported net recoveries of $78,000 in Q1.
- Approximately $197.7 million, or 19.2% of deposits excluding collateralized public deposits, was uninsured. Management identified unexpected uninsured-deposit outflows and potential securities sales at a loss as risks, while stating it was not aware of events likely to materially adversely affect liquidity or capital.
- The filing provides no formal earnings or financial forecast. Management said it expects to continue quarterly dividends at $0.14 per share, subject to board discretion. The repurchase authorization was due to expire in July 2023; the company repurchased 98,553 shares in Q1 and a further 140,770 shares through May 15, 2023.
- Management reported no material legal proceedings, no material changes to previously disclosed risk factors, effective disclosure controls, and no material change in market-risk disclosures.
Investor facts to verify
- Whether deposit retention and funding costs remain manageable, particularly given brokered deposits at 28.3% of deposits and uninsured deposits of $197.7 million.
- How net interest margin responds to further deposit repricing, interest-rate changes and loan growth.
- Credit trends, including delinquencies, nonaccrual loans, commercial real estate exposure and the assumptions behind the newly adopted CECL allowances.
- Whether the unrealized securities losses remain temporary and the company can avoid selling securities before recovery if liquidity conditions worsen.
- Subsequent-period capital, liquidity, dividends and share repurchases, including progress after the repurchase authorization’s July 2023 expiration date.