Richmond Mutual Bancorporation, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone Q4 earnings release; the filing does not provide a clear set of fourth-quarter-only results. Richmond Mutual completed its conversion to a stock holding company and public offering on July 1, 2019, so year-over-year comparisons also reflect a major capital and corporate-structure change.
Business and financial position
The company operates First Bank Richmond, a community bank serving Indiana and Ohio. Its lending includes commercial and multifamily real estate, construction, commercial and industrial loans, residential mortgages, consumer loans, and equipment leases.
| Metric | FY2019 / December 31, 2019 | Comparison |
|---|---|---|
| Total assets | $986.0 million | Up 16.1% from $849.6 million |
| Loans and leases, net | $687.3 million | Up 5.0% from $654.8 million |
| Deposits | $617.2 million | Down 0.6% from $620.6 million |
| FHLB advances | $154.0 million | Up from $136.1 million |
| Stockholders’ equity | $187.8 million | Up from $85.9 million, mainly reflecting the offering |
| Net interest income | $30.4 million | Up 10.8% from $27.4 million |
| Net interest margin | 3.34% | Down 23 basis points from 3.57% |
| Net income (loss) | $(14.1) million | Compared with $5.7 million income |
| Operating cash flow | $10.1 million | Compared with $8.5 million |
Interest income rose 18.2% to $41.6 million, while interest expense increased 43.6% to $11.2 million. The loan-loss provision was $2.6 million, versus $1.7 million. The reported net loss included significant nonrecurring charges: an estimated $19.3 million pretax pension-plan termination expense, $6.25 million for the charitable foundation, and $1.7 million related to a nonqualified deferred compensation plan. Management reported their respective after-tax impacts as approximately $14.3 million, $4.9 million, and $1.3 million.
Material changes and credit quality
- The July stock offering sold 13,026,625 shares at $10 each, generating approximately $130.3 million in gross proceeds. The company also contributed 500,000 shares and $1.25 million cash to its community foundation. Asset growth was principally funded by offering proceeds.
- Commercial and multifamily real estate loans grew; commercial and industrial loans also increased, while construction and development loans declined. Commercial loans, including construction, were $433.4 million, or 62.4% of the loan and lease portfolio. Commercial real estate, multifamily, and commercial and industrial loans together were $380.0 million, or 54.7%.
- Brokered deposits fell to $56.7 million, or 9.2% of deposits, from $124.5 million, or 20.1%. Core deposits were 84.0% of total deposits. FHLB advances increased and were used primarily to fund loan growth.
- Nonperforming loans and leases declined to $3.8 million, or 0.55% of total loans and leases, from $4.6 million, or 0.69%. The allowance rose to $7.1 million, or 1.02% of gross loans and leases; net charge-offs were $1.1 million, or 0.16% of average loans and leases.
- Watch and special-mention assets increased to $13.5 million from $3.8 million. Potential problem loans and leases not included in nonperforming assets totaled $5.4 million.
- Bank regulatory capital was strong: total risk-based capital was 19.5%, compared with the 10.0% well-capitalized threshold. Cash and cash equivalents were $40.6 million; available-for-sale securities were $201.8 million and held-to-maturity securities were $15.9 million.
Outlook, risks, and contingencies
- Management plans managed balance-sheet growth, continued commercial lending in existing markets and Columbus, Ohio, and a focus on core deposits and asset quality. The filing gives no quantified earnings or growth guidance.
- The final cost of withdrawing from the defined-benefit plan was not yet known and could differ from the accrual; management said it could affect 2020 results. The balance sheet included a $17.5 million multi-employer pension-plan liability.
- The filing identifies concentration and seasoning risks in commercial real estate, construction, and commercial lending, alongside exposure to local economic conditions, collateral values, and borrower cash flows.
- Interest-rate sensitivity was material: the year-one net interest income model estimated a 10.20% decline under an immediate 200-basis-point rate decrease. The EVE model estimated an 8.04% decline under that scenario. The Federal Reserve cut rates to 0%–0.25% in March 2020; management warned lower rates could pressure net interest income.
- The company noted uncertainty from the COVID-19 outbreak and said its duration and financial effects could not then be reasonably estimated. Other identified risks include deposit funding and liquidity, cybersecurity and third-party systems, securities valuations, LIBOR transition, and adoption of CECL, expected for the company in 2023.
- Off-balance-sheet commitments to extend credit were $112.1 million and standby letters of credit were $599,000. The company reported no material pending legal proceedings. It paid no cash dividend in 2019 and did not have an authorized share repurchase program at year-end.
Important facts for investors to verify
- Confirm the final defined-benefit plan settlement cost, timing, and related cash funding, as well as utilization of the charitable-contribution tax carryforward.
- Review commercial loan concentrations, recent loan-grade migration, the increase in watch and special-mention assets, and allowance adequacy—particularly given the largely unseasoned commercial portfolio.
- Assess the sustainability of net interest income and margin under lower rates, deposit repricing, and the maturity and repricing terms of FHLB advances, including $103.0 million subject to a lender option to switch to an adjustable rate.
- Reconcile the earnings-per-share disclosures: the income statement reports a $14.1 million annual net loss, while the EPS note reports a $15.8 million loss for the July 2–December 31 period; confirm the applicable period and calculation.
- Check the filing’s noninterest-income discussion, which contains an apparent “$39.0 million” figure despite financial statements reporting total noninterest income of $3.86 million, and verify the intended amount.