Richmond Mutual Bancorporation, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019; interim financial statements are unaudited. Unless otherwise noted, amounts below are in U.S. dollars. The filing reports the Delaware predecessor and First Bank Richmond; the reorganization and stock offering closed July 1, 2019.
Business context and key financial metrics
First Bank Richmond is a community bank serving Indiana and Ohio markets. Its lending includes commercial and multifamily real estate, residential mortgages, commercial and industrial loans, consumer loans, and equipment leases; it also provides trust and wealth-management services.
| Metric | Q2 / June 30, 2019 | Comparable period / prior date |
|---|---|---|
| Total assets | $1.083 billion | $849.6 million at Dec. 31, 2018 |
| Net loans and leases | $691.1 million | $654.8 million at Dec. 31, 2018 |
| Deposits | $827.6 million | $620.6 million at Dec. 31, 2018 |
| FHLB advances | $157.1 million | $136.1 million at Dec. 31, 2018 |
| Stockholders’ equity | $91.0 million | $85.9 million at Dec. 31, 2018 |
| Q2 net income | $335,000 | $1.375 million in Q2 2018 |
| Six-month net income | $1.707 million | $2.587 million in first half 2018 |
| Q2 net interest income | $7.482 million | $6.811 million in Q2 2018 |
| Six-month net interest income | $14.602 million | $13.361 million in first half 2018 |
| Cash flow, six months | Operating +$4.5 million; investing −$45.1 million; financing +$228.0 million | Net cash increased $187.4 million |
Q2 interest income was $10.4 million and non-interest income was $0.9 million. Q2 net interest margin was 3.27%, down from 3.55% a year earlier; the six-month margin was 3.35%, versus 3.55%. The Bank reported a 12.6% total risk-based capital ratio and stated it exceeded well-capitalized regulatory thresholds. Wealth-management assets under management and administration were $128.5 million.
Material changes versus comparable periods
- Q2 net income declined about 76% year over year; first-half net income declined 34%. Management attributed the declines principally to a $1.7 million pretax ($1.3 million after-tax) nonqualified deferred-compensation-plan expense recorded in Q2.
- Q2 interest income rose 20.9% and net interest income rose 9.9%, supported by loan growth and higher loan yields. Higher deposit and borrowing costs contributed to margin compression: Q2 interest expense rose 61.1% and first-half interest expense rose 64.7% year over year.
- Q2 non-interest expense increased 37.0% to $7.6 million; first-half expense increased 22.0% to $13.4 million. Besides the deferred-compensation charge, management cited higher transaction-related data-processing costs and reorganization-related legal and professional fees.
- Assets increased 27.5% from year-end, while net loans and leases grew 5.6%. Deposits increased 33.4%; approximately $180 million of IPO subscription funds were held at the Bank before the July 1 closing. Brokered deposits decreased $22.3 million to $102.1 million.
- The allowance for loan and lease losses rose to $6.281 million, or 0.90% of loans and leases, from $5.6 million, or 0.85%, at year-end. First-half net charge-offs were $329,000, compared with $67,000 reported for first-half 2018. Nonaccrual loans decreased to $1.973 million from $2.479 million.
- Accumulated other comprehensive loss improved to $0.925 million from $4.378 million, principally reflecting gains in available-for-sale securities.
Outlook, risks, contingencies and unusual items
- The July 1 reorganization created the Maryland holding company and ended the existence of the Delaware predecessor. The new parent sold 13,026,625 shares at $10 per share, for approximately $130.3 million in gross proceeds, and contributed 500,000 shares and $1.25 million to a charitable foundation. Offering and reorganization costs were to be deducted from proceeds.
- The filing gives no specific earnings or growth guidance. Management cautions that interim results are not necessarily indicative of full-year results.
- Management identifies economic and real-estate conditions, loan and lease credit quality, funding access and costs, interest-rate movements, competition, regulation, technology and operational risks as factors that could affect results. It also notes risk from a relatively unseasoned portion of the loan portfolio and the concentration of commercial real-estate lending in its market area.
- At June 30, loan commitments and unused lines of credit totaled $99.3 million. These off-balance-sheet commitments may require future funding, although some may expire unused.
- Management considered securities with unrealized losses to be temporarily impaired, primarily due to interest rates and, for some securities, illiquidity; it reported no material legal proceedings. The company expected the new credit-loss standard to increase its allowance but was still evaluating the effect.
- Management reported effective disclosure controls as of June 30 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How the July 1 offering proceeds, associated costs, foundation contribution and post-offering capital position are reflected in subsequent-period financial statements; distinguish the pre-closing subscription deposits from the reported gross offering proceeds.
- Whether earnings recover after the one-time deferred-compensation-plan charge, and how ongoing compensation and reorganization costs affect expenses.
- Whether loan growth, especially in commercial real estate, construction and multifamily lending, is accompanied by stable delinquency trends, charge-offs and allowance adequacy.
- Whether funding costs and deposit mix continue to pressure net interest margin, and how the unusually high June cash balance changed after the offering closed.
- The eventual impact and implementation timing of the expected credit-loss accounting standard, alongside interest-rate sensitivity and unrealized securities losses.