Richmond Mutual Bancorporation, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. Financial statements are unaudited. The mutual-to-stock reorganization and initial public offering (IPO) closed July 1, 2019; the new public company’s results and per-share data therefore require care in comparison with prior periods.
Business context
The company is the parent of First Bank Richmond, an Indiana-chartered commercial bank operating in Indiana and Ohio. It gathers retail and brokered deposits and invests primarily in commercial real estate, multifamily, residential, commercial and industrial loans, equipment leases, and securities. Wealth management assets under administration were $138.2 million at September 30, 2019.
Financial performance and position
| Metric | 2019 | Comparable period / context |
|---|---|---|
| Net interest income, third quarter | $7.9 million | Up 14.0% from $6.9 million |
| Net interest margin, third quarter | 3.31% | Down from 3.59% |
| Net income (loss), third quarter | $(3.25) million; $(0.26) per share | Net income of $1.62 million in third quarter 2018; 2018 EPS not applicable |
| Net interest income, nine months | $22.5 million | Up 10.8% from $20.3 million |
| Net interest margin, nine months | 3.34% | Down from 3.57% |
| Net income (loss), nine months | $(1.54) million | Net income of $4.21 million in 2018 |
| Assets / loans and leases, net | $956.2 million / $694.7 million | Assets up 12.6%; net loans and leases up 6.1% from year-end 2018 |
| Deposits / FHLB advances | $607.8 million / $141.0 million | Deposits down 2.1%; advances up 3.6% from year-end 2018 |
| Stockholders’ equity | $200.4 million | Up from $85.9 million at year-end 2018, primarily reflecting IPO proceeds |
| Operating cash flow, nine months | $6.9 million | $6.7 million in 2018 |
Cash and cash equivalents were $41.4 million, versus $15.0 million at year-end 2018. Nine-month investing cash outflow was $80.5 million, chiefly reflecting net loan growth and securities activity; financing cash inflow was $100.0 million, including $113.0 million of net IPO proceeds. The allowance for loan and lease losses was $6.9 million, or 0.98% of loans and leases, versus $5.6 million, or 0.85%, at year-end. Nine-month net charge-offs were $419,000.
At September 30, the bank’s total risk-based capital ratio was 21.5%, versus a 10.0% well-capitalized threshold; its Tier 1 leverage ratio was 15.7%, versus a 5.0% well-capitalized threshold. The filing reports $96.9 million in loan commitments and unused lines of credit.
Material changes and unusual items
- The IPO sold 13,026,625 shares at $10.00 per share for approximately $130.3 million gross proceeds; net proceeds were approximately $127.7 million. Proceeds strengthened capital and liquidity, funded the bank, securities and cash, repaid approximately $5.2 million of subordinated debentures and trust preferred securities, and funded an ESOP share purchase.
- The third-quarter and nine-month results include a $6.25 million contribution expense for the newly established charitable foundation. Management says this reduced third-quarter EPS by $0.40 per share; the stated after-tax impact on third-quarter earnings was approximately $4.9 million.
- Nine-month results also include a $1.7 million cost from adopting a nonqualified deferred compensation plan. Management estimates that excluding both items, nine-month net income would have increased by approximately $500,000 year over year; this is a non-GAAP-like comparison and should be assessed against the reported results.
- Loan growth was concentrated in commercial real estate and multifamily. Commercial real estate and multifamily balances rose 19.3% in aggregate, while construction and development loans declined 24.1% as borrowers obtained longer-term fixed-rate financing elsewhere.
- Brokered deposits fell to $65.9 million, or 10.8% of deposits, from $124.5 million, or 15.0%, at year-end 2018. Management attributed the overall deposit decline partly to customers using deposits to buy IPO shares.
Outlook, commentary and risks
- The filing provides no specific earnings, growth, or margin guidance. Management cites loan and deposit demand, funding costs, interest rates, competition, and general economic conditions as factors affecting future results.
- Management reported a 28-basis-point third-quarter and 23-basis-point nine-month decline in net interest margin year over year. Higher loan balances and yields supported interest income, but deposit and borrowing costs rose; management also cited a slowing economy when explaining higher provisions.
- The defined benefit plan was frozen effective October 1, 2019. The company is evaluating termination and previously estimated an after-tax withdrawal liability of approximately $9.8 million; the actual amount may vary with interest rates, plan asset values, and other factors.
- Management considered unrealized securities losses primarily interest-rate-related and temporary, and said it did not intend, nor was it more likely than not required, to sell affected securities before recovery. A change in these judgments could affect earnings.
- Key stated risks include credit quality and allowance estimates, real estate values, the relatively unseasoned loan portfolio, access to cost-effective funding, interest-rate changes, regulatory and technology risks, and the tax deductibility of the foundation contribution. The company reported no material change in disclosed risk factors, no material pending legal proceedings, and effective disclosure controls.
Most important facts for investors to verify
- Reconcile reported losses with management’s adjusted earnings discussion, including the foundation contribution and deferred compensation cost, and assess any continuing costs.
- Monitor net interest margin, deposit pricing and mix, brokered-deposit levels, and reliance on FHLB advances as funding costs and interest rates change.
- Track commercial real estate and multifamily concentration, loan growth, delinquency and nonaccrual trends, provision expense, and allowance adequacy.
- Confirm the timing and final cost of any defined benefit plan termination or withdrawal liability, and the tax treatment of the foundation contribution.
- Assess how IPO proceeds are deployed and whether capital and liquidity remain strong while loans and securities grow; review the bank-level regulatory capital ratios alongside consolidated results.