Business context and reporting period
Richmond Mutual Bancorporation, Inc. is the holding company for First Bank Richmond, an Indiana-based commercial bank. Its business includes commercial and residential lending, equipment leases, deposits, mortgage banking, and wealth management. This unaudited Form 10-Q covers the three months ended March 31, 2021; income and cash-flow comparisons are against Q1 2020, while balance-sheet comparisons are against December 31, 2020.
Financial performance and position
| Metric | Q1 2021 / March 31, 2021 | Comparison |
|---|---|---|
| Interest income | $10.64 million | Up 1.8% from $10.45 million in Q1 2020 |
| Net interest income | $8.76 million | Up 11.1% from $7.89 million |
| Net interest margin | 3.44% | 3.32% in Q1 2020 |
| Provision for loan and lease losses | $400,000 | $210,000 in Q1 2020 |
| Net income / diluted EPS | $2.56 million / $0.22 | $2.45 million / $0.20 in Q1 2020 |
| Total assets | $1.141 billion | Up 5.2% from $1.084 billion at year-end |
| Net loans and leases | $763.7 million | Up $27.3 million from year-end |
| Deposits | $757.1 million | Up $64.0 million, or 9.2%, from year-end |
| FHLB advances | $170.0 million | Unchanged from year-end |
| Stockholders’ equity | $189.5 million | Down 1.7% from year-end; equity/assets 16.6% |
| Cash and cash equivalents | $65.5 million | Up from $48.8 million at year-end |
Operating cash flow was negative $2.4 million; investing cash flow was negative $42.1 million, primarily reflecting loan growth and securities purchases. Financing provided $61.3 million, mainly from deposit growth, producing a $16.8 million net increase in cash. Noninterest income rose 85.4% to $1.77 million, led by loan-sale gains; noninterest expense increased 26.3% to $6.98 million, mainly from compensation and employee benefits. Comprehensive loss was $1.10 million, reflecting a $3.66 million after-tax unrealized loss on available-for-sale securities.
Material changes and credit quality
- Loan growth included commercial and industrial, commercial mortgage, and construction and development lending. PPP loans outstanding were $54.7 million; $772,000 of PPP fees were recognized in interest income during the quarter, with $1.9 million of fees remaining unrecognized.
- Nonperforming loans and leases rose to $8.1 million, or 1.05% of total loans and leases, from $4.8 million, or 0.64%, at year-end. The increase included a $4.9 million commercial real estate loan that was more than 90 days past due, on nonaccrual, and subject to litigation.
- The allowance for loan and lease losses increased to $11.0 million from $10.6 million; its coverage of nonperforming loans and leases declined to 135.1% from 220.6%. Net charge-offs were $27,000.
- COVID-related deferrals declined to 33 loans and leases totaling $24.6 million, from 48 totaling $54.7 million at year-end. Five hotel loans totaling $16.35 million remained deferred.
- Available-for-sale securities had $3.20 million of gross unrealized losses at quarter-end. Management attributed declines primarily to interest rates and regarded them as temporary; securities with fair value of $120.4 million were in an unrealized-loss position.
Outlook, risks, contingencies, and unusual items
- Management said the pandemic and the 2020 reduction in the federal funds rate could adversely affect net interest income and net interest margin in 2021 and possibly longer. No numeric earnings or margin guidance was provided.
- The Bank reported a 20.8% total risk-based capital ratio and a 14.2% Tier 1 leverage ratio, exceeding well-capitalized thresholds. It reported $249.8 million in cash and unpledged available-for-sale securities for liquidity, plus $34.2 million of additional FHLB borrowing capacity and up to $54.7 million of potential PPPLF borrowing; no PPPLF borrowings were outstanding.
- Loan and lease commitments, including unused lines and letters of credit, were reported as $167.3 million in one section and $167.4 million in another; the filing does not provide a single clear value. Certificates of deposit maturing within one year totaled $54.4 million.
- The frozen defined benefit pension plan carried a $17.5 million accrued liability. Management said termination in the current low-rate environment could require substantial additional expense; the timing and final cost remain uncertain.
- The company repurchased 142,764 shares for $1.94 million in Q1. It subsequently repurchased another 167,193 shares through May 14, 2021, with 249,392 shares then available under the program.
- Management identified pandemic-related credit effects, economic and interest-rate changes, deposit and loan demand, real-estate values, funding access, cybersecurity, and the pension-plan termination as risks. It reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Track the $4.9 million delinquent commercial real estate loan, associated litigation, collateral recovery, and any effect on nonperforming assets or the allowance.
- Monitor deferred borrowers, especially hotel exposures, as deferrals end and the economic effects of COVID-19 evolve.
- Assess whether deposit growth and liquidity remain sustainable and how loan growth, PPP forgiveness, and funding costs affect net interest margin.
- Check the performance and valuation of securities with unrealized losses, including whether management’s expectation of recovery remains supportable.
- Verify the final cost and timing of pension-plan termination and any resulting charge beyond the $17.5 million accrued liability.
- Reconcile the filing’s $167.3 million versus $167.4 million commitment disclosures and monitor share repurchases and capital levels.