Richmond Mutual Bancorporation, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; comparisons are with the same 2020 periods unless noted. The company is a bank holding company whose principal operating subsidiary, First Bank Richmond, serves Indiana and Ohio markets and also provides equipment leases and wealth-management services.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Interest income | $11.90 million | $10.75 million | $33.90 million | $31.87 million |
| Net interest income | $9.96 million | $8.44 million | $28.15 million | $24.52 million |
| Net interest margin | 3.42% | 3.24% | 3.36% | 3.34% |
| Provision for loan and lease losses | $0.50 million | $1.30 million | $1.43 million | $2.83 million |
| Noninterest income | $1.14 million | $1.99 million | $4.31 million | $4.86 million |
| Noninterest expense | $6.84 million | $5.99 million | $20.70 million | $17.16 million |
| Net income | $3.08 million | $2.53 million | $8.43 million | $7.49 million |
| Diluted EPS | $0.27 | $0.21 | $0.72 | $0.60 |
- Q3 net income rose about 22%; nine-month net income rose about 13%. Management attributed the nine-month increase chiefly to higher net interest income and a lower credit-loss provision, partly offset by increased expenses and lower noninterest income.
- Q3 net interest income grew 18%, supported by higher average earning assets and a wider spread. Nine-month net interest income grew 14.8%, while margin increased only slightly. Lower deposit and borrowing costs helped; PPP fee recognition also supported loan yields.
- Noninterest income fell 42.5% in Q3 and 11.2% year to date, mainly as mortgage refinancing and loan-sale gains declined. Mortgage-servicing-rights impairment reduced servicing income. Higher expenses reflected equity awards, compensation and staffing, pension costs, technology and other operating costs.
Financial position, cash flow and capital
- At September 30, 2021, assets were $1.231 billion, up 13.5% from December 31, 2020. Net loans and leases were $795.4 million, up $61.0 million; investment securities were approximately $367.7 million, up $110.9 million. Cash and cash equivalents declined $28.9 million to $19.8 million.
- Deposits increased $131.2 million to $824.3 million. Brokered deposits rose to $63.8 million, or 7.7% of deposits. FHLB advances increased $32.0 million to $202.0 million. Stockholders’ equity decreased $14.1 million to $178.6 million, reflecting repurchases, dividends and lower accumulated other comprehensive income, partly offset by earnings.
- Nine-month operating cash flow was $3.3 million; investing cash outflow was $176.0 million, primarily reflecting securities purchases and loan growth; financing cash inflow was $143.7 million, mainly from deposit growth and net FHLB advances. The company paid $8.5 million in dividends and repurchased $11.2 million of stock during the period.
- Management reported $225.7 million of cash and unpledged available-for-sale securities available for bank liquidity needs, plus capacity for $48.0 million of additional FHLB advances. Commitments, including unused lines and letters of credit, were $177.9 million; certificates of deposit maturing within one year totaled $168.1 million.
- The Bank reported a 17.63% total risk-based capital ratio and 12.8% Tier 1 leverage ratio and was well-capitalized. These are bank-level regulatory ratios, not consolidated-company ratios.
Material changes, outlook and risks
- Nonperforming loans and leases increased to $8.5 million, or 1.05% of loans and leases, from $4.8 million, or 0.65%, at year-end. The increase primarily reflected a $4.9 million nonaccrual commercial real estate loan more than 90 days past due and subject to litigation between the developer and other parties. Allowance coverage of nonperforming loans fell to 139.2% from 220.6%.
- The allowance was $11.8 million, or 1.47% of loans and leases, versus $10.6 million, or 1.42%, at year-end. Nine-month net charge-offs were $167,000. Management cited improving economic conditions but continued uncertainty from COVID-19 and the Delta variant; it increased qualitative allowance factors and monitored higher-risk sectors.
- The company had $16.3 million of PPP loans outstanding, down from $43.3 million at year-end; these loans are SBA-guaranteed. It reported no COVID-related modified loans outstanding at September 30, 2021, compared with 48 totaling $54.7 million at year-end. Management said the pandemic’s effects remained uncertain and expected net interest income and margin to be adversely affected in 2021 and possibly longer, in part because of low interest rates. No formal earnings guidance was provided.
- Available-for-sale securities had $4.8 million of gross unrealized losses at quarter-end; management attributed declines primarily to market interest rates and judged them temporary. Accumulated other comprehensive income swung to a $1.3 million loss from $3.7 million of income at year-end, reducing equity.
- A $17.5 million multi-employer pension withdrawal liability was accrued. The plan termination timing and final cost remain uncertain; management warned that low interest rates could make termination expense substantially higher than the accrued amount and affect future results.
- Other stated risks include credit deterioration, interest-rate and securities-market changes, funding access, real-estate conditions, competition, cybersecurity and vendor performance. Management reported effective disclosure controls and no material change in internal control over financial reporting. It reported no material legal proceedings or material changes to previously disclosed risk factors.
- After quarter-end through November 12, the company repurchased 21,651 additional shares; 1,023,847 shares remained available under the repurchase program.
Important facts for investors to verify
- Developments, collateral and recovery prospects for the $4.9 million nonaccrual commercial real estate loan and the related litigation; also monitor the rise in total nonperforming loans and lower allowance coverage.
- Whether deposit growth and liquidity remain durable, including brokered-deposit reliance, upcoming certificate maturities, lending commitments and available borrowing capacity.
- Trends in net interest margin as PPP fees run off and interest rates change, and whether weaker mortgage-sale activity and higher operating costs persist.
- Fair-value changes in the securities portfolio and any effect on equity or the ability to hold securities through recovery.
- The timing and ultimate cost of terminating the frozen pension plan, compared with the $17.5 million accrued liability.