Richmond Mutual Bancorporation, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; financial statements are unaudited. Unless noted, dollar amounts below are in millions.
Business context
First Bank Richmond is a community bank operating in Indiana and Ohio, with lending, deposit-taking, equipment leasing, and wealth-management activities. The filing’s financial statements relate to Richmond Mutual Bancorporation-Delaware and First Bank Richmond. A mutual-to-stock reorganization and public stock offering were underway but had not been completed at March 31, 2019. The newly formed Maryland corporation had no assets or liabilities and had conducted no business other than organizational activities.
Key financial results and position
| Metric | Q1 2019 / March 31, 2019 | Comparable / prior date |
|---|---|---|
| Net income | $1.37 | $1.21 in Q1 2018; up 13.2% |
| Net interest income | $7.12 | $6.55 in Q1 2018; up 8.7% |
| Net interest margin | 3.44% | 3.54% in Q1 2018 |
| Total assets | $882.8 | $849.6 at December 31, 2018 |
| Loans and leases, net | $672.1 | $654.8 at December 31, 2018 |
| Deposits | $642.1 | $620.6 at December 31, 2018 |
| FHLB advances | $145.1 | $136.1 at December 31, 2018 |
| Stockholders’ equity | $89.1 | $85.9 at December 31, 2018 |
| Cash and cash equivalents | $30.9 | $15.0 at December 31, 2018 |
| Allowance for loan and lease losses | $5.84; 0.86% of loans and leases | $5.60; 0.85% at December 31, 2018 |
Interest income rose 19.5% to $9.76 million, while interest expense rose 63.6% to $2.64 million. The average yield on interest-earning assets was 4.72%, versus 4.41% a year earlier; the average cost of interest-bearing liabilities rose to 1.49% from 1.03%. The reported net interest rate spread was 3.23%, down from 3.38%.
Q1 operating cash flow was $1.66 million, compared with $4.75 million in Q1 2018. Investing activities used $16.23 million and financing activities provided $30.54 million. Cash increased $15.97 million, versus a $2.74 million decrease in the prior-year quarter. No dividends were paid in Q1 2019.
Changes, credit and capital
- Assets grew 3.9% from year-end, primarily from loan growth and higher cash and investments. Loans and leases grew 2.6%; management attributed much of the expansion to commercial real estate and construction lending in the Columbus, Ohio area.
- Deposits grew 3.5%, while FHLB advances increased 6.6%. Brokered deposits declined $7.8 million but remained $116.7 million, or 18.2% of deposits.
- Net charge-offs were $289,000, compared with a net recovery of $1,000 in Q1 2018. The provision for credit losses rose to $525,000 from $450,000. Past-due loans totaled $5.47 million, down from $8.66 million at year-end; nonaccrual loans were $2.13 million, down from $2.48 million.
- The bank reported a 12.4% total risk-based capital ratio, 11.6% Tier 1 and common equity Tier 1 ratios, and a 10.0% Tier 1 leverage ratio. Management stated the bank exceeded well-capitalized requirements and the capital conservation buffer.
- Unrealized losses on investment securities were $3.50 million at March 31, down from $5.97 million at year-end. Management attributed declines mainly to interest rates and considered them temporary; securities with carrying value of $88.3 million were pledged.
Outlook, risks and unusual items
The filing provides no quantified earnings or financial guidance. Management cited loan growth, higher funding costs, and pressure on the net interest margin. Noninterest expenses increased 6.7% year over year to $5.81 million; legal and professional fees rose by $155,000, primarily due to the reorganization. Q1 included a $24,806 securities gain. Management reported no material change in market-risk disclosures, risk factors, or internal controls, and no material pending legal proceedings.
Key risks include access to cost-effective funding and reliance on brokered deposits; interest-rate changes affecting margins, securities values, and mortgage activity; credit losses and real-estate values; and the relatively unseasoned portion of the loan portfolio. The company expected the forthcoming credit-loss standard to increase the allowance but had not determined the impact. Management expected the new lease standard to have no material balance-sheet or income-statement impact.
The reorganization and offering were subject to required approvals, including a member vote scheduled for June 19, 2019. Subject to member approval, First Bank planned a $6.25 million community foundation contribution: $1.25 million cash and $5.0 million in company shares. Deferred transaction costs would be deducted from offering proceeds, or charged to operations if the reorganization failed.
Important facts for investors to verify
- Whether and when the reorganization and stock offering were completed, the final offering size, and the effect of the planned foundation contribution and transaction costs.
- Funding mix and cost trends, including brokered deposits, certificates of deposit, and FHLB advances, and whether deposit growth can continue at acceptable costs.
- Credit performance and allowance adequacy as commercial real estate and construction lending expand; monitor charge-offs, delinquencies, and nonaccruals.
- Capital ratios and the impact of adopting the expected-credit-loss accounting standard.
- The filing checks “No” for having filed all required Exchange Act reports during the preceding 12 months, and separately states there were no common shares outstanding as of June 18, 2019. These disclosures merit verification in the filing record and in subsequent offering/reorganization filings.