Richmond Mutual Bancorporation, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited consolidated results include First Bank Richmond and subsidiaries. The company is a community banking organization; substantially all business is conducted through the bank. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Interest income | $13.17 million | $11.90 million | $37.56 million | $33.90 million |
| Net interest income | $10.51 million | $9.96 million | $31.12 million | $28.15 million |
| Provision for loan and lease losses | $0.20 million | $0.50 million | $0.60 million | $1.43 million |
| Noninterest income | $1.18 million | $1.14 million | $3.48 million | $4.31 million |
| Noninterest expenses | $7.72 million | $6.84 million | $22.21 million | $20.70 million |
| Net income | $3.16 million | $3.08 million | $9.66 million | $8.43 million |
| Diluted EPS | $0.29 | $0.27 | $0.87 | $0.72 |
Q3 net income rose 2.5% year over year; nine-month net income increased 14.7%. Annualized net interest margin was 3.39% in Q3 versus 3.42% a year earlier, and 3.37% for the nine months versus 3.36%. The filing does not present a conventional nonfinancial-company revenue measure; interest income and noninterest income are shown separately.
Financial position, credit, and liquidity
- At September 30, total assets were $1.279 billion, up 0.9% from year-end 2021. Net loans and leases were $915.5 million, up 9.9%; deposits were $958.6 million, up 6.5%.
- Cash and cash equivalents were $19.4 million. FHLB advances were $187.0 million, compared with $180.0 million at December 31, 2021.
- Stockholders’ equity was $125.0 million, down $55.5 million from year-end; the equity-to-assets ratio was 9.8%. The bank reported a 14.7% total risk-based capital ratio, 13.6% CET1 ratio, and 11.3% Tier 1 leverage ratio, and was well-capitalized.
- Available-for-sale and held-to-maturity securities had carrying amounts totaling approximately $287.1 million. The portfolio had $70.2 million of gross unrealized losses at quarter-end, primarily attributed by management to higher market interest rates. Accumulated other comprehensive loss was $55.2 million, versus $1.2 million at year-end. Management considered the declines temporary and reported no securities sales in the first nine months.
- Nonperforming loans and leases were $7.9 million, or 0.85% of total loans and leases, versus $8.0 million, or 0.95%, at year-end. The allowance was $12.6 million, or 1.35% of loans and leases; nine-month net charge-offs were $152,000.
- Brokered deposits increased to $194.0 million, or 20.2% of deposits, from $121.8 million, or 13.5%, at year-end. The company reported $62.6 million of remaining FHLB borrowing capacity and $176.7 million of unencumbered securities available to support borrowing.
- Nine-month cash flows were $14.6 million provided by operating activities, $70.9 million used in investing activities, and $52.6 million provided by financing activities. Cash and cash equivalents declined $3.7 million from the start of the period.
Changes and management commentary
- Loan growth was led by construction and development, commercial real estate, and residential mortgage lending. Investment securities declined as maturities and paydowns partly funded loan growth and market-value declines reduced reported balances.
- Q3 net interest income increased 5.6%, reflecting growth in average interest-earning assets; higher deposit and borrowing costs contributed to a slightly lower net interest margin. Nine-month net interest income increased 10.5%.
- Nine-month noninterest income fell 19.4%, mainly because loan-sale gains declined to $581,000 from $2.1 million as mortgage banking activity and refinancing weakened. Noninterest expenses rose 7.3%, including higher compensation and data-processing costs.
- Equity fell mainly because of the $54.0 million after-tax other comprehensive loss on securities, $9.6 million of share repurchases, and $3.3 million of dividends, partly offset by net income. The company repurchased 597,771 shares in the first nine months. A new authorization permits repurchases of up to 1,184,649 shares through July 2023, subject to the company’s discretion.
- Management cited inflation, rising interest rates, possible recession, market volatility, and supply-chain disruption related to the Russia-Ukraine conflict as credit and operating concerns. It said it was stress-testing the portfolio and closely monitoring potentially higher-risk segments such as hotels and restaurants.
Outlook, risks, and other matters
- No specific earnings or financial-performance guidance is provided. Management said it expects to continue regular quarterly cash dividends at the current $0.10-per-share rate, subject to board discretion.
- Management said it knew of no events reasonably likely to materially adversely affect liquidity, capital resources, or operations. It described available capital and funding sources as adequate for reasonably foreseeable needs.
- The company was evaluating its CECL methodology ahead of adoption for fiscal years beginning after December 15, 2022; management said additional time was needed to quantify the effect.
- There were no material pending legal proceedings, no material changes to previously disclosed risk factors, and no material changes in market-risk disclosures. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- How interest-rate movements affect securities values, accumulated other comprehensive loss, capital, and the ability or need to sell securities.
- Whether deposit pricing and the 20.2% brokered-deposit share affect funding costs, liquidity, and net interest margin.
- Credit quality trends in the growing loan portfolio, particularly construction and development, commercial real estate, and monitored higher-risk segments.
- The eventual CECL adoption method and quantified impact, which the filing does not yet provide.
- Future use of the share-repurchase authorization and the sustainability of dividends given capital, funding, and market conditions.