Richmond Mutual Bancorporation: Time To Take Profits

Core Viewpoint - Richmond Mutual Bancorporation is facing deteriorating fundamentals, leading to a reassessment of its attractiveness as an income investment despite its previously appealing dividend yield [1][5]. Financial Performance - Richmond Mutual Bancorporation has a market value of approximately $136 million and total assets of $1.5 billion, categorizing it as a small bank [3]. - The bank's net interest income (NII) constituted 89% of its revenue in 2023, indicating a high sensitivity to interest rate changes [3]. - In Q2 2024, Richmond's NII declined by 2.6% quarter-on-quarter to $9.6 million, attributed to lower loans and a decrease in average asset yields [3]. - The bank's net income fell to $2 million in Q2 2024, a 23% year-over-year decline, with a return on equity (ROE) of 6.42%, down from 8.4% in Q2 2023 [4]. Risk Profile - Richmond has a conservative risk profile, with a low level of credit risk and secured loans primarily backed by commercial and multifamily properties [3]. - The bank's credit losses were minimal, with provisions for loan losses at only $0.27 million in Q2 2024, reflecting a credit risk ratio of 16 basis points [3]. Dividend and Capitalization - Richmond's current quarterly dividend is $0.14 per share, unchanged since Q1 2023, with a dividend payout ratio increasing to 69% [4]. - The bank's Common Equity Tier 1 (CET1) ratio was 12.96% at the end of June, indicating a comfortable capital position [4]. Business Strategy and Outlook - Richmond needs to diversify its business model to reduce reliance on interest income, focusing on non-interest revenue sources such as payment services and asset management [3]. - The bank's non-interest income was only $1.2 million in the last quarter, showing limited progress in diversifying income sources [3]. - The bank's net interest margin (NIM) has declined from 3.40% at the end of 2022 to 2.71% in Q2 2024, with expectations of further pressure due to potential rate cuts [3]. Valuation - Richmond is currently trading close to book value, which is considered demanding given its weak growth prospects and concerns regarding dividend sustainability [4].