Richmond Mutual Bancorporation(RMBI) - 2019 Q4 - Annual Report

PART I Business Richmond Mutual Bancorporation, Inc. operates as a bank holding company for First Bank Richmond, focusing on diverse lending activities and holding $986.0 million in assets after a 2019 reorganization and stock offering - On July 1, 2019, the company completed its reorganization from a mutual holding company to a stock holding company structure, becoming a wholly-owned subsidiary of Richmond Mutual Bancorporation-Maryland[14][15] - In connection with the reorganization, the company sold 13,026,625 shares of common stock at $10.00 per share, raising gross proceeds of approximately $130.3 million, and contributed 500,000 shares and $1.25 million to a new charitable foundation[16] Key Financial Metrics as of December 31, 2019 | Metric | Value (in millions) | | :--- | :--- | | Total Assets | $986.0 | | Net Loans and Leases | $687.3 | | Total Deposits | $617.2 | | Stockholders' Equity | $187.8 | | Wealth Management Assets | $150.0 | - The company reported a net loss of $14.1 million for the year ended December 31, 2019, primarily due to non-recurring charges including a $14.3 million after-tax charge for terminating its defined benefit plan, a $4.9 million after-tax charge for its foundation contribution, and a $1.3 million after-tax charge for a new deferred compensation plan[24] Lending Activities The company offers diverse lending products, primarily commercial and multi-family real estate (42.5% of portfolio), managing risk through hierarchical approval limits and secondary market sales of residential loans Loan and Lease Portfolio Composition at December 31, 2019 | Loan/Lease Category | Amount (in thousands) | Percent of Total | | :--- | :--- | :--- | | Commercial Real Estate | $229,410 | 33.01% | | Residential Real Estate | $131,294 | 18.90% | | Direct Financing Leases | $109,592 | 15.77% | | Commercial and Industrial | $84,549 | 12.17% | | Multi-family Real Estate | $66,002 | 9.50% | | Construction and Development | $53,426 | 7.69% | | Consumer Loans | $13,534 | 1.95% | | Home Equity Lines of Credit | $6,996 | 1.01% | | Total Loans and Leases | $694,803 | 100.00% | - The bank's legal lending limit to a single borrower is approximately $22.4 million, which is 15% of its unimpaired capital and surplus[38] The largest single-borrower relationship was $16.6 million as of December 31, 2019 - During 2019, the company originated $239.0 million in loans and leases, with $147.0 million being fixed-rate and $91.9 million being adjustable-rate[97][101] It sold $27.2 million of one- to four-family residential loans Delinquencies and Non-Performing Assets Non-performing loans and leases decreased to $3.8 million (0.55% of portfolio) in 2019, reflecting improved credit quality and active management of non-performing assets Non-Performing Assets Trend (2017-2019) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total non-performing loans and leases (in thousands) | $3,812 | $4,575 | $4,513 | | Total foreclosed assets (in thousands) | $0 | $176 | $34 | | Total non-performing assets (in thousands) | $3,812 | $4,751 | $4,547 | | Non-performing assets to total assets | 0.39% | 0.56% | 0.60% | | Non-performing loans to total loans | 0.55% | 0.69% | 0.80% | - Total classified assets (rated Substandard, Doubtful, or Loss) increased to $21.6 million at year-end 2019 from $11.7 million in 2018, primarily driven by an increase in assets rated 'Watch and special mention'[128] Allowance for Loan and Lease Losses The allowance for loan and lease losses increased to $7.1 million (1.02% of total loans) in 2019, driven by a higher provision for loan losses and portfolio growth Analysis of Allowance for Loan and Lease Losses (2018-2019) | Metric (in thousands) | 2019 | 2018 | | :--- | :--- | | Beginning Balance | $5,600 | $4,800 | | Provision for loan and lease losses | $2,600 | $1,680 | | Total Charge-offs | ($1,428) | ($1,665) | | Total Recoveries | $317 | $785 | | Ending Balance | $7,089 | $5,600 | | Net charge-offs to average loans | 0.16% | 0.14% | | Allowance as a % of total gross loans | 1.02% | 0.85% | Regulation The company and its bank subsidiary are subject to comprehensive federal and state banking regulations, including capital requirements and lending limits, and qualify as an 'emerging growth company' - First Bank Richmond is regulated by the Indiana DFI and the FDIC, while the holding company, Richmond Mutual Bancorporation, is regulated by the Federal Reserve Board[177][179] - The company is subject to federal capital requirements, including common equity Tier 1, Tier 1, and total capital ratios, as well as a capital conservation buffer[198][203] As of December 31, 2019, First Bank Richmond exceeded all applicable requirements - The company qualifies as an "emerging growth company" under the JOBS Act, which allows for certain scaled disclosures and an extended transition period for complying with new accounting standards[239][240] Risk Factors The company faces significant risks including credit losses from its commercial loan portfolio, regulatory changes like CECL, interest rate fluctuations, operational vulnerabilities, and challenges associated with its new public company status - Credit Risk: The company has a substantial concentration in commercial and multi-family real estate loans ($380.0 million, or 54.7% of total loans), which carry higher credit risk than residential loans[271][273] A significant portion of this portfolio is unseasoned, making future performance difficult to predict - Accounting & Regulatory Risk: The upcoming implementation of the Current Expected Credit Loss (CECL) accounting standard in 2023 is expected to change how the allowance for loan losses is calculated and may require an increase in the provision, potentially reducing profitability and capital levels[275][307] - Interest Rate & Market Risk: The company is exposed to interest rate risk, as a sudden 200 basis point increase could decrease its Economic Value of Equity (EVE) by 8.04%[301][302] Additionally, the planned phase-out of LIBOR after 2021 creates uncertainty and potential transition expenses - Operational & Cybersecurity Risk: The company relies heavily on technology and third-party vendors, making it vulnerable to system failures, interruptions, and security breaches, which could result in financial loss and reputational damage[291][294][295] - Pension Plan Termination Risk: The company accrued an estimated $14.3 million after-tax expense in 2019 to terminate its defined benefit pension plan[269][270] The final cost is uncertain and depends on factors like interest rates, which could impact 2020 results Unresolved Staff Comments The company reports no unresolved staff comments - The company reports that this item is not applicable[337] Properties The company owns its corporate headquarters and 12 full-service offices, leases two additional facilities, with a total net book value of $14.1 million in real properties - The company owns its corporate headquarters and 12 full-service offices[338] It leases one drive-through facility and one loan production office - The net book value of the company's real properties, including land, was $14.1 million as of December 31, 2019[338] Legal Proceedings The company is not involved in any material legal proceedings outside the ordinary course of business - There are no material legal proceedings pending against the company outside of the ordinary course of business[339] Mine Safety Disclosures The company reports that this item is not applicable - The company reports that this item is not applicable[340] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under 'RMBI', with no current cash dividends or authorized stock repurchase programs as of year-end 2019 - The company's common stock trades on The NASDAQ Capital Market under the symbol "RMBI"[343] - The company does not currently pay cash dividends and did not have an authorized stock repurchase program as of December 31, 2019[344][346] Selected Financial Data Total assets reached $986.0 million in 2019, with stockholders' equity significantly increasing due to an IPO, though the company reported a $14.1 million net loss primarily from one-time non-interest expenses Selected Financial Condition Data (in thousands) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total assets | $986,042 | $849,618 | $753,621 | | Loans and leases, net | $687,258 | $654,755 | $557,929 | | Deposits | $617,219 | $620,637 | $560,395 | | Stockholders' equity | $187,787 | $85,853 | $81,798 | Selected Operations Data (in thousands) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net interest income | $30,401 | $27,447 | $23,854 | | Provision for loan and lease losses | $2,600 | $1,680 | $1,370 | | Total non-interest expenses | $51,038 | $23,105 | $21,312 | | Net (loss) income | $(14,084) | $5,678 | $2,715 | Key Performance Ratios | Ratio | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Return on average assets | (1.48%) | 0.71% | 0.38% | | Return on average equity | (10.77%) | 6.89% | 3.36% | | Net interest margin | 3.34% | 3.57% | 3.48% | | Efficiency ratio | 147.36% | 71.84% | 73.22% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported a $14.1 million net loss in 2019 due to one-time expenses, despite a 10.8% increase in net interest income and 16.1% asset growth driven by IPO proceeds and loan portfolio expansion - The 2019 net loss of $14.1 million was primarily caused by three non-recurring expenses: a $19.3 million DB Plan expense, a $6.25 million contribution to the Foundation, and a $1.7 million deferred compensation plan expense[389][395] - Net interest income grew by $3.0 million (10.8%) to $30.4 million in 2019, but the net interest margin decreased by 23 basis points to 3.34% due to lower yields on assets and higher funding costs[392] - Total assets increased by $136.4 million (16.1%) to $986.0 million, largely due to proceeds from the IPO[382] The net loan and lease portfolio grew by $32.5 million (5.0%) - Stockholders' equity increased by $101.9 million (118.6%) to $187.8 million, primarily as a result of the initial public offering[388] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with simulations showing a 200 basis point rate increase could boost Net Interest Income by 5.34% but decrease Economic Value of Equity by 3.29% Net Interest Income Sensitivity Analysis (Year 1) | Change in Interest Rates (bps) | Change from Level (%) | | :--- | :--- | | +300 | 7.15% | | +200 | 5.34% | | +100 | 3.11% | | -100 | (4.84%) | | -200 | (10.20%) | Economic Value of Equity (EVE) Sensitivity Analysis | Change in Interest Rates (bps) | Change from Level (%) | | :--- | :--- | | +300 | (6.99%) | | +200 | (3.29%) | | +100 | (0.73%) | | -100 | (1.25%) | | -200 | (8.04%) | Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2019 and 2018, highlighting total assets of $986.0 million and a net loss of $14.1 million in 2019 Consolidated Balance Sheets Total assets increased to $986.0 million in 2019, driven by growth in cash, investments, and loans, while stockholders' equity significantly rose to $187.8 million due to the IPO Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $40,597 | $14,971 | | Loans and leases, net | $687,258 | $654,755 | | Total assets | $986,042 | $849,618 | | Liabilities & Equity | | | | Total deposits | $617,219 | $620,637 | | FHLB advances | $154,000 | $136,100 | | Total liabilities | $798,255 | $763,765 | | Total stockholders' equity | $187,787 | $85,853 | Consolidated Statements of Income (Loss) The company reported a $14.1 million net loss in 2019, a reversal from 2018 net income, primarily due to a significant increase in noninterest expenses, including pension and foundation charges Consolidated Income Statement Highlights (in thousands) | | 2019 | 2018 | | :--- | :--- | | Net Interest Income | $30,401 | $27,447 | | Provision for losses on loans and leases | $2,600 | $1,680 | | Total noninterest income | $3,860 | $4,294 | | Total noninterest expenses | $51,038 | $23,105 | | Net Income (Loss) | $(14,084) | $5,678 | Note 5: Loans, Leases and Allowance The net loan and lease portfolio reached $687.3 million in 2019, with the allowance for loan losses increasing to $7.1 million, while impaired and nonaccrual loans decreased Loan Portfolio by Credit Quality Grade (2019) | Grade | Amount (in thousands) | | :--- | :--- | | 1-4 Pass | $673,184 | | 5 Special Mention | $13,473 | | 6 Substandard | $8,072 | | 7 Doubtful | $74 | | Total | $694,803 | - Total impaired loans decreased to $1.84 million in 2019 from $2.31 million in 2018[528] The specific allowance allocated to these loans was $202,000 in 2019 Note 16: Regulatory Capital First Bank was categorized as 'well-capitalized' as of December 31, 2019, with all regulatory capital ratios, including the total risk-based capital ratio of 19.5%, significantly exceeding minimum requirements First Bank's Regulatory Capital Ratios (as of Dec 31, 2019) | Capital Ratio | Actual | To Be Well-Capitalized | | :--- | :--- | :--- | | Total capital (to risk-weighted assets) | 19.5% | 10.0% | | Tier I capital (to risk-weighted assets) | 18.5% | 8.0% | | Common Equity Tier I capital (to risk-weighted assets) | 18.5% | 6.5% | | Tier I capital (to average assets) | 14.6% | 5.0% | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - The company reports that there were no disagreements with accountants on accounting and financial disclosure[602] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2019, with no material changes to internal controls during the fourth quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2019[603] - A management assessment of internal control over financial reporting is not included due to the transition period for newly public companies[604] Other Information The company reports no other information for this period - The company reports that there is no other information[607] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2020 proxy statement - Information concerning directors and corporate governance is incorporated by reference from the forthcoming 2020 proxy statement[609][613] - Information about executive officers is located in Part I, Item 1 of this Form 10-K[610] Executive Compensation Information concerning executive compensation is incorporated by reference from the company's 2020 proxy statement - Details on executive compensation are incorporated by reference from the 2020 proxy statement[614] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners and management is incorporated by reference from the 2020 proxy statement, with no stock-based compensation plans as of year-end 2019 - As of December 31, 2019, the company had no stock-based compensation plans[616] - Details on security ownership are incorporated by reference from the 2020 proxy statement[617][618] Certain Relationships and Related Transactions, and Director Independence Information concerning certain relationships, related transactions, and director independence is incorporated by reference from the company's 2020 proxy statement - Details on related party transactions and director independence are incorporated by reference from the 2020 proxy statement[620] Principal Accounting Fees and Services Information concerning principal accounting fees and services is incorporated by reference from the company's 2020 proxy statement - Details on principal accountant fees and services are incorporated by reference from the 2020 proxy statement[621] PART IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K, including the independent auditor's report and various corporate documents - This section lists all financial statements, schedules, and exhibits filed with the Form 10-K[623][625] Form 10-K Summary The company reports that this item is not applicable - The company reports that this item is not applicable[627]