Richmond Mutual Bancorporation, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; balance-sheet comparisons are against December 31, 2022. The company operates primarily through First Bank Richmond, serving Indiana and Ohio markets and providing banking, lending, equipment leasing, and wealth-management services.
Financial performance and condition
- Third-quarter earnings: Net income was $1.95 million, down 38.3% from $3.16 million a year earlier. Diluted EPS was $0.19 versus $0.29.
- Nine-month earnings: Net income was $7.54 million, down 21.9% from $9.66 million. Diluted EPS was $0.72 versus $0.87.
- Interest income and margin: Q3 interest income rose 32.2% to $17.41 million, but interest expense rose 211.8% to $8.29 million. Net interest income fell 13.2% to $9.13 million; annualized net interest margin was 2.66%, down from 3.39%. For the nine months, net interest income declined 8.9% to $28.33 million and net interest margin was 2.82%, versus 3.37%.
- Other income and costs: Q3 noninterest income was $1.16 million, down 2.2%, while noninterest expense increased 3.8% to $8.01 million. Nine-month noninterest income was $3.43 million, down 1.2%, and expenses rose 2.2% to $22.71 million. Higher data-processing and FDIC insurance costs were notable expense increases.
- Assets and lending: Total assets increased 7.1% to $1.423 billion. Loans and leases, net of allowance, grew 10.9% to $1.067 billion, with growth in commercial real estate, direct financing leases, and residential mortgages. Investment securities declined to $269.4 million.
- Credit quality: Nonperforming loans and leases were $8.0 million, or 0.74% of loans and leases, compared with $9.2 million, or 0.94%, at year-end 2022. The loan-and-lease allowance was $15.5 million, or 1.43% of gross loans and leases. Nine-month net charge-offs were $436,000, versus $152,000 in 2022. The company adopted CECL on January 1, 2023; provision comparisons with 2022 are therefore not directly comparable.
- Deposits and borrowings: Deposits increased 4.8% to $1.054 billion. Brokered deposits were $302.3 million, or 28.7% of deposits; estimated uninsured deposits were $201.0 million, or 19.1%, excluding collateralized public deposits. FHLB advances increased $58.0 million to $238.0 million.
- Equity and securities: Stockholders’ equity fell 10.8% to $118.6 million, including a $10.0 million increase in after-tax accumulated other comprehensive loss, $5.3 million of repurchases, $4.5 million of dividends, and the CECL transition adjustment. Available-for-sale securities had $75.6 million of gross unrealized losses; management attributed these primarily to interest rates, not credit quality, and stated it did not expect to have to sell before recovery.
- Cash flow and liquidity: For the first nine months, operating activities provided $8.3 million; investing activities used $100.6 million, primarily reflecting loan growth; financing activities provided $97.0 million. Cash and cash equivalents ended at $20.7 million. Management reported $285.1 million in cash, time deposits, and available-for-sale securities; $105.7 million in remaining FHLB borrowing capacity; and $112.3 million in unencumbered securities that could support additional borrowing. Certificates of deposit maturing within one year totaled $379.3 million.
- Capital: First Bank Richmond’s total risk-based capital ratio was 13.7%, above the 10.0% well-capitalized threshold; its Tier 1 leverage ratio was 10.7%, above the 5.0% threshold. The company reported an 8.34% equity-to-assets ratio.
Material changes and management commentary
Loan growth and higher asset yields increased interest income, but deposit and borrowing costs rose faster as rates increased, compressing net interest margin and reducing earnings. Management cited the faster repricing of shorter-duration funding than assets as a key driver. Deposit mix shifted toward higher-cost time deposits; savings and money-market balances declined. Loan growth was funded in part by deposit growth and increased FHLB advances.
Management identified persistent inflation, higher interest rates, weaker growth and employment outlooks, geopolitical risk, market volatility, and possible tighter credit conditions as risks to borrowers and future credit-loss estimates. It reported ongoing portfolio stress testing and close monitoring of potentially higher-risk segments, including hotels and restaurants. Regional outlooks were mixed: Columbus was forecast to remain relatively stronger, Dayton/Springfield positive but flatter, and Indianapolis facing minimal growth.
No quantitative earnings or margin guidance is provided. Management said it expects to continue regular quarterly cash dividends at the then-current $0.14 per-share rate, subject to board discretion. The repurchase program was extended to June 6, 2024; 484,171 shares were repurchased in the first nine months at an average $10.89 per share. The filing reports no material legal proceedings, no material changes to previously disclosed risk factors, and no material change in market-risk disclosures. Management concluded disclosure controls were effective and reported no material internal-control changes during the quarter.
Important facts for investors to verify
- Whether deposit pricing and funding mix continue to pressure net interest margin, including the cost and availability of FHLB funding and brokered deposits.
- Deposit retention and liquidity coverage as $379.3 million of certificates mature within one year, especially given $201.0 million of estimated uninsured deposits.
- Loan growth, delinquency and charge-off trends, commercial real-estate exposures, and the adequacy of CECL allowances under the company’s economic assumptions.
- The potential effects of the $75.6 million gross unrealized securities loss if liquidity needs require asset sales before recovery.
- Capital and shareholder-return decisions, including the dividend and buyback pace. The filing reports 11,300,075 shares outstanding at September 30, but 11,244,669 shares at November 13; it also reports additional repurchases after quarter-end.