Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 2019
☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number: 333-230184
RICHMOND MUTUAL BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
Maryland | 36-4926041 | |
(State or other jurisdiction of incorporation of organization) | (I.R.S. Employer Identification No.) |
31 North 9th Street, Richmond, Indiana47374
(Address of principal executive offices; Zip Code)
(765) 962-2581
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | RMBI | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 and 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] | |||
Non-accelerated filer [X] | Smaller reporting company | |||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ]☐ No [X]
There were 13,526,625 shares of Registrant’s common stock, par value of $0.01 per share, issued and outstanding as of November 14, 2019.
10-Q
TABLE OF CONTENTS
Page Number | |||
1 | |||
Item 1. | 1 | ||
1 | |||
2 | |||
3 | |||
4 | |||
5 | |||
6 | |||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 28 | |
Item 3. | 44 | ||
Item 4. | 45 | ||
46 | |||
Item 1. | 46 | ||
Item 1A. | 46 | ||
Item 2. | 47 | ||
Item 3. | 47 | ||
Item 4. | 47 | ||
Item 5 | 47 | ||
Item 6. | 48 | ||
49 |
Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Balance Sheets
September 30, | December 31, | |||||||
Assets | 2019 | 2018 | ||||||
(Unaudited) | ||||||||
Cash and due from banks | $ | 10,513,957 | $ | 10,112,422 | ||||
Interest-bearing demand deposits | 30,863,289 | 4,858,748 | ||||||
Cash and cash equivalents | 41,377,246 | 14,971,170 | ||||||
Investment securities - available for sale | 168,289,560 | 122,482,487 | ||||||
Investment securities - held to maturity | 16,729,471 | 21,079,974 | ||||||
Loans and leases, net of allowance for losses of $6,896,000 and $5,600,000, respectively | 694,744,985 | 654,755,066 | ||||||
Premises and equipment, net | 14,014,239 | 14,025,476 | ||||||
Federal Home Loan Bank stock | 7,600,400 | 6,560,600 | ||||||
Interest receivable | 2,800,042 | 2,686,010 | ||||||
Mortgage-servicing rights | 1,214,660 | 1,227,356 | ||||||
Cash surrender value of life insurance | 3,809,526 | 3,718,219 | ||||||
Other assets | 5,639,888 | 8,112,005 | ||||||
Total assets | $ | 956,220,017 | $ | 849,618,363 | ||||
Liabilities | ||||||||
Non-interest bearing deposits | $ | 54,810,363 | $ | 58,044,369 | ||||
Interest bearing deposits | 552,997,714 | 562,592,451 | ||||||
Total deposits | 607,808,077 | 620,636,820 | ||||||
Federal Home Loan Bank advances | 141,000,000 | 136,100,000 | ||||||
Advances by borrowers for taxes and insurance | 626,358 | 543,527 | ||||||
Interest payable | 554,278 | 550,749 | ||||||
Other liabilities | 5,877,399 | 5,934,235 | ||||||
Total liabilities | 755,866,112 | 763,765,331 | ||||||
Commitments and Contingent Liabilities | ||||||||
Stockholders' Equity | ||||||||
Common stock, $.01 par value Authorized - 90,000,000 shares and 500 shares, respectively Issued and outstanding - 13,526,625 shares and 100 shares, respectively | 135,266 | 1 | ||||||
Additional paid-in capital | 132,590,923 | 12,750,999 | ||||||
Retained earnings | 82,652,959 | 77,480,318 | ||||||
Unearned employee stock ownership plan (ESOP) | (14,584,215 | ) | - | |||||
Accumulated other comprehensive loss | (441,028 | ) | (4,378,286 | ) | ||||
Total stockholders' equity | 200,353,905 | 85,853,032 | ||||||
Total liabilities and stockholders' equity | $ | 956,220,017 | $ | 849,618,363 |
| June 30, 2020 |
| December 31, 2019 | |||
|
| (Unaudited) |
|
| ||
| ||||||
Assets |
|
|
| |||
Cash and due from banks | $ | 30,817,153 |
| $ | 9,088,398 | |
Interest-bearing demand deposits | 79,789,311 |
| 31,508,479 | |||
Cash and cash equivalents | 110,606,464 |
| 40,596,877 | |||
Investment securities - available for sale | 221,204,068 |
| 201,783,851 | |||
Investment securities - held to maturity | 13,319,819 |
| 15,917,394 | |||
Loans and leases, net of allowance for losses of $8,521,000 and $7,089,000, respectively | 752,922,965 |
| 687,258,190 | |||
Premises and equipment, net | 14,439,763 |
| 14,087,169 | |||
Federal Home Loan Bank stock | 9,079,700 |
| 7,600,400 | |||
Interest receivable | 4,721,040 |
| 3,052,380 | |||
Mortgage-servicing rights | 1,405,128 |
| 1,033,217 | |||
Cash surrender value of life insurance | 3,899,832 |
| 3,839,911 | |||
Other assets | 8,613,962 |
| 10,872,682 | |||
|
|
|
|
| ||
Total assets | $ | 1,140,212,741 |
| $ | 986,042,071 | |
|
|
|
|
| ||
Liabilities |
|
|
| |||
Non-interest bearing deposits | $ | 89,921,951 |
| $ | 60,297,443 | |
Interest bearing deposits | 649,209,179 |
| 556,921,370 | |||
Total deposits | 739,131,130 |
| 617,218,813 | |||
Federal Home Loan Bank advances | 180,000,000 |
| 154,000,000 | |||
Advances by borrowers for taxes and insurance | 498,170 |
| 545,498 | |||
Interest payable | 348,300 |
| 296,774 | |||
Multi-employer pension plan liability | 17,454,709 |
| 17,454,709 | |||
Other liabilities | 6,644,530 |
| 8,738,831 | |||
Total liabilities | 944,076,839 |
| 798,254,625 | |||
|
|
|
|
| ||
Commitments and Contingent Liabilities | - |
| - | |||
|
|
|
|
| ||
Stockholders' Equity |
|
|
| |||
Common stock, $0.01 par value Authorized - 90,000,000 shares Issued and outstanding - 13,526,625 shares | 135,266 |
| 135,266 | |||
Additional paid-in capital | 132,563,670 |
| 132,601,876 | |||
Retained earnings | 74,446,405 |
| 70,111,434 | |||
Unearned employee stock ownership plan (ESOP) | (14,032,728 | ) | (14,400,386) | |||
Accumulated other comprehensive income (loss) | 3,023,289 |
| (660,744) | |||
Total stockholders' equity | 196,135,902 |
| 187,787,446 | |||
|
|
|
|
| ||
Total liabilities and stockholders' equity | $ | 1,140,212,741 |
| $ | 986,042,071 |
See accompanying notes.
Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Statements of Operation
(Unaudited)
| Three Months Ended June 30, |
| Six Months Ended June 30, | |||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | |||||
|
|
| ||||||||||
Interest Income |
|
|
|
|
|
|
| |||||
Loans and leases | $ | 9,308,495 |
| $ | 9,163,223 |
| $ | 18,372,062 |
| $ | 17,929,352 | |
Investment securities | 1,178,483 |
| 956,816 |
| 2,441,420 |
| 1,898,477 | |||||
Other | 11,447 |
| 278,462 |
| 136,477 |
| 327,569 | |||||
Total interest income | 10,498,425 |
| 10,398,501 |
| 20,949,959 |
| 20,155,398 | |||||
|
|
|
|
|
|
|
| |||||
Interest Expense |
|
|
|
|
|
|
| |||||
Deposits | 1,704,310 |
| 2,107,460 |
| 3,529,008 |
| 3,994,160 | |||||
Borrowings | 770,304 |
| 808,565 |
| 1,509,645 |
| 1,558,827 | |||||
Total interest expense | 2,474,614 |
| 2,916,025 |
| 5,038,653 |
| 5,552,987 | |||||
|
|
|
|
|
|
|
| |||||
Net Interest Income | 8,023,811 |
| 7,482,476 |
| 15,911,306 |
| 14,602,411 | |||||
Provision for losses on loans and leases | 1,320,000 |
| 485,000 |
| 1,530,000 |
| 1,010,000 | |||||
|
|
|
|
|
|
|
| |||||
Net Interest Income After Provision for Losses on Loans and Leases | 6,703,811 |
| 6,997,476 |
| 14,381,306 |
| 13,592,411 | |||||
|
|
|
|
|
|
|
| |||||
Non-Interest Income |
|
|
|
|
|
|
| |||||
Service charges on deposit accounts | 105,618 |
| 251,795 |
| 360,269 |
| 483,444 | |||||
Card fee income | 201,748 |
| 185,903 |
| 381,355 |
| 352,489 | |||||
Loan and lease servicing fees | 301,230 |
| 98,931 |
| 235,538 |
| 212,203 | |||||
Net gains on securities (includes $9,874, $36,426, $79,013 and $61,232, respectively, related to accumulated other comprehensive loss reclassifications) | 9,874 |
| 36,426 |
| 79,013 |
| 61,232 | |||||
Net gains on loan and lease sales | 1,030,668 |
| 123,573 |
| 1,258,876 |
| 210,798 | |||||
Other loan fees | 244,702 |
| 88,394 |
| 327,576 |
| 243,034 | |||||
Other income | 188,797 |
| 114,883 |
| 393,078 |
| 241,160 | |||||
Total non-interest income | 2,082,637 |
| 899,905 |
| 3,035,705 |
| 1,804,360 | |||||
|
|
|
|
|
|
|
| |||||
Non-Interest Expenses |
|
|
|
|
|
|
| |||||
Salaries and employee benefits | 3,270,311 |
| 5,316,221 |
| 6,633,996 |
| 8,791,954 | |||||
Net occupancy expenses | 284,981 |
| 256,564 |
| 574,990 |
| 549,945 | |||||
Equipment expenses | 280,855 |
| 233,500 |
| 536,703 |
| 475,645 | |||||
Data processing fees | 472,071 |
| 423,974 |
| 948,874 |
| 838,166 | |||||
Deposit insurance expense | 60,000 |
| 158,000 |
| 116,000 |
| 293,000 | |||||
Printing and office supplies | 32,097 |
| 27,262 |
| 58,640 |
| 69,020 | |||||
Legal and professional fees | 326,815 |
| 208,975 |
| 568,181 |
| 505,754 | |||||
Advertising expense | 80,256 |
| 173,259 |
| 189,813 |
| 296,676 | |||||
Bank service charges | 28,465 |
| 32,593 |
| 65,820 |
| 64,269 | |||||
Real estate owned expense | 989 |
| 22,573 |
| 3,166 |
| 37,393 | |||||
Loss on sale of real estate owned | - |
| 6,493 |
| - |
| 6,493 | |||||
Other expenses | 810,857 |
| 744,542 |
| 1,475,131 |
| 1,480,682 | |||||
Total non- interest expenses | 5,647,697 |
| 7,603,956 |
| 11,171,314 |
| 13,408,997 | |||||
|
|
|
|
|
|
|
| |||||
Income Before Income Tax Expense (Benefit) | 3,138,751 |
| 293,425 |
| 6,245,697 |
| 1,987,774 | |||||
Provision (benefit) for income taxes (includes $2,503, $9,520, $20,026 and $16,003, respectively, related to income tax expense from reclassification of items) | 632,574 |
| (41,700 |
) | 1,287,374 |
| 280,400 | |||||
|
|
|
|
|
|
|
| |||||
Net Income | $ | 2,506,177 |
| $ 335,125 |
| $ 4,958,323 |
| $ | 1,707,374 | |||
|
|
|
|
|
|
|
| |||||
Earnings Per Share |
|
|
|
|
|
|
| |||||
Basic | $ | 0.20 |
| N/A |
| $ 0.40 |
| N/A | ||||
Diluted | $ | 0.20 |
| N/A |
| $ 0.40 |
| N/A |
See Notes to Condensed Consolidated Statements.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Interest Income | ||||||||||||||||
Loans and leases | $ | 9,318,054 | $ | 8,067,685 | $ | 27,247,406 | $ | 23,047,744 | ||||||||
Investment securities | 862,331 | 876,642 | 2,760,808 | 2,572,381 | ||||||||||||
Other | 626,705 | 27,120 | 954,274 | 109,412 | ||||||||||||
Total interest income | 10,807,090 | 8,971,447 | 30,962,488 | 25,729,537 | ||||||||||||
Interest Expense | ||||||||||||||||
Deposits | 2,033,000 | 1,474,865 | 6,027,160 | 3,984,264 | ||||||||||||
Borrowings | 864,957 | 556,553 | 2,423,784 | 1,443,803 | ||||||||||||
Total interest expense | 2,897,957 | 2,031,418 | 8,450,944 | 5,428,067 | ||||||||||||
Net Interest Income | 7,909,133 | 6,940,029 | 22,511,544 | 20,301,470 | ||||||||||||
Provision for losses on loans and leases | 705,000 | 450,000 | 1,715,000 | 1,350,000 | ||||||||||||
Net Interest Income After Provision for Losses on Loans and Leases | ||||||||||||||||
7,204,133 | 6,490,029 | 20,796,544 | 18,951,470 | |||||||||||||
Other Income | ||||||||||||||||
Service charges on deposit accounts | 295,703 | 284,501 | 779,147 | 810,475 | ||||||||||||
Card fee income | 189,583 | 168,769 | 542,072 | 504,811 | ||||||||||||
Loan and lease servicing fees | 68,079 | 81,203 | 280,282 | 225,369 | ||||||||||||
Net gains on securities (includes $21,827 and $0, $83,059 and $11,952, related to accumulated other comprehensive loss reclassifications) | 21,827 | - | 83,059 | 11,952 | ||||||||||||
Net gains on loan and lease sales | 231,534 | 154,686 | 442,332 | 355,102 | ||||||||||||
Other loan fees | 211,249 | 103,302 | 454,283 | 333,597 | ||||||||||||
Other income | 129,121 | 213,806 | 370,281 | 505,420 | ||||||||||||
Total other income | 1,147,096 | 1,006,267 | 2,951,456 | 2,746,726 | ||||||||||||
Other Expenses | ||||||||||||||||
Salaries and employee benefits | 3,840,806 | 3,417,559 | 12,632,760 | 10,269,584 | ||||||||||||
Net occupancy expenses | 275,535 | 256,422 | 825,480 | 812,066 | ||||||||||||
Equipment expenses | 250,173 | 224,790 | 725,818 | 681,412 | ||||||||||||
Data processing fees | 442,082 | 344,741 | 1,280,248 | 1,089,534 | ||||||||||||
Deposit insurance expense | 23,983 | 172,000 | 316,983 | 434,000 | ||||||||||||
Printing and office supplies | 45,099 | 28,265 | 114,119 | 106,744 | ||||||||||||
Legal and professional fees | 310,561 | 146,800 | 816,315 | 428,617 | ||||||||||||
Advertising expense | 197,799 | 122,807 | 494,475 | 358,375 | ||||||||||||
Bank service charges | 29,383 | 28,569 | 93,652 | 80,504 | ||||||||||||
Real estate owned expense | 7,481 | 10,297 | 44,874 | 29,015 | ||||||||||||
Loss on sale of real estate owned | 5,287 | 3,650 | 11,780 | 3,650 | ||||||||||||
Donation to establish First Bank Richmond Charitable Foundation | 6,250,000 | - | 6,250,000 | - | ||||||||||||
Loan tax and insurance expense | 81,061 | 5,980 | 130,788 | 103,010 | ||||||||||||
Other expenses | 740,514 | 719,627 | 2,171,469 | 2,072,981 | ||||||||||||
Total other expenses | 12,499,764 | 5,481,507 | 25,908,761 | 16,469,492 | ||||||||||||
Income Before Income Tax Expense (Benefit) | (4,148,535 | ) | 2,014,789 | (2,160,761 | ) | 5,228,704 | ||||||||||
Provision (benefit) for income taxes (includes $5,661 and $0, $21,543 and $3,124, related to income tax expense from reclassification of items) | (898,200 | ) | 394,700 | (617,800 | ) | 1,021,300 | ||||||||||
Net Income (Loss) | $ | (3,250,335 | ) | $ | 1,620,089 | $ | (1,542,961 | ) | $ | 4,207,404 | ||||||
Earnings (Loss) Per Share | ||||||||||||||||
Basic (for period July 2, 2019 to September 30, 2019) | $ | (0.26 | ) | N/A | $ | (0.26 | ) | N/A | ||||||||
Diluted (for period July 2, 2019 to September 30, 2019) | $ | (0.26 | ) | N/A | $ | (0.26 | ) | N/A |
Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| Three Months Ended |
| Six Months Ended | ||||||||
| June 30, |
| June 30, | ||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
|
|
| |||||||||
Net Income | $ | 2,506,177 |
| $ | 335,125 |
| $ | 4,958,323 |
| $ | 1,707,374 |
|
|
|
|
|
|
|
| ||||
Other Comprehensive Income |
|
|
|
|
|
|
| ||||
Unrealized gain on available-for-sale securities, net of tax expense of $312,821, $559,911, $1,270,737 and $1,237,814, respectively. | 921,429 |
| 1,582,470 |
| 3,743,020 |
| 3,498,417 | ||||
Less: reclassification adjustment for realized gains included in net income, net of tax expense of $2,503, $9,520, $20,026 and $16,003, respectively. | 7,371 |
| 26,906 |
| 58,987 |
| 45,229 | ||||
914,058 |
| 1,555,564 |
| 3,684,033 |
| 3,453,188 | |||||
|
|
|
|
|
|
|
| ||||
Comprehensive Income | $ | 3,420,235 |
| $ | 1,890,689 |
| $ | 8,642,356 |
| $ | 5,160,562 |
See Notes to Condensed Consolidated Statements.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net Income (Loss) | $ | (3,250,335 | ) | $ | 1,620,089 | $ | (1,542,961 | ) | $ | 4,207,404 | ||||||
Other Comprehensive Income (Loss) | ||||||||||||||||
Unrealized gain (loss) on available-for-sale securities, net of tax expense (benefit) of $175,173 and ($187,520), $1,400,357 and ($1,039,305). | 500,236 | (529,985 | ) | 3,998,774 | (2,937,374 | ) | ||||||||||
Less: reclassification adjustment for realized gains included in net income, net of tax expense of $5,661 and $0, $21,544 and $3,124. | 16,166 | - | 61,516 | 8,828 | ||||||||||||
484,070 | (529,985 | ) | 3,937,258 | (2,946,202 | ) | |||||||||||
Comprehensive Income (Loss) | $ | (2,766,265 | ) | $ | 1,090,104 | $ | 2,394,297 | $ | 1,261,202 |
Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
|
|
|
|
|
|
| Accumulated |
|
|
| ||||||||||||||
| Common Stock |
| Additional |
|
|
| Unearned |
| Other |
|
|
| ||||||||||||
| Shares |
|
|
| Paid-in |
| Retained |
| ESOP |
| Comprehensive |
|
|
| ||||||||||
| Outstanding |
| Amount |
| Capital |
| Earnings |
| Shares |
| Income/(Loss) |
| Total |
| ||||||||||
|
|
|
|
|
|
| ||||||||||||||||||
Balances, March 31, 2020 | 13,526,625 |
| $ | 135,266 |
| $ | 132,604,734 |
| $ | 72,563,580 |
| $ | (14,216,557 | ) | $ | 2,109,231 |
| $ | 193,196,254 |
| ||||
Net income | - |
| - |
| - |
| 2,506,177 |
| - |
| - |
| 2,506,177 |
| ||||||||||
Other comprehensive income | - |
| - |
| - |
| - |
| - |
| 914,058 |
| 914,058 |
| ||||||||||
ESOP shares earned | - |
| - |
| (41,064 | ) | - |
| 183,829 |
| - |
| 142,765 |
| ||||||||||
Common stock dividends ($0.05 per share) | - |
| - |
| - |
| (623,352 | ) | - |
| - |
| (623,352 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balances, June 30, 2020 | 13,526,625 |
| $ | 135,266 |
| $ | 132,563,670 |
| $ | 74,446,405 |
| $ | (14,032,728 | ) | $ | 3,023,289 |
| $ | 196,135,902 |
|
|
|
|
|
|
|
| Accumulated |
|
|
| ||||||||||||||
| Common Stock |
| Additional |
|
|
| Unearned |
| Other |
|
|
| ||||||||||||
| Shares |
|
|
| Paid-in |
| Retained |
| ESOP |
| Comprehensive |
|
|
| ||||||||||
| Outstanding |
| Amount |
| Capital |
| Earnings |
| Shares |
| Income/(Loss) |
| Total |
| ||||||||||
|
|
|
|
|
|
| ||||||||||||||||||
Balances, December 31, 2019 | 13,526,625 |
| $ | 135,266 |
| $ | 132,601,876 |
| $ | 70,111,434 |
| $ | (14,400,386 | ) | $ | (660,744 | ) | $ | 187,787,446 |
| ||||
Net income | - |
| - |
| - |
| 4,958,323 |
| - |
| - |
| 4,958,323 |
| ||||||||||
Other comprehensive income | - |
| - |
| - |
| - |
| - |
| 3,684,033 |
| 3,684,033 |
| ||||||||||
ESOP shares earned | - |
| - |
| (38,206 | ) | - |
| 367,658 |
| - |
| 329,452 |
| ||||||||||
Common stock dividends ($0.05 per share) | - |
| - |
| - |
| (623,352 | ) | - |
| - |
| (623,352 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balances, June 30, 2020 | 13,526,625 |
| $ | 135,266 |
| $ | 132,563,670 |
| $ | 74,446,405 |
| $ | (14,032,728 | ) | $ | 3,023,289 |
| $ | 196,135,902 |
|
|
|
|
|
|
|
| Accumulated |
|
|
| ||||||||||||||
| Common Stock |
| Additional |
|
|
| Unearned |
| Other |
|
|
| ||||||||||||
| Shares |
|
|
| Paid-in |
| Retained |
| ESOP |
| Comprehensive |
|
|
| ||||||||||
| Outstanding |
| Amount |
| Capital |
| Earnings |
| Shares |
| Income/(Loss) |
| Total |
| ||||||||||
|
|
|
|
|
|
| ||||||||||||||||||
Balances, March 31, 2019 | 100 |
| $ | 1 |
| $ | 12,750,999 |
| $ | 78,852,567 |
| $ | - |
| $ | (2,480,662 | ) | $ | 89,122,905 |
| ||||
Net income | - |
| - |
| - |
| 335,125 |
| - |
| - |
| 335,125 |
| ||||||||||
Other comprehensive income | - |
| - |
| - |
| - |
| - |
| 1,555,564 |
| 1,555,564 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balances, June 30, 2019 | 100 |
| $ | 1 |
| $ | 12,750,999 |
| $ | 79,187,692 |
| $ | - |
| $ | (925,098 | ) | $ | 91,013,594 |
|
|
|
|
|
|
|
| Accumulated |
|
|
| ||||||||||||||
| Common Stock |
| Additional |
|
|
| Unearned |
| Other |
|
|
| ||||||||||||
| Shares |
|
|
| Paid-in |
| Retained |
| ESOP |
| Comprehensive |
|
|
| ||||||||||
| Outstanding |
| Amount |
| Capital |
| Earnings |
| Shares |
| Income/(Loss) |
| Total |
| ||||||||||
|
|
|
|
|
|
| ||||||||||||||||||
Balances, December 31, 2018 | 100 |
| $ | 1 |
| $ | 12,750,999 |
| $ | 77,480,318 |
| $ | - |
| $ | (4,378,286 | ) | $ | 85,853,032 |
| ||||
Net income | - |
| - |
| - |
| 1,707,374 |
| - |
| - |
| 1,707,374 |
| ||||||||||
Other comprehensive income | - |
| - |
| - |
| - |
| - |
| 3,453,188 |
| 3,453,188 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balances, June 30, 2019 | 100 |
| $ | 1 |
| $ | 12,750,999 |
| $ | 79,187,692 |
| $ | - |
| $ | (925,098 | ) | $ | 91,013,594 |
|
See Notes to Condensed Consolidated Statements.
Accumulated | ||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional | Unearned | Other | ||||||||||||||||||||||||||||||||
Shares | Shares | Paid-in | Retained | ESOP | Comprehensive | |||||||||||||||||||||||||||||||
Outstanding | Amount | Outstanding | Amount | Capital | Earnings | Shares | Loss | Total | ||||||||||||||||||||||||||||
Balances, June 30, 2019 | - | $ | - | 100 | $ | 1 | $ | 12,750,999 | $ | 79,187,692 | $ | - | $ | (925,098 | ) | $ | 91,013,594 | |||||||||||||||||||
Net loss | - | - | - | - | - | (3,250,335 | ) | - | - | (3,250,335 | ) | |||||||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | - | 484,070 | 484,070 | |||||||||||||||||||||||||||
ESOP shares earned | - | - | - | - | (751 | ) | - | 122,100 | - | 121,349 | ||||||||||||||||||||||||||
Issuance of common stock, net of offering costs | - | - | 13,026,625 | 130,266 | 127,596,674 | - | (14,706,315 | ) | - | 113,020,625 | ||||||||||||||||||||||||||
Stock contributed to charitble foundation | - | - | 500,000 | 5,000 | 4,995,000 | - | - | - | 5,000,000 | |||||||||||||||||||||||||||
Reorganization of Richmond Mutual Bancorporation | - | - | (100 | ) | (1 | ) | (12,750,999 | ) | 6,715,602 | - | - | (6,035,398 | ) | |||||||||||||||||||||||
Balances, September 30, 2019 | - | $ | - | 13,526,625 | $ | 135,266 | $ | 132,590,923 | $ | 82,652,959 | $ | (14,584,215 | ) | $ | (441,028 | ) | $ | 200,353,905 |
Accumulated | ||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional | Unearned | Other | ||||||||||||||||||||||||||||||||
Shares | Shares | Paid-in | Retained | ESOP | Comprehensive | |||||||||||||||||||||||||||||||
Outstanding | Amount | Outstanding | Amount | Capital | Earnings | Shares | Loss | Total | ||||||||||||||||||||||||||||
Balances, December 31, 2018 | - | $ | - | 100 | $ | 1 | $ | 12,750,999 | $ | 77,480,318 | $ | - | $ | (4,378,286 | ) | $ | 85,853,032 | |||||||||||||||||||
Net loss | - | - | - | - | - | (1,542,961 | ) | - | - | (1,542,961 | ) | |||||||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | - | 3,937,258 | 3,937,258 | |||||||||||||||||||||||||||
ESOP shares earned | - | - | - | - | (751 | ) | - | 122,100 | - | 121,349 | ||||||||||||||||||||||||||
Issuance of common stock, net of offering costs | - | - | 13,026,625 | 130,266 | 127,596,674 | - | (14,706,315 | ) | - | 113,020,625 | ||||||||||||||||||||||||||
Stock contributed to charitble foundation | - | - | 500,000 | 5,000 | 4,995,000 | - | - | - | 5,000,000 | |||||||||||||||||||||||||||
Reorganization of Richmond Mutual Bancorporation | - | - | (100 | ) | (1 | ) | (12,750,999 | ) | 6,715,602 | - | - | (6,035,398 | ) | |||||||||||||||||||||||
Balances, September 30, 2019 | - | $ | - | 13,526,625 | $ | 135,266 | $ | 132,590,923 | $ | 82,652,959 | $ | (14,584,215 | ) | $ | (441,028 | ) | $ | 200,353,905 |
Accumulated | ||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional | Unearned | Other | ||||||||||||||||||||||||||||||||
Shares | Shares | Paid-in | Retained | ESOP | Comprehensive | |||||||||||||||||||||||||||||||
Outstanding | Amount | Outstanding | Amount | Capital | Earnings | Shares | Loss | Total | ||||||||||||||||||||||||||||
Balances, June 30, 2018 | 80 | $ | 1 | 100 | $ | 1 | $ | 12,757,998 | $ | 73,852,992 | $ | - | $ | (5,142,071 | ) | $ | 81,468,921 | |||||||||||||||||||
Net income | - | - | - | - | - | 1,620,089 | - | - | 1,620,089 | |||||||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | - | - | - | (529,985 | ) | (529,985 | ) | |||||||||||||||||||||||||
Balances, September 30, 2018 | 80 | $ | 1 | 100 | $ | 1 | $ | 12,757,998 | $ | 75,473,081 | $ | - | $ | (5,672,056 | ) | $ | 82,559,025 |
Accumulated | ||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional | Unearned | Other | ||||||||||||||||||||||||||||||||
Shares | Shares | Paid-in | Retained | ESOP | Comprehensive | |||||||||||||||||||||||||||||||
Outstanding | Amount | Outstanding | Amount | Capital | Earnings | Shares | Loss | Total | ||||||||||||||||||||||||||||
Balances, December 31, 2017 | 80 | $ | 1 | 100 | $ | 1 | $ | 12,757,998 | $ | 71,765,677 | $ | - | $ | (2,725,854 | ) | $ | 81,797,823 | |||||||||||||||||||
Net income | - | - | - | - | - | 4,207,404 | - | - | 4,207,404 | |||||||||||||||||||||||||||
Dividend | - | - | - | - | - | (500,000 | ) | - | - | (500,000 | ) | |||||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | - | - | - | (2,946,202 | ) | (2,946,202 | ) | |||||||||||||||||||||||||
Balances, September 30, 2018 | 80 | $ | 1 | 100 | $ | 1 | $ | 12,757,998 | $ | 75,473,081 | $ | - | $ | (5,672,056 | ) | $ | 82,559,025 |
Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
Operating Activities | ||||||||
Net income (loss) | $ | (1,542,961 | ) | $ | 4,207,404 | |||
Items not requiring (providing) cash | ||||||||
Provision for loan losses | 1,715,000 | 1,350,000 | ||||||
Depreciation and amortization | 681,666 | 673,750 | ||||||
Deferred income tax | (792,858 | ) | (894,493 | ) | ||||
Investment securities (accretion) amortization, net | 678,412 | 679,567 | ||||||
Investment securities gains | (83,059 | ) | (11,952 | ) | ||||
Gain on sale of loans and leases held for sale | (442,332 | ) | (355,102 | ) | ||||
Loss on sale of real estate owned | 11,780 | 3,650 | ||||||
Accretion of loan origination fees | (141,547 | ) | (141,348 | ) | ||||
Amortization of mortgage-servicing rights | 144,522 | 181,201 | ||||||
Common stock contributed to Foundation | 5,000,000 | - | ||||||
ESOP shares expense | 121,349 | - | ||||||
Increase in cash surrender value of life insurance | (91,306 | ) | (90,224 | ) | ||||
Loans originated for sale | (17,573,565 | ) | (16,630,173 | ) | ||||
Proceeds on loans sold | 18,314,415 | 16,513,423 | ||||||
Net change in | ||||||||
Interest receivable | (114,032 | ) | (266,667 | ) | ||||
Other assets | (173,475 | ) | 2,412,544 | |||||
Other liabilities | 1,203,832 | (1,219,402 | ) | |||||
Interest payable | 3,529 | 267,610 | ||||||
Net cash provided by operating activities | 6,919,370 | 6,679,788 | ||||||
Investing Activities | ||||||||
Net change in interest-bearing time deposits | - | 200,000 | ||||||
Purchases of securities available for sale | (109,895,626 | ) | (15,784,501 | ) | ||||
Proceeds from maturities and paydowns of securities available for sale | 11,047,791 | 7,826,755 | ||||||
Proceeds from sales of securities available for sale | 57,703,608 | 1,507,529 | ||||||
Proceeds from maturities and paydowns of securities held to maturity | 4,314,977 | 2,874,972 | ||||||
Net change in loans | (42,036,916 | ) | (67,271,809 | ) | ||||
Proceeds from sales of real estate owned | 95,644 | 30,550 | ||||||
Purchases of premises and equipment | (670,429 | ) | (1,015,326 | ) | ||||
Purchase of FHLB stock | (1,039,800 | ) | - | |||||
Net cash used in investing activities | (80,480,751 | ) | (71,631,830 | ) | ||||
Financing Activities | ||||||||
Net change in | ||||||||
Demand and savings deposits | 8,739,009 | (2,018,056 | ) | |||||
Certificates of deposit | (21,567,752 | ) | 34,428,965 | |||||
Advances by borrowers for taxes and insurance | 82,831 | 42,313 | ||||||
Proceeds from FHLB advances | 71,000,000 | 255,400,000 | ||||||
Repayment of FHLB advances | (66,100,000 | ) | (228,900,000 | ) | ||||
Repayment of other borrowings | (5,207,256 | ) | - | |||||
Proceeds from stock conversion | 113,020,625 | - | ||||||
Dividends paid | - | (500,000 | ) | |||||
Net cash provided by financing activities | 99,967,457 | 58,453,222 | ||||||
Net Change in Cash and Cash Equivalents | 26,406,076 | (6,498,820 | ) | |||||
Cash and Cash Equivalents, Beginning of Period | 14,971,170 | 16,169,754 | ||||||
Cash and Cash Equivalents, End of Period | $ | 41,377,246 | $ | 9,670,934 | ||||
Additional Cash Flows and Supplementary Information | ||||||||
Interest paid | $ | 8,447,415 | $ | 5,160,457 | ||||
Transfers from loans to other real estate owned | 5,400 | 71,458 |
| Six Months Ended June 30, | ||||||
| 2020 |
|
| 2019 |
| ||
|
|
| |||||
Operating Activities |
|
|
|
|
| ||
Net income | $ | 4,958,323 |
|
| $ | 1,707,374 |
|
Items not requiring (providing) cash |
|
|
|
|
| ||
Provision for loan losses | 1,530,000 |
|
| 1,010,000 |
| ||
Depreciation and amortization | 484,092 |
|
| 458,622 |
| ||
Deferred income tax | 357,938 |
|
| (779,000 | ) | ||
Investment securities (accretion) amortization, net | 1,133,521 |
|
| 375,216 |
| ||
Investment securities gains | (79,013 | ) |
| (61,232 | ) | ||
Gain on sale of loans and leases held for sale | (1,258,876 | ) |
| (210,798 | ) | ||
Loss on sale of real estate owned | - |
|
| 6,493 |
| ||
Accretion of loan origination fees | (447,817 | ) |
| (88,088 | ) | ||
Amortization of mortgage-servicing rights | 167,578 |
|
| 74,407 |
| ||
ESOP shares expense | 329,452 |
|
| - |
| ||
Increase in cash surrender value of life insurance | (59,921 | ) |
| (60,211 | ) | ||
Loans originated for sale | (45,705,608 | ) |
| (7,564,068 | ) | ||
Proceeds on loans sold | 49,041,089 |
|
| 8,057,168 |
| ||
Net change in |
|
|
|
|
| ||
Interest receivable | (1,668,660 | ) |
| (247,254 | ) | ||
Other assets | 715,669 |
|
| 1,616,150 |
| ||
Other liabilities | (2,094,301 | ) |
| 21,335 |
| ||
Interest payable | 51,526 |
|
| 202,352 |
| ||
Net cash provided by operating activities | 7,454,992 |
|
| 4,518,466 |
| ||
|
|
|
|
|
| ||
Investing Activities |
|
|
|
|
| ||
Purchases of securities available for sale | (82,597,349 | ) |
| (35,162,200 | ) | ||
Proceeds from maturities and paydowns of securities available for sale | 44,676,712 |
|
| 5,041,948 |
| ||
Proceeds from sales of securities available for sale | 22,177,542 |
|
| 22,456,675 |
| ||
Proceeds from maturities and paydowns of securities held to maturity | 2,585,037 |
|
| 1,445,000 |
| ||
Net change in loans | (69,212,998 | ) |
| (37,636,795 | ) | ||
Purchases of premises and equipment | (836,686 | ) |
| (373,266 | ) | ||
Purchase of FHLB stock | (1,479,300 | ) |
| (949,800 | ) | ||
Net cash used in investing activities | (84,687,042 | ) |
| (45,089,657 | ) | ||
|
|
|
|
|
| ||
Financing Activities |
|
|
|
|
| ||
Net change in |
|
|
|
|
| ||
Demand and savings deposits | 60,126,140 |
|
| 202,452,437 |
| ||
Certificates of deposit | 61,786,177 |
|
| 4,539,605 |
| ||
Advances by borrowers for taxes and insurance | (47,328 | ) |
| 28,283 |
| ||
Proceeds from FHLB advances | 40,000,000 |
|
| 57,000,000 |
| ||
Repayment of FHLB advances | (14,000,000 | ) |
| (36,000,000 | ) | ||
Dividends paid | (623,352 | ) |
| — |
| ||
Net cash provided by financing activities | 147,241,637 |
|
| 228,020,325 |
| ||
|
|
|
|
|
| ||
Net Change in Cash and Cash Equivalents | 70,009,587 |
|
| 187,449,134 |
| ||
|
|
|
|
|
| ||
Cash and Cash Equivalents, Beginning of Period | 40,596,877 |
|
| 14,971,170 |
| ||
|
|
|
|
|
| ||
Cash and Cash Equivalents, End of Period | $ | 110,606,464 |
|
| $ | 202,420,304 |
|
|
|
|
|
|
| ||
Additional Cash Flows and Supplementary Information |
|
|
|
|
| ||
Interest paid | $ | 4,987,127 |
|
| $ | 5,350,635 |
|
Transfers from loans to other real estate owned | 31,548 |
|
| 5,400 |
|
See accompanying notes.
Richmond Mutual Bancorporation, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Table Dollar Amounts in Thousands)
Note 1: Basis of Presentation
On July 1, 2019, Richmond Mutual Bancorporation, Inc., a Delaware corporation (“RMB-Delaware”), completed its reorganization from a mutual holding company form of organization by forming First Mutualto a stock form of Richmond, Inc. ("First Mutual of Richmond-MHC"organization (“corporate reorganization”), a mutual holding company that had no stockholders and was controlled by its members. First Mutual of Richmond-MHC. RMB-Delaware, which owned 100% of the outstanding shares of common stock of Richmond Mutual Bancorporation-Delaware ("RMB-Delaware"). RMB-Delaware owned 100% of the outstanding shares of common stock of First Bank Richmond.
The costs of the corporate reorganization and the issuance of the common stock have been deducted from the sales proceeds of the offering.
The accompanying unaudited condensed consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include information or note disclosures necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. Accordingly, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for RMB-Delaware’s year ended December 31, 2018 included in the prospectus2019 filed with the Securities and Exchange Commission (“SEC”) pursuant to Rule 424(b) of the Securities Act of 1933, as amended, on May 16, 2019March 30, 2020 (SEC File No. 333-230184)001-38956). However, in the opinion of management, all adjustments which are necessary for a fair presentation of the consolidated financial statements have been included. Those adjustments consist only of normal recurring adjustments.
In certain circumstances, where appropriate, the terms “we”, “us” and “our” refer collectively to (i) RMB-Delaware and First Bank Richmond with respect to discussions in this document involving matters occurring prior to completion of the corporate reorganization and (ii) the Company and First Bank Richmond with respect to discussions in this document involving matters to occuroccurring post-corporate reorganization, in each case unless the context indicates another meaning.
Loans
For all loan classes, the accrual of interest is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. For all loan classes, the entire balance of the loan is considered past due if the minimum payment contractually required to be paid is not received by the contractual due date. For all loan classes, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.
The Company charges off residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance, which provides for the charge-down of 1-4 family first and junior lien mortgages to the net realizable value, less costs to sell when the loan is 120 days past due, charge-off of unsecured open-end loans when the loan is 90 days past due, and charge down to the net realizable value when other secured loans are 90 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off.
For all classes, all interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.
When cash payments are received on impaired loans in each loan class, the Company records the payment as interest income unless collection of the remaining recorded principal amount is doubtful, at which time payments are used to reduce the principal balance of the loan. Troubled debt restructured loans recognize interest income on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms, no principal reduction has been granted and the loan has demonstrated the ability to perform in accordance with the renegotiated terms for a period of at least six months.
Note 2: Accounting Pronouncements
The JOBS Act, which was enacted in April 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year qualifies as an “emerging growth company.” The Company qualifies as and has elected to be an emerging growth company under the JOBS Act. An emerging growth company may elect to comply with new or amended accounting pronouncements in the same manner as a private company, but must make such election when the company is first required to file a registration statement. Such an election is irrevocable during the period a company is an emerging growth company and as such will be subjectcompany. The Company has elected to the effective dates noted for the private companies if they differ from the effective dates noted for public companies.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326). The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better forminform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In May 2019, the FASB issued ASU No. 2019-05, “Financial“Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief” (ASU(ASU 2019-05). This ASU provides transition relief for entities adopting the FASB’s credit losses standard, ASU 2016-13 and allows companies to irrevocably elect, upon adoption of ASU 2016-13, the fair value option for certain financial instruments. In April 2019, the FASB issued ASU No. 2019-04, “Codification“Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” (ASU 2019-04). This ASU clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments. The amendments in these ASUs areIn October 2019, the FASB voted to extend the implementation of ASU No. 2016-13 for certain financial institutions including smaller reporting companies. As a result, ASU 2016-13 will be effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, assuming the adoption of an ASU implementing the FASB board decision in October 2019 extending the adoption date for certain registrants, including the Company, with early adoption permitted.2022. The Company is evaluating its current expected loss methodology on the loan and investment portfolios to identify the necessary modifications in accordance with this standard. The Company has not quantified the impact of these ASUs.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of reference Rate Reform on Financial Reporting. This ASU applies to contracts, hedging relationships and other transactions that reference LIBOR or other rate references expected to be discontinued because of reference rate reform. The ASU permits an entity to make necessary modifications to eligible contracts or transactions without requiring contract remeasurement or reassessment of a previous accounting determination. This ASU is effective for all entities as of March 12, 2020 through December 31, 2022. The Company does not expect the adoption of ASU 2020-04 to have a material impact on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . ASU 2019-12 provides that state franchise or similar taxes that are based, at least in part on an entity’s income, be included in an entity’s income tax recognized as income-based taxes. The ASU further clarifies that the effect of any change in tax laws or rates used in the computation of the annual effective tax rate are required to be reflected in the first interim period that includes the enactment date of the legislation. Technical changes to eliminate exceptions to Topic 740 related to intra-period tax allocations for entities with losses from continuing operations, deferred tax liabilities related to change in ownership of foreign entities, and interim-period tax allocations for businesses with losses where the losses are expected to be realized. The amendments in ASU 2019-12 are effective for public business entities with fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not expect ASU 2019-12 to have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU contains some technical adjustments related to the fair value disclosure requirements of public companies. Included in this ASU is the additional disclosure requirement of unrealized gains and losses for the period in recurring level 3 fair value disclosures and the range and weighted average of significant unobservable inputs, among other technical changes. The Company adopted ASU 2018-13 on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB has issued ASU No. 2016-02, Leases (Topic(Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases, with the exception of short-term leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. For the Company, the amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2019.2020. Based on leases outstanding as of December 31, 2018,2019, the new standard will not have a material impact on the Company’s balance sheet or income statement.
Note 3: Investment Securities
The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities are as follows:
| June 30, 2020 | ||||||||||
|
|
| Gross |
| Gross |
|
| ||||
| Amortized |
| Unrealized |
| Unrealized |
| Fair | ||||
| Cost |
| Gains |
| Losses |
| Value | ||||
Available for sale |
|
|
|
|
|
|
| ||||
SBA Pools | $ | 22,911 |
| $ | 75 |
| $ | 215 |
| $ | 22,771 |
Federal agencies | 7,511 |
| 14 |
| 6 |
| 7,519 | ||||
State and municipal obligations | 60,681 |
| 1,642 |
| 126 |
| 62,197 | ||||
Mortgage-backed securities - |
|
|
|
|
|
|
| ||||
government-sponsored enterprises |
|
|
|
|
|
|
| ||||
(GSE) residential | 126,261 |
| 2,471 |
| 28 |
| 128,704 | ||||
Equity securities | 13 |
| - |
| - |
| 13 | ||||
| 217,377 |
| 4,202 |
| 375 |
| 221,204 | ||||
Held to maturity |
|
|
|
|
|
|
| ||||
State and municipal obligations | 13,320 |
| 344 |
| - |
| 13,664 | ||||
| 13,320 |
| 344 |
| - |
| 13,664 | ||||
|
|
|
|
|
|
|
| ||||
Total investment securities | $ | 230,697 |
| $ | 4,546 |
| $ | 375 |
| $ | 234,868 |
| December 31, 2019 | ||||||||||
|
|
| Gross |
| Gross |
|
| ||||
| Amortized |
| Unrealized |
| Unrealized |
| Fair | ||||
| Cost |
| Gains |
| Losses |
| Value | ||||
Available for sale |
|
|
|
|
|
|
| ||||
U.S. Treasury securities | $ | 2,997 |
| $ | - |
| $ | 6 |
| $ | 2,991 |
SBA Pools | 14,497 |
| - |
| 114 |
| 14,383 | ||||
Federal agencies | 21,765 |
| - |
| 119 |
| 21,646 | ||||
State and municipal obligations | 45,635 |
| 357 |
| 152 |
| 45,840 | ||||
Mortgage-backed securities - |
|
|
|
|
|
|
| ||||
government-sponsored enterprises |
|
|
|
|
|
|
| ||||
(GSE) residential | 117,769 |
| 111 |
| 969 |
| 116,911 | ||||
Equity securities | 13 |
| - |
| - |
| 13 | ||||
| 202,676 |
| 468 |
| 1,360 |
| 201,784 | ||||
Held to maturity |
|
|
|
|
|
|
| ||||
State and municipal obligations | 15,917 |
| 244 |
| 5 |
| 16,156 | ||||
| 15,917 |
| - |
| 5 |
| 16,156 | ||||
|
|
|
|
|
|
|
| ||||
Total investment securities | $ | 218,593 |
| $ | 712 |
| $ | 1,365 |
| $ | 217,940 |
September 30, 2019 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Available for sale | ||||||||||||||||
U.S. treasury securities | $ | 5,000 | $ | 3 | $ | 8 | $ | 4,995 | ||||||||
SBA Pools | 11,975 | - | 79 | 11,896 | ||||||||||||
Federal agencies | 26,193 | - | 64 | 26,129 | ||||||||||||
State and municipal obligations | 33,654 | 339 | 102 | 33,891 | ||||||||||||
Mortgage-backed securities - government- sponsored enterprises (GSE) residential | 92,050 | 141 | 825 | 91,366 | ||||||||||||
Equity securities | 13 | - | - | 13 | ||||||||||||
168,885 | 483 | 1,078 | 168,290 | |||||||||||||
Held to maturity | ||||||||||||||||
State and municipal obligations | 16,729 | 236 | 8 | 16,957 | ||||||||||||
16,729 | 236 | 8 | 16,957 | |||||||||||||
Total investment securities | $ | 185,614 | $ | 719 | $ | 1,086 | $ | 185,247 |
December 31, 2018 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Available for sale | ||||||||||||||||
Federal agencies | $ | 40,812 | $ | - | $ | 2,802 | $ | 38,010 | ||||||||
State and municipal obligations | 30,531 | 34 | 776 | 29,789 | ||||||||||||
Mortgage-backed securities - government- sponsored enterprises GSE residential | 56,945 | 11 | 2,286 | 54,670 | ||||||||||||
Equity securities | 13 | - | - | 13 | ||||||||||||
128,301 | 45 | 5,864 | 122,482 | |||||||||||||
Held to maturity | ||||||||||||||||
State and municipal obligations | 18,580 | 70 | 107 | 18,543 | ||||||||||||
Corporate obligations | 2,500 | 2,610 | - | 5,110 | ||||||||||||
21,080 | 2,680 | 107 | 23,653 | |||||||||||||
Total investment securities | $ | 149,381 | $ | 2,725 | $ | 5,971 | $ | 146,135 |
The amortized cost and fair value of securities at SeptemberJune 30, 2019,2020, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Available for Sale | Held to Maturity | |||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||
Cost | Value | Cost | Value | |||||||||||||
Within one year | $ | 308 | $ | 309 | $ | 3,214 | $ | 3,218 | ||||||||
One to five years | 17,785 | 17,807 | 8,587 | 8,678 | ||||||||||||
Five to ten years | 35,995 | 35,953 | 3,589 | 3,676 | ||||||||||||
After ten years | 22,734 | 22,842 | 1,339 | 1,385 | ||||||||||||
76,822 | 76,911 | 16,729 | 16,957 | |||||||||||||
Mortgage-backed securities - GSE residential | 92,050 | 91,366 | - | - | ||||||||||||
Equity securities | 13 | 13 | - | - | ||||||||||||
Totals | $ | 168,885 | $ | 168,290 | $ | 16,729 | $ | 16,957 |
| Available for Sale |
| Held to Maturity | ||||||||
| Amortized |
| Fair |
| Amortized |
| Fair | ||||
| Cost |
| Value |
| Cost |
| Value | ||||
|
|
|
|
|
|
|
| ||||
Within one year | $ | 443 |
| $ | 444 |
| $ | 2,858 |
| $ | 2,875 |
One to five years | 6,005 |
| 6,175 |
| 7,233 |
| 7,424 | ||||
Five to ten years | 27,793 |
| 28,115 |
| 2,169 |
| 2,283 | ||||
After ten years | 56,862 |
| 57,753 |
| 1,060 |
| 1,082 | ||||
| 91,103 |
| 92,487 |
| 13,320 |
| 13,664 | ||||
Mortgage-backed securities - |
|
|
|
|
|
|
| ||||
GSE residential | 126,261 |
| 128,704 |
| - |
| - | ||||
Equity securities | 13 |
| 13 |
| - |
| - | ||||
|
|
|
|
|
|
|
| ||||
Totals | $ | 217,377 |
| $ | 221,204 |
| $ | 13,320 |
| $ | 13,664 |
Securities with a carrying value of $69,475,000$119,773,000 and $86,267,000$114,907,000 were pledged at SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively, to secure certain deposits and for other purposes as permitted or required by law.
Proceeds from sales of securities available for sale for the three and ninesix months ended SeptemberJune 30, 20192020 were $35,246,933$10,716,000 and $57,703,608,$22,178,000, respectively. For the three and ninesix months ended SeptemberJune 30, 2018,2019, proceeds from sales of securities available for sale were $0$10,989,000 and $1,507,529,$22,457,000 respectively. Gross gains were recognized on the sale of securities available for saleavailable-for-sale for the three and ninesix months ended SeptemberJune 30, 2020 and 2019 of $104,000$66,000, $136,000, $37,000 and $170,000, respectively. Gross gains were recognized on the sale of securities available for sale for the three and nine months ended September 30, 2018 of $0 and $12,000,$62,000, respectively. Gross losses were recognized on the sale of securities available for sale for the three and ninesix months ended SeptemberJune 30, 20192020 of $82,000 and $87,000, respectively.$56,000. There were no gross losses realized from sales of securities available for sale for the three and ninesix months ended SeptemberJune 30, 2018.
Certain investments in debt securities, as reflected in the table below, are reported in the condensed consolidated financial statements and notes at an amount less than their historical cost. Total fair value of these investments at SeptemberJune 30, 20192020 and December 31, 20182019 was $109,059,000$40,703,000 and $126,736,000,$138,391,000, respectively, which is approximately 58%17% and 88%, respectively,63% of the Company’s aggregated available-for-sale and held-to-maturity investment portfolio.portfolio at those dates, respectively. These declines primarily resulted from changes in market interest rates since their purchase.
Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary.
Should the impairment of any other securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.
The following tables show the Company’s investments by gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at SeptemberJune 30, 20192020 and December 31, 2018:
September 30, 2019 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Description of | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||
Securities | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||
U.S. treasury securities | $ | 3,002 | $ | 8 | $ | - | $ | - | $ | 3,002 | $ | 8 | ||||||||||||
SBA Pools | 11,820 | 79 | - | - | 11,820 | 79 | ||||||||||||||||||
Federal agencies | 5,948 | 45 | 2,980 | 19 | 8,928 | 64 | ||||||||||||||||||
State and municipal obligations | 3,264 | 22 | 8,642 | 80 | 11,906 | 102 | ||||||||||||||||||
Mortgage-backed securities - GSE residential | 31,644 | 173 | 39,517 | 652 | 71,161 | 825 | ||||||||||||||||||
Total available-for-sale | 55,678 | 327 | 51,139 | 751 | 106,817 | 1,078 | ||||||||||||||||||
Held-to-maturity | ||||||||||||||||||||||||
State and municipal obligations | 664 | 7 | 1,578 | 1 | 2,242 | 8 | ||||||||||||||||||
Total temporarily impaired securities | $ | 56,342 | $ | 334 | $ | 52,717 | $ | 752 | $ | 109,059 | $ | 1,086 |
December 31, 2018 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Description of | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||
Securities | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||
Federal agencies | $ | - | $ | - | $ | 38,010 | $ | 2,802 | $ | 38,010 | $ | 2,802 | ||||||||||||
State and municipal obligations | 4,516 | 26 | 21,529 | 750 | 26,045 | 776 | ||||||||||||||||||
Mortgage-backed securities - GSE residential | 5,872 | 30 | 45,676 | 2,256 | 51,548 | 2,286 | ||||||||||||||||||
Total available-for-sale | 10,388 | 56 | 105,215 | 5,808 | 115,603 | 5,864 | ||||||||||||||||||
Held-to-maturity | ||||||||||||||||||||||||
State and municipal obligations | 3,271 | 11 | 7,862 | 96 | 11,133 | 107 | ||||||||||||||||||
Total temporarily impaired securities | $ | 13,659 | $ | 67 | $ | 113,077 | $ | 5,904 | $ | 126,736 | $ | 5,971 |
| June 30, 2020 | ||||||||||||||||
| Less Than 12 Months |
| 12 Months or More |
| Total | ||||||||||||
Description of | Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||
Securities | Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
| ||||||
SBA Pools | $ | 19,099 |
| $ | 215 |
| $ | - |
| $ | - |
| $ | 19,099 |
| $ | 215 |
Federal agencies | 4,240 |
| 6 |
| - |
| - |
| 4,240 |
| 6 | ||||||
State and municipal obligations | 8,932 |
| 126 |
| - |
| - |
| 8,932 |
| 126 | ||||||
Mortgage-backed securities - |
|
|
|
|
|
|
|
|
|
|
| ||||||
GSE residential | 6,874 |
| 25 |
| 1,478 |
| 3 |
| 8,352 |
| 28 | ||||||
Total available-for-sale | 39,145 |
| 372 |
| 1,478 |
| 3 |
| 40,623 |
| 375 | ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Held-to-maturity |
|
|
|
|
|
|
|
|
|
|
| ||||||
State and municipal obligations | 80 |
| - |
| - |
| - |
| 80 |
| - | ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total temporarily |
|
|
|
|
|
|
|
|
|
|
| ||||||
impaired securities | $ | 39,225 |
| $ | 372 |
| $ | 1,478 |
| $ | 3 |
| $ | 40,703 |
| $ | 375 |
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 | ||||||||||||||||
| Less Than 12 Months |
| 12 Months or More |
| Total | ||||||||||||
Description of | Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||
Securities | Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Treasury securities | $ | 2,991 |
| $ | 6 |
| $ | - |
| $ | - |
| $ | 2,991 |
| $ | 6 |
SBA Pools | 14,262 |
| 114 |
| - |
| - |
| 14,262 |
| 114 | ||||||
Federal agencies | 9,657 |
| 109 |
| 2,990 |
| 10 |
| 12,647 |
| 119 | ||||||
State and municipal obligations | 12,606 |
| 130 |
| 2,948 |
| 22 |
| 15,554 |
| 152 | ||||||
Mortgage-backed securities - |
|
|
|
|
|
|
|
|
|
|
| ||||||
GSE residential | 57,928 |
| 464 |
| 34,344 |
| 505 |
| 92,272 |
| 969 | ||||||
Total available-for-sale | 97,444 |
| 823 |
| 40,282 |
| 537 |
| 137,726 |
| 1,360 | ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Held-to-maturity |
|
|
|
|
|
|
|
|
|
|
| ||||||
State and municipal obligations | 665 |
| 5 |
| - |
| - |
| 665 |
| 5 | ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total temporarily |
|
|
|
|
|
|
|
|
|
|
| ||||||
impaired securities | $ | 98,109 |
| $ | 828 |
| $ | 40,282 |
| $ | 537 |
| $ | 138,391 |
| $ | 1,365 |
|
|
|
|
|
|
|
|
|
|
|
|
Federal Agencies and U.S. Treasury Securities.
Mortgage-Backed Securities -– GSE Residential.
State and Municipal Obligations.
The unrealized losses on the Company’s investments in securities of state and municipal obligations were caused by interest rate changes and illiquidity. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired atNote 4: Loans, Leases and Allowance
Categories of loans at SeptemberJune 30, 20192020 and December 31, 20182019 include:
| June 30, |
| December 31, | ||
| 2020 |
| 2019 | ||
| |||||
Commercial mortgage | $ | 242,036 |
| $ | 229,410 |
Commercial and industrial | 141,184 |
| 84,549 | ||
Construction and development | 62,372 |
| 53,426 | ||
Multi-family | 58,709 |
| 66,002 | ||
Residential mortgage | 126,146 |
| 131,294 | ||
Home equity | 6,522 |
| 6,996 | ||
Direct financing leases | 114,352 |
| 109,592 | ||
Consumer | 12,550 |
| 13,534 | ||
763,871 |
| 694,803 | |||
Less |
|
|
| ||
Allowance for loan and lease losses | 8,521 |
| 7,089 | ||
Deferred loan fees | 2,427 |
| 456 | ||
|
|
|
| ||
$ | 752,923 |
| $ | 687,258 | |
|
|
|
|
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Commercial mortgage | $ | 233,643 | $ | 211,237 | ||||
Commercial and industrial | 81,109 | 71,854 | ||||||
Construction and development | 55,362 | 72,955 | ||||||
Multi-family | 70,613 | 43,816 | ||||||
Residential mortgage | 132,628 | 132,492 | ||||||
Home equity | 7,385 | 7,214 | ||||||
Direct financing leases | 107,349 | 107,735 | ||||||
Consumer | 14,009 | 13,520 | ||||||
702,098 | 660,823 | |||||||
Less | ||||||||
Allowance for loan and lease losses | 6,896 | 5,600 | ||||||
Deferred loan fees | 457 | 468 | ||||||
$ | 694,745 | $ | 654,755 |
The following tables present the activity in the allowance for loan and lease losses for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.
|
|
|
| Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Commercial |
|
| and |
|
| Residential |
|
|
|
|
|
|
|
|
|
| ||||||
| Mortgage (1) |
|
| Industrial |
|
| Mortgage (2) |
|
| Leases |
|
| Consumer |
|
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Three Months Ended June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, beginning of period | $ | 4,668 |
|
| $ | 1,772 |
|
| $ | 148 |
|
| $ | 583 |
|
| $ | 135 |
|
| $ | 7,306 |
|
Provision (credit) for losses | 844 |
|
| (94 | ) |
| 172 |
|
| 378 |
|
| 20 |
|
| 1,320 |
| ||||||
Charge-offs | - |
|
| - |
|
| (20 | ) |
| (134 | ) |
| (16 | ) |
| (170 | ) | ||||||
Recoveries | 5 |
|
| 32 |
|
| 8 |
|
| 11 |
|
| 9 |
|
| 65 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, end of period | $ | 5,517 |
|
| $ | 1,710 |
|
| $ | 308 |
|
| $ | 838 |
|
| $ | 148 |
|
| $ | 8,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Six Months Ended June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, beginning of period | $ | 4,564 |
|
| $ | 1,852 |
|
| $ | 109 |
|
| $ | 426 |
|
| $ | 138 |
|
| $ | 7,089 |
|
Provision (credit) for losses | 917 |
|
| (182 | ) |
| 210 |
|
| 569 |
|
| 16 |
|
| 1,530 |
| ||||||
Charge-offs | - |
|
| - |
|
| (35 | ) |
| (190 | ) |
| (21 | ) |
| (246 | ) | ||||||
Recoveries | 36 |
|
| 40 |
|
| 24 |
|
| 33 |
|
| 15 |
|
| 148 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, end of period | $ | 5,517 |
|
| $ | 1,710 |
|
| $ | 308 |
|
| $ | 838 |
|
| $ | 148 |
|
| $ | 8,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Commercial mortgage includes commercial and multifamily real estate loans.
(2) Residential mortgage includes one- to four-family and home equity loans.
|
|
|
| Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Commercial |
|
| and |
|
| Residential |
|
|
|
|
|
|
|
|
|
| ||||||
| Mortgage (1) |
|
| Industrial |
|
| Mortgage (2) |
|
| Leases |
|
| Consumer |
|
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Three Months Ended June 30, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, beginning of period | $ | 3,420 |
|
| $ | 1,790 |
|
| $ | 117 |
|
| $ | 392 |
|
| $ | 117 |
|
| $ | 5,836 |
|
Provision (credit) for losses | 466 |
|
| (26 | ) |
| 30 |
|
| 12 |
|
| 3 |
|
| 485 |
| ||||||
Charge-offs | - |
|
| - |
|
| (34 | ) |
| (95 | ) |
| (15 | ) |
| (144 | ) | ||||||
Recoveries | 6 |
|
| 4 |
|
| 9 |
|
| 76 |
|
| 9 |
|
| 104 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, end of period | $ | 3,892 |
|
| $ | 1,768 |
|
| $ | 122 |
|
| $ | 385 |
|
| $ | 114 |
|
| $ | 6,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Six Months Ended June 30, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, beginning of period | $ | 3,147 |
|
| $ | 1,817 |
|
| $ | 139 |
|
| $ | 389 |
|
| $ | 108 |
|
| $ | 5,600 |
|
Provision (credit) for losses | 735 |
|
| 195 |
|
| (7 | ) |
| 50 |
|
| 37 |
|
| 1,010 |
| ||||||
Charge-offs | - |
|
| (250 | ) |
| (36 | ) |
| (177 | ) |
| (49 | ) |
| (512 | ) | ||||||
Recoveries | 10 |
|
| 6 |
|
| 26 |
|
| 123 |
|
| 18 |
|
| 183 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, end of period | $ | 3,892 |
|
| $ | 1,768 |
|
| $ | 122 |
|
| $ | 385 |
|
| $ | 114 |
|
| $ | 6,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Commercial mortgage includes commercial and multifamily real estate loans.
(2) Residential mortgage includes one- to four-family and home equity loans
Commercial | ||||||||||||||||||||||||
Commercial | and | Residential | ||||||||||||||||||||||
Mortgage | Industrial | Mortgage | Leases | Consumer | Total | |||||||||||||||||||
Three Months Ended September 30, 2019: | ||||||||||||||||||||||||
Balance, beginning of period | $ | 3,892 | $ | 1,768 | $ | 122 | $ | 385 | $ | 114 | $ | 6,281 | ||||||||||||
Provision (credit) for losses | 586 | 11 | (34 | ) | 71 | 71 | 705 | |||||||||||||||||
Charge-offs | (14 | ) | - | (6 | ) | (107 | ) | (51 | ) | (178 | ) | |||||||||||||
Recoveries | 4 | 2 | 22 | 54 | 6 | 88 | ||||||||||||||||||
Balance, end of period | $ | 4,468 | $ | 1,781 | $ | 104 | $ | 403 | $ | 140 | $ | 6,896 | ||||||||||||
Nine Months Ended September 30, 2019: | ||||||||||||||||||||||||
Balance, beginning of period | $ | 3,147 | $ | 1,817 | $ | 139 | $ | 389 | $ | 108 | $ | 5,600 | ||||||||||||
Provision (credit) for losses | 1,321 | 206 | (41 | ) | 121 | 108 | 1,715 | |||||||||||||||||
Charge-offs | (14 | ) | (250 | ) | (42 | ) | (284 | ) | (100 | ) | (690 | ) | ||||||||||||
Recoveries | 14 | 8 | 48 | 177 | 24 | 271 | ||||||||||||||||||
Balance, end of period | $ | 4,468 | $ | 1,781 | $ | 104 | $ | 403 | $ | 140 | $ | 6,896 |
Commercial | ||||||||||||||||||||||||
Commercial | and | Residential | ||||||||||||||||||||||
Mortgage | Industrial | Mortgage | Leases | Consumer | Total | |||||||||||||||||||
Three Months Ended September 30, 2018: | ||||||||||||||||||||||||
Balance, beginning of period | $ | 3,157 | $ | 1,854 | $ | 173 | $ | 344 | $ | 105 | $ | 5,633 | ||||||||||||
Provision (credit) for losses | (231 | ) | 594 | (27 | ) | 106 | 8 | 450 | ||||||||||||||||
Charge-offs | - | (400 | ) | (40 | ) | (122 | ) | (9 | ) | (571 | ) | |||||||||||||
Recoveries | 22 | 5 | 43 | 41 | 5 | 116 | ||||||||||||||||||
Balance, end of period | $ | 2,948 | $ | 2,053 | $ | 149 | $ | 369 | $ | 109 | $ | 5,628 | ||||||||||||
Nine Months Ended September 30, 2018: | ||||||||||||||||||||||||
Balance, beginning of period | $ | 2,424 | $ | 1,663 | $ | 257 | $ | 337 | $ | 119 | $ | 4,800 | ||||||||||||
Provision (credit) for losses | 496 | 815 | (146 | ) | 181 | 4 | 1,350 | |||||||||||||||||
Charge-offs | (7 | ) | (447 | ) | (89 | ) | (316 | ) | (39 | ) | (898 | ) | ||||||||||||
Recoveries | 35 | 22 | 127 | 167 | 25 | 376 | ||||||||||||||||||
Balance, end of period | $ | 2,948 | $ | 2,053 | $ | 149 | $ | 369 | $ | 109 | $ | 5,628 |
The following tables present the balance in the allowance for loan and lease losses and the recorded investment in loans and leases based on portfolio segment and impairment method as of SeptemberJune 30, 20192020 and December 31, 2018:2019:
| June 30, 2020 | ||||||||||||||||
|
|
| Commercial |
|
|
|
|
|
|
|
| ||||||
| Commercial |
| and |
| Residential |
|
|
|
|
|
| ||||||
| Mortgage (1) |
| Industrial |
| Mortgage (2) |
| Leases |
| Consumer |
| Total | ||||||
|
|
|
|
| |||||||||||||
Allowance for loan and lease losses: |
|
|
|
|
|
|
|
|
|
|
| ||||||
Individually evaluated for impairment | $ | 1 |
| $ | 201 |
| $ | - |
| $ | - |
| $ | - |
| $ | 202 |
Collectively evaluated for impairment | 5,516 |
| 1,509 |
| 308 |
| 838 |
| 148 |
| 8,319 | ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, June 30 | $ | 5,517 |
| $ | 1,710 |
| $ | 308 |
| $ | 838 |
| $ | 148 |
| $ | 8,521 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans and leases: |
|
|
|
|
|
|
|
|
|
|
| ||||||
Individually evaluated for impairment | $ | 698 |
| $ | 617 |
| $ | 225 |
| $ | - |
| $ | - |
| $ | 1,540 |
Collectively evaluated for impairment | 392,835 |
| 131,344 |
| 107,114 |
| 114,352 |
| 16,686 |
| 762,331 | ||||||
Ending balance: June 30 | $ | 393,533 |
| $ | 131,961 |
| $ | 107,339 |
| $ | 114,352 |
| $ | 16,686 |
| $ | 763,871 |
(1) Commercial mortgage includes commercial and multifamily real estate loans.
(2) Residential mortgage includes one- to four-family and home equity loans
September 30, 2019 | ||||||||||||||||||||||||
Commercial | ||||||||||||||||||||||||
Commercial | and | Residential | ||||||||||||||||||||||
Mortgage | Industrial | Mortgage | Leases | Consumer | Total | |||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | 300 | $ | 142 | $ | - | $ | - | $ | - | $ | 442 | ||||||||||||
Collectively evaluated for impairment | 4,168 | 1,639 | 104 | 403 | 140 | 6,454 | ||||||||||||||||||
Balance, September 30 | $ | 4,468 | $ | 1,781 | $ | 104 | $ | 403 | $ | 140 | $ | 6,896 | ||||||||||||
Loans: | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | 675 | $ | 847 | $ | 356 | $ | - | $ | - | $ | 1,878 | ||||||||||||
Collectively evaluated for impairment | 383,946 | 74,028 | 116,347 | 107,349 | 18,550 | 700,220 | ||||||||||||||||||
Ending balance: September 30 | $ | 384,621 | $ | 74,875 | $ | 116,703 | $ | 107,349 | $ | 18,550 | $ | 702,098 |
| December 31, 2019 | ||||||||||||||||
|
|
| Commercial |
|
|
|
|
|
|
|
| ||||||
| Commercial |
| and |
| Residential |
|
|
|
|
|
| ||||||
| Mortgage (1) |
| Industrial |
| Mortgage (2) |
| Leases |
| Consumer |
| Total | ||||||
|
|
|
|
| |||||||||||||
Allowance for loan and lease losses: |
|
|
|
|
|
|
|
|
|
|
| ||||||
Individually evaluated for impairment | $ | - |
| $ | 202 |
| $ | - |
| $ | - |
| $ | - |
| $ | 202 |
Collectively evaluated for impairment | 4,564 |
| 1,650 |
| 109 |
| 426 |
| 138 |
| 6,887 | ||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, December 31 | $ | 4,564 |
| $ | 1,852 |
| $ | 109 |
| $ | 426 |
| $ | 138 |
| $ | 7,089 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans and leases: |
|
|
|
|
|
|
|
|
|
|
| ||||||
Individually evaluated for impairment | $ | 803 |
| $ | 694 |
| $ | 347 |
| $ | - |
| $ | - |
| $ | 1,844 |
Collectively evaluated for impairment | 377,494 |
| 73,920 |
| 114,061 |
| 109,592 |
| 17,892 |
| 692,959 | ||||||
Ending balance: December 31 | $ | 378,297 |
| $ | 74,614 |
| $ | 114,408 |
| $ | 109,592 |
| $ | 17,892 |
| $ | 694,803 |
December 31, 2018 | ||||||||||||||||||||||||
Commercial | ||||||||||||||||||||||||
Commercial | and | Residential | ||||||||||||||||||||||
Mortgage | Industrial | Mortgage | Leases | Consumer | Total | |||||||||||||||||||
Allowance for loan losses: | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | 300 | $ | 394 | $ | - | $ | - | $ | - | $ | 694 | ||||||||||||
Collectively evaluated for impairment | 2,847 | 1,423 | 139 | 389 | 108 | 4,906 | ||||||||||||||||||
Balance, December 31 | $ | 3,147 | $ | 1,817 | $ | 139 | $ | 389 | $ | 108 | $ | 5,600 | ||||||||||||
Loans: | ||||||||||||||||||||||||
Individually evaluated for impairment | $ | 743 | $ | 1,177 | $ | 389 | $ | - | $ | - | $ | 2,309 | ||||||||||||
Collectively evaluated for impairment | 358,593 | 58,203 | 117,258 | 107,735 | 16,725 | 658,514 | ||||||||||||||||||
Ending balance: December 31 | $ | 359,336 | $ | 59,380 | $ | 117,647 | $ | 107,735 | $ | 16,725 | $ | 660,823 |
(1) Commercial mortgage includes commercial and multifamily real estate loans.
(2) Residential mortgage includes one- to four-family and home equity loans.
The Company rates all loans by credit quality using the following designations:
Grade 1 -– Exceptional
Exceptional loans are top-quality loans to individuals whose financial credentials are well known to the Company. These loans have excellent sources of repayment, are well documented and/or virtually free of risk (i.e., CD secured loans).
Grade 2 -– Quality Loans
These loans have excellent sources of repayment with no identifiable risk of collection, and they conform in all respects to Company policy and Indiana Department of Financial Institutions (“IDFI”) and Federal Deposit Insurance Corporation (“FDIC”) regulations. Documentation exceptions are minimal or are in the process of being corrected and are not of a type that could subsequently expose the Company to risk of loss.
Grade 3 -– Acceptable Loans
This category is for “average” quality loans. These loans have adequate sources of repayment with little identifiable risk of collection and they conform to Company policy and IDFI/FDIC regulations.
Grade 4 -– Acceptable but Monitored
Loans in this category may have a greater than average risk due to financial weakness or uncertainty but do not appear to require classification as special mention or substandard loans. Loans rated “4” need to be monitored on a regular basis to ascertain that the reasons for placing them in this category do not advance or worsen.
Grade 5 -– Special Mention
Loans in this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Company’s credit position at some future date. Special Mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. This special mention rating is designed to identify a specific level of risk and concern about an asset’s quality. Although a special mention loan has a higher probability of default than a pass rated loan, its default is not imminent.
Grade 6 -– Substandard
Loans in this category are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Substandard loans have a high probability of payment default, or they have other well-defined weaknesses. Such loans have a distinct potential for loss; however, an individual loan’s potential for loss does not have to be distinct for the loan to be rated substandard.
The following are examples of situations that might cause a loan to be graded a “6”:
·Cash flow deficiencies (losses) jeopardize future loan payments.
·Sale of noncollateralnon-collateral assets has become a primary source of loan repayment.
·The relationship has deteriorated to the point that sale of collateral is now the Company’s primary source of repayment, unless this was the original source of loan repayment.
·The borrower is bankrupt or for any other reason future repayment is dependent on court action.
Grade 7 -– Doubtful
A loan classified as doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly questionable and improbable. A doubtful loan has a high probability of total or substantial loss. Doubtful borrowers are usually in default, lack adequate liquidity or capital, and lack the resources necessary to remain an operating entity. Because of high probability of loss, nonaccrual accounting treatment will be required for doubtful loans.
Grade 8 -– Loss
Loans classified loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan even though partial recovery may be affectedeffected in the future.
The risk characteristics of each loan portfolio segment are as follows:
Commercial and Industrial
Commercial and industrial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may include a personal guarantee. Short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.
Commercial Mortgage including Construction
Loans in this segment include commercial loans, commercial construction loans, and multi-family loans. This segment also includes loans secured by 1-4 family residences which were made for investment purposes. Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The characteristics of properties securing the Company’s commercial real estate portfolio are diverse, but with geographic location almost entirely in the Company’s market area. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In general, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate versus nonowner-occupied loans.
Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews and financial analysis of the developers and property owners. Construction loans are generally based on estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan
Residential, Brokered and Consumer
Residential, brokered and consumer loans consist of three segments -– residential mortgage loans, brokered mortgage loans and personal loans. For residential mortgage loans that are secured by 1-4 family residences and are generally owner-occupied, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Brokered mortgages are purchased residential mortgage loans meeting the Company'sCompany’s criteria established for originating residential mortgage loans. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer personal loans are secured by consumer personal assets, such as automobiles or recreational vehicles. Some consumer personal loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.
Leases
Lease financing consists of direct financing leases and are used by commercial customers to finance capital purchases of equipment. The credit decisions for these transactions are based upon an assessment of the overall financial capacity of the applicant. A determination is made as to the applicant’s financial condition and ability to repay in accordance with the proposed terms as well as an overall assessment of the risks involved.
The following tables present the credit risk profile of the Company’s loan and lease portfolio based on rating category and payment activity as of SeptemberJune 30, 20192020 and December 31, 2018:2019:
| June 30, 2020 | |||||||||||||||||
|
| Commercial | Construction |
|
|
|
|
|
| |||||||||
| Commercial | and | and | Multi- | Residential | Home |
|
|
| |||||||||
| Mortgage | Industrial | Development | Family | Mortgage | Equity | Leases | Consumer | Total | |||||||||
1-4 Pass | $ | 233,028 | $ | 134,189 | $ | 62,372 | $ | 58,709 | $ | 123,225 | $ | 6,370 | $ | 114,190 | $ | 12,533 | $ | 744,616 |
5 Special Mention | 7,432 | 4,171 | - | - | 176 | 64 | - | - | 11,843 | |||||||||
6 Substandard | 1,576 | 2,824 | - | - | 2,745 | 88 | 59 | 17 | 7,309 | |||||||||
7 Doubtful | - | - | - | - | - | - | 103 | - | 103 | |||||||||
8 Loss | - | - | - | - | - | - | - | - | - | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
$ | 242,036 | $ | 141,184 | $ | 62,372 | $ | 58,709 | $ | 126,146 | $ | 6,522 | $ | 114,352 | $ | 12,550 | $ | 763,871 |
| December 31, 2019 | |||||||||||||||||
|
| Commercial | Construction |
|
|
|
|
|
| |||||||||
| Commercial | and | and | Multi- | Residential | Home |
|
|
| |||||||||
| Mortgage | Industrial | Development | Family | Mortgage | Equity | Leases | Consumer | Total | |||||||||
1-4 Pass | $ | 220,240 | $ | 75,814 | $ | 53,426 | $ | 66,002 | $ | 127,888 | $ | 6,871 | $ | 109,424 | $ | 13,519 | $ | 673,184 |
5 Special Mention | 7,489 | 5,731 | - | - | 189 | 64 | - | - | 13,473 | |||||||||
6 Substandard | 1,681 | 3,004 | - | - | 3,217 | 61 | 94 | 15 | 8,072 | |||||||||
7 Doubtful | - | - | - | - | - | - | 74 | - | 74 | |||||||||
8 Loss | - | - | - | - | - | - | - | - | - | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||
$ | 229,410 | $ | 84,549 | $ | 53,426 | $ | 66,002 | $ | 131,294 | $ | 6,996 | $ | 109,592 | $ | 13,534 | $ | 694,803 |
September 30, 2019 | |||||||||||||||||||||||||||||||||||||
Commercial | Construction | ||||||||||||||||||||||||||||||||||||
Commercial | and | and | Multi- | Residential | Home | ||||||||||||||||||||||||||||||||
Mortgage | Industrial | Development | Family | Mortgage | Equity | Leases | Consumer | Total | |||||||||||||||||||||||||||||
1-4 | Pass | $ | 224,089 | $ | 71,696 | $ | 55,362 | $ | 70,613 | $ | 129,555 | $ | 7,259 | $ | 107,182 | $ | 13,991 | $ | 679,747 | ||||||||||||||||||
5 | Special Mention | 8,008 | 6,269 | - | - | 195 | 64 | - | - | 14,536 | |||||||||||||||||||||||||||
6 | Substandard | 1,546 | 3,144 | - | - | 2,878 | 62 | 65 | 18 | 7,713 | |||||||||||||||||||||||||||
7 | Doubtful | - | - | - | - | - | - | 102 | - | 102 | |||||||||||||||||||||||||||
8 | Loss | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
$ | 233,643 | $ | 81,109 | $ | 55,362 | $ | 70,613 | $ | 132,628 | $ | 7,385 | $ | 107,349 | $ | 14,009 | $ | 702,098 |
December 31, 2018 | |||||||||||||||||||||||||||||||||||||
Commercial | Construction | ||||||||||||||||||||||||||||||||||||
Commercial | and | and | Multi- | Residential | Home | ||||||||||||||||||||||||||||||||
Mortgage | Industrial | Development | Family | Mortgage | Equity | Leases | Consumer | Total | |||||||||||||||||||||||||||||
1-4 | Pass | $ | 210,158 | $ | 68,568 | $ | 72,955 | $ | 40,890 | $ | 128,665 | $ | 7,059 | $ | 107,382 | $ | 13,467 | $ | 649,144 | ||||||||||||||||||
5 | Special Mention | 492 | 35 | - | 2,926 | 264 | 65 | - | - | 3,782 | |||||||||||||||||||||||||||
6 | Substandard | 587 | 3,251 | - | - | 3,563 | 90 | 151 | 53 | 7,695 | |||||||||||||||||||||||||||
7 | Doubtful | - | - | - | - | - | - | 202 | - | 202 | |||||||||||||||||||||||||||
8 | Loss | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
$ | 211,237 | $ | 71,854 | $ | 72,955 | $ | 43,816 | $ | 132,492 | $ | 7,214 | $ | 107,735 | $ | 13,520 | $ | 660,823 |
The following tables present the Company’s loan and lease portfolio aging analysis of the recorded investment in loans and leases as of SeptemberJune 30, 20192020 and December 31, 2018:
September 30, 2019 | ||||||||||||||||||||||||||||
Delinquent Loans | Total | Total Loans | ||||||||||||||||||||||||||
30-59 Days | 60-89 Days | 90 Days and | Total Past | Portfolio | > 90 Days | |||||||||||||||||||||||
Past Due | Past Due | Over | Due | Current | Loans | Accruing | ||||||||||||||||||||||
Commercial mortgage | $ | 155 | $ | 321 | $ | 184 | $ | 660 | $ | 232,983 | $ | 233,643 | $ | - | ||||||||||||||
Commercial and industrial | 557 | - | 787 | 1,344 | 79,765 | 81,109 | - | |||||||||||||||||||||
Construction and development | - | 232 | - | 232 | 55,130 | 55,362 | - | |||||||||||||||||||||
Multi-family | - | - | - | - | 70,613 | 70,613 | - | |||||||||||||||||||||
Residential mortgage | 617 | 622 | 2,388 | 3,627 | 129,001 | 132,628 | 2,151 | |||||||||||||||||||||
Home equity | 67 | - | 15 | 82 | 7,303 | 7,385 | 15 | |||||||||||||||||||||
Leases | 10 | 54 | 8 | 72 | 107,277 | 107,349 | - | |||||||||||||||||||||
Consumer | 66 | 22 | 18 | 106 | 13,903 | 14,009 | 18 | |||||||||||||||||||||
Totals | $ | 1,472 | $ | 1,251 | $ | 3,400 | $ | 6,123 | $ | 695,975 | $ | 702,098 | $ | 2,184 |
December 31, 2018 | ||||||||||||||||||||||||||||
Delinquent Loans | Total | Total Loans | ||||||||||||||||||||||||||
30-59 Days | 60-89 Days | 90 Days and | Total Past | Portfolio | > 90 Days | |||||||||||||||||||||||
Past Due | Past Due | Over | Due | Current | Loans | Accruing | ||||||||||||||||||||||
Commercial mortgage | $ | - | $ | 412 | $ | 78 | $ | 490 | $ | 210,747 | $ | 211,237 | $ | - | ||||||||||||||
Commercial and industrial | 321 | 328 | 1,243 | 1,892 | 69,962 | 71,854 | 130 | |||||||||||||||||||||
Construction and development | - | - | - | - | 72,955 | 72,955 | - | |||||||||||||||||||||
Multi-family | 1,684 | - | - | 1,684 | 42,132 | 43,816 | - | |||||||||||||||||||||
Residential mortgage | 1,147 | 807 | 2,193 | 4,147 | 128,345 | 132,492 | 1,913 | |||||||||||||||||||||
Home equity | 99 | - | 15 | 114 | 7,100 | 7,214 | 15 | |||||||||||||||||||||
Leases | 110 | 89 | - | 199 | 107,536 | 107,735 | - | |||||||||||||||||||||
Consumer | 67 | 24 | 38 | 129 | 13,391 | 13,520 | 38 | |||||||||||||||||||||
Totals | $ | 3,428 | $ | 1,660 | $ | 3,567 | $ | 8,655 | $ | 652,168 | $ | 660,823 | $ | 2,096 |
| June 30, 2020 | |||||||||||||||||||
| Delinquent Loans |
|
|
| Total |
| Total Loans | |||||||||||||
| 30-59 Days Past Due |
| 60-89 Days Past Due |
| 90 Days and Over |
| Total Past Due |
| Current |
| Portfolio Loans and Leases |
| and Leases > 90 Days Accruing | |||||||
|
|
|
|
|
| |||||||||||||||
Commercial mortgage | $ | - |
| $ | - |
| $ | 76 |
| $ | 76 |
| $ | 241,960 |
| $ | 242,036 |
| $ | - |
Commercial and industrial | - |
| - |
| 467 |
| 467 |
| 140,717 |
| 141,184 |
| 55 | |||||||
Construction and development | 40 |
| 1,586 |
| - |
| 1,626 |
| 60,746 |
| 62,372 |
| - | |||||||
Multi-family | - |
| - |
| 1,047 |
| 1,047 |
| 57,662 |
| 58,709 |
| 1,047 | |||||||
Residential mortgage | 567 |
| 507 |
| 2,261 |
| 3,335 |
| 122,811 |
| 126,146 |
| 2,133 | |||||||
Home equity | - |
| 43 |
| 45 |
| 88 |
| 6,434 |
| 6,522 |
| 45 | |||||||
Leases | 22 |
| 115 |
| 4 |
| 141 |
| 114,211 |
| 114,352 |
| 4 | |||||||
Consumer | 174 |
| 11 |
| 17 |
| 202 |
| 12,348 |
| 12,550 |
| 17 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Totals | $ | 803 |
| $ | 2,262 |
| $ | 3,917 |
| $ | 6,982 |
| $ | 756,889 |
| $ | 763,871 |
| $ | 3,301 |
| December 31, 2019 | |||||||||||||||||||
| Delinquent Loans |
|
|
| Total |
| Total Loans | |||||||||||||
| 30-59 Days Past Due |
| 60-89 Days Past Due |
| 90 Days and Over |
| Total Past Due |
| Current |
| Portfolio Loans and Leases |
| and Leases > 90 Days Accruing | |||||||
|
|
|
|
|
| |||||||||||||||
Commercial mortgage | $ | 217 |
| $ | - |
| $ | 184 |
| $ | 401 |
| $ | 229,009 |
| $ | 229,410 |
| $ | - |
Commercial and industrial | 220 |
| 1,092 |
| 438 |
| 1,750 |
| 82,799 |
| 84,549 |
| 3 | |||||||
Construction and development | - |
| 257 |
| 249 |
| 506 |
| 52,920 |
| 53,426 |
| 249 | |||||||
Multi-family | - |
| - |
| - |
| - |
| 66,002 |
| 66,002 |
| - | |||||||
Residential mortgage | 762 |
| 240 |
| 2,452 |
| 3,454 |
| 127,840 |
| 131,294 |
| 2,256 | |||||||
Home equity | 189 |
| 36 |
| 15 |
| 240 |
| 6,756 |
| 6,996 |
| 15 | |||||||
Leases | 108 |
| 29 |
| 79 |
| 216 |
| 109,376 |
| 109,592 |
| 49 | |||||||
Consumer | 271 |
| 35 |
| 15 |
| 321 |
| 13,213 |
| 13,534 |
| 15 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Totals | $ | 1,767 |
| $ | 1,689 |
| $ | 3,432 |
| $ | 6,888 |
| $ | 687,915 |
| $ | 694,803 |
| $ | 2,587 |
The following tables present the Company’s impaired loans and specific valuation allowance at SeptemberJune 30, 20192020 and December 31, 2018:
| June 30, 2020 | |||||||
|
|
| Unpaid |
|
| |||
| Recorded |
| Principal |
| Specific | |||
| Balance |
| Balance |
| Allowance | |||
|
| |||||||
Loans without a specific |
|
|
|
|
| |||
valuation allowance |
|
|
|
|
| |||
Commercial mortgage | $ | 218 |
| $ | 258 |
| $ | - |
Commercial and industrial | 412 |
| 738 |
| - | |||
Residential mortgage | 225 |
| 440 |
| - | |||
|
|
|
|
|
| |||
$ | 855 |
| $ | 1,436 |
| $ | - | |
|
|
|
|
|
| |||
Loans with a specific |
|
|
|
|
| |||
valuation allowance |
|
|
|
|
| |||
Commercial mortgage | $ | 480 |
| $ | 480 |
| $ | 1 |
Commercial and industrial |
| 205 |
|
| 214 |
|
| 201 |
|
|
|
|
|
| |||
| $ | 685 |
| $ | 694 |
| $ | 202 |
|
|
|
|
|
| |||
Total impaired loans |
|
|
|
|
| |||
Commercial mortgage | $ | 698 |
| $ | 738 |
| $ | 1 |
Commercial and industrial | 617 |
| 952 |
| 201 | |||
Residential mortgage | 225 |
| 440 |
| - | |||
|
|
|
|
|
| |||
Total impaired loans | $ | 1,540 |
| $ | 2,130 |
| $ | 202 |
September 30, 2019 | ||||||||||||
Unpaid | ||||||||||||
Recorded | Principal | Specific | ||||||||||
Balance | Balance | Allowance | ||||||||||
Loans without a specific | ||||||||||||
valuation allowance | ||||||||||||
Commercial mortgage | $ | 353 | $ | 426 | $ | - | ||||||
Commercial and industrial | 654 | 2,437 | - | |||||||||
Residential mortgage | 356 | 617 | - | |||||||||
$ | 1,363 | $ | 3,480 | $ | - | |||||||
Loans with a specific | ||||||||||||
valuation allowance | ||||||||||||
Commercial mortgage | $ | 322 | $ | 377 | $ | 300 | ||||||
Commercial and industrial | 193 | 859 | 142 | |||||||||
$ | 515 | $ | 1,236 | $ | 442 | |||||||
Total impaired loans | ||||||||||||
Commercial mortgage | $ | 675 | $ | 803 | $ | 300 | ||||||
Commercial and industrial | 847 | 3,296 | 142 | |||||||||
Residential mortgage | 356 | 617 | - | |||||||||
Total impaired loans | $ | 1,878 | $ | 4,716 | $ | 442 |
December 31, 2018 | ||||||||||||
Unpaid | ||||||||||||
Recorded | Principal | Specific | ||||||||||
Balance | Balance | Allowance | ||||||||||
Loans without a specific | ||||||||||||
valuation allowance | ||||||||||||
Commercial mortgage | $ | 397 | $ | 453 | $ | - | ||||||
Commercial and industrial | 485 | 829 | - | |||||||||
Residential mortgage | 389 | 688 | - | |||||||||
$ | 1,271 | $ | 1,970 | $ | - | |||||||
Loans with a specific | ||||||||||||
valuation allowance | ||||||||||||
Commercial mortgage | $ | 346 | $ | 387 | $ | 300 | ||||||
Commercial and industrial | 692 | 2,495 | 394 | |||||||||
$ | 1,038 | $ | 2,882 | $ | 694 | |||||||
Total impaired loans | ||||||||||||
Commercial mortgage | $ | 743 | $ | 840 | $ | 300 | ||||||
Commercial and industrial | 1,177 | 3,324 | 394 | |||||||||
Residential mortgage | 389 | 688 | - | |||||||||
Total impaired loans | $ | 2,309 | $ | 4,852 | $ | 694 |
| December 31, 2019 | |||||||
|
|
| Unpaid |
|
| |||
| Recorded |
| Principal |
| Specific | |||
| Balance |
| Balance |
| Allowance | |||
|
| |||||||
Loans without a specific |
|
|
|
|
| |||
valuation allowance |
|
|
|
|
| |||
Commercial mortgage | $ | 803 |
| $ | 1,256 |
| $ | - |
Commercial and industrial | 435 |
| 3,220 |
| - | |||
Residential mortgage | 347 |
| 614 |
| - | |||
|
|
|
|
|
| |||
$ | 1,585 |
| $ | 5,090 |
| $ | - | |
|
|
|
|
|
| |||
Loans with a specific |
|
|
|
|
| |||
valuation allowance |
|
|
|
|
| |||
Commercial and industrial | $ | 259 |
| $ | 266 |
| $ | 202 |
|
|
|
|
|
| |||
$ | 259 |
| $ | 266 |
| $ | 202 | |
|
|
|
|
|
| |||
Total impaired loans |
|
|
|
|
| |||
Commercial mortgage | $ | 803 |
| $ | 1,256 |
| $ | - |
Commercial and industrial | 694 |
| 3,486 |
| 202 | |||
Residential mortgage | 347 |
| 614 |
| - | |||
|
|
|
|
|
| |||
Total impaired loans | $ | 1,844 |
| $ | 5,356 |
| $ | 202 |
|
|
|
|
|
|
The following tables present the Company’s average investment in impaired loans and interest income recognized for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.
|
| Average |
|
| ||
|
| Investment in |
| Interest | ||
|
| Impaired |
| Income | ||
|
| Loans |
| Recognized | ||
|
| |||||
Three Months Ended June 30, 2020: |
|
|
|
| ||
Total impaired loans |
|
|
|
| ||
Commercial mortgage |
| $ | 745 |
| $ | 11 |
Commercial and industrial |
| 645 |
| 14 | ||
Residential mortgage |
| 265 |
| 1 | ||
|
|
|
|
| ||
Total impaired loans |
| $ | 1,655 |
| $ | 26 |
|
|
|
|
|
|
| Average |
|
| ||
|
| Investment in |
| Interest | ||
|
| Impaired |
| Income | ||
|
| Loans |
| Recognized | ||
|
| |||||
Six Months Ended June 30, 2020: |
|
|
|
| ||
Total impaired loans |
|
|
|
| ||
Commercial mortgage |
| $ | 765 |
| $ | 18 |
Commercial and industrial |
| 661 |
| 28 | ||
Residential mortgage |
| 292 |
| 6 | ||
|
|
|
|
| ||
Total impaired loans |
| $ | 1,718 |
| $ | 52 |
|
|
|
|
|
Average | ||||||||
Investment in | Interest | |||||||
Impaired | Income | |||||||
Loans | Recognized | |||||||
Three Months Ended September 30, 2019: | ||||||||
Total impaired loans | ||||||||
Commercial mortgage | $ | 684 | $ | 10 | ||||
Commercial and industrial | 858 | 11 | ||||||
Residential mortgage | 363 | 6 | ||||||
Total impaired loans | $ | 1,905 | $ | 27 | ||||
Nine Months Ended September 30, 2019: | ||||||||
Total impaired loans | ||||||||
Commercial mortgage | $ | 706 | $ | 32 | ||||
Commercial and industrial | 950 | 51 | ||||||
Residential mortgage | 375 | 14 | ||||||
Total impaired loans | $ | 2,031 | $ | 97 |
Average | ||||||||
Investment in | Interest | |||||||
Impaired | Income | |||||||
Loans | Recognized | |||||||
Three Months Ended September 30, 2018: | ||||||||
Total impaired loans | ||||||||
Commercial mortgage | $ | 397 | $ | 13 | ||||
Commercial and industrial | 2,345 | 26 | ||||||
Residential mortgage | 324 | 2 | ||||||
Total impaired loans | $ | 3,066 | $ | 41 | ||||
Nine Months Ended September 30, 2018: | ||||||||
Total impaired loans | ||||||||
Commercial mortgage | $ | 395 | $ | 25 | ||||
Commercial and industrial | 2,472 | 54 | ||||||
Residential mortgage | 329 | 10 | ||||||
Total impaired loans | $ | 3,196 | $ | 89 |
|
| Average |
|
| ||
|
| Investment in |
| Interest | ||
|
| Impaired |
| Income | ||
|
| Loans |
| Recognized | ||
|
| |||||
Three Months Ended June 30, 2019: |
|
|
|
| ||
Total impaired loans |
|
|
|
| ||
Commercial mortgage |
| $ | 703 |
| $ | 7 |
Commercial and industrial |
| 889 |
| 30 | ||
Residential mortgage |
| 377 |
| 4 | ||
|
|
|
|
| ||
Total impaired loans |
| $ | 1,969 |
| $ | 41 |
|
|
|
|
|
|
| Average |
|
| ||
|
| Investment in |
| Interest | ||
|
| Impaired |
| Income | ||
|
| Loans |
| Recognized | ||
|
| |||||
Six Months Ended June 30, 2019: |
|
|
|
| ||
Total impaired loans |
|
|
|
| ||
Commercial mortgage |
| $ | 716 |
| $ | 22 |
Commercial and industrial |
| 985 |
| 40 | ||
Residential mortgage |
| 381 |
| 8 | ||
|
|
|
|
| ||
Total impaired loans |
| $ | 2,082 |
| $ | 70 |
|
|
|
|
|
The following table presents the Company’s nonaccrual loans and leases at SeptemberJune 30, 20192020 and December 31, 2018:
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Commercial mortgage | $ | 674 | $ | 743 | ||||
Commercial and industrial | 848 | 1,177 | ||||||
Residential mortgage | 324 | 357 | ||||||
Leases | 102 | 202 | ||||||
$ | 1,948 | $ | 2,479 |
|
| June 30, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
|
| |||||
Commercial mortgage |
| $ | 218 |
| $ | 342 |
Commercial and industrial |
| 468 |
| 494 | ||
Residential mortgage |
| 225 |
| 315 | ||
Leases |
| 103 |
| 74 | ||
|
|
|
|
| ||
| $ | 1,014 |
| $ | 1,225 |
During the ninethree and six months ended SeptemberJune 30, 20192020 and 2018,2019, there were no newly classified troubled debt restructured loans.
The Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act") provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers are considered current under the CARES Act if they are less than 30 days past due on their contractual payments at the time a modification program is implemented.
In March 2020, the Company began offering short-term loan modifications to assist borrowers during the COVID-19 pandemic. As of June 30, 2020, the Company had approved 752 loan and lease modifications related to the COVID-19 pandemic with an outstanding loan balance totaling $175.1 million in accordance with the CARES Act. Accordingly, the Company does not account for such loan modifications as TDRs. Loan modifications in accordance with the CARES Act and related regulatory guidance are still subject to an evaluation in regard to determining whether or not a loan is deemed to be impaired.
At June 30, 2020 and December 31, 2019, the balance of real estate owned includes $109,000$32,000 and $176,000,$0, respectively, of foreclosed residential real estate properties recorded as a result of obtaining physical possession of the property. At SeptemberJune 30, 20192020 and December 31, 2018,2019, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceeds were in process was $251,000$283,000 and $342,000,$190,000, respectively.
The following lists the components of the net investment in direct financing leases:
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Total minimum lease payments to be received | $ | 118,269 | $ | 118,752 | ||||
Initial direct costs | 5,314 | 5,459 | ||||||
123,583 | 124,211 | |||||||
Less: Unearned income | (16,234 | ) | (16,476 | ) | ||||
Net investment in direct financing leases | $ | 107,349 | $ | 107,735 |
|
| June 30, |
|
| December 31, |
| ||
|
| 2020 |
|
| 2019 |
| ||
|
|
|
| |||||
Total minimum lease payments to be received |
| $ | 127,851 |
|
| $ | 120,570 |
|
Initial direct costs |
| 4,425 |
|
| 5,720 |
| ||
| 132,276 |
|
| 126,290 |
| |||
Less: Unearned income |
| (17,924 | ) |
| (16,698 | ) | ||
|
|
|
|
|
|
| ||
Net investment in direct finance leases |
| $ | 114,352 |
|
| $ | 109,592 |
|
|
|
|
|
|
|
|
The amount of leases serviced by First Bank Richmond for the benefit of others was approximately $1.5 million$336,000 and $2.8 million$715,000 at SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively. Additionally, certain leases have been sold with partial recourse. First Bank Richmond estimates and records its obligation based upon historical loss percentages. At SeptemberJune 30, 20192020 and December 31, 2018,2019, First Bank Richmond has recorded a recourse obligation on leases sold with recourse of $0, and has a maximum exposure of $851,000 and $875,000, respectively,$411,000 for these leases.
The following table summarizes the future minimum lease payments receivable subsequent to SeptemberJune 30, 2019:
| ||
2020 | $ | 25,648 |
2021 | 43,071 | |
2022 | 29,713 | |
2023 | 18,018 | |
2024 | 9,201 | |
Thereafter | 2,200 | |
|
| |
$ | 127,851 | |
|
|
2019 | $ | 12,577 | ||
2020 | 42,946 | |||
2021 | 31,556 | |||
2022 | 19,196 | |||
2023 | 9,361 | |||
Thereafter | 2,633 | |||
$ | 118,269 |
Note 5: Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:
Level 1
Quoted prices in active markets for identical assets or liabilitiesLevel 2Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3Unobservable inputs supported by little or no market activity that are significant to the fair value of the assets or liabilities
Recurring Measurements
The following tables present the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at SeptemberJune 30, 20192020 and December 31, 2018:
|
|
| Fair Value Measurements Using | ||||||||
|
|
| Quoted Prices |
|
|
|
| ||||
|
|
| in Active |
| Significant |
|
| ||||
|
|
| Markets for |
| Other |
| Significant | ||||
|
|
| Identical |
| Observable |
| Unobservable | ||||
| Fair |
| Assets |
| Inputs |
| Inputs | ||||
| Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
|
|
| |||||||||
June 30, 2020 |
|
|
|
|
|
|
| ||||
Available-for-sale securities |
|
|
|
|
|
|
| ||||
SBA Pools | $ | 22,771 |
| $ | - |
| $ | 22,771 |
| $ | - |
Federal agencies | 7,519 |
| - |
| 7,519 |
| - | ||||
State and municipal obligations | 62,197 |
| - |
| 62,197 |
| - | ||||
Mortgage-backed securities - |
|
|
|
|
|
|
| ||||
GSE residential | 128,704 |
| - |
| 128,704 |
| - | ||||
Equity securities | 13 |
| 13 |
| - |
| - | ||||
|
|
|
|
|
|
|
| ||||
$ | 221,204 |
| $ | 13 |
| $ | 221,191 |
| $ | - | |
|
|
|
|
|
|
|
|
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Fair | Assets | Inputs | Inputs | |||||||||||||
Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
September 30, 2019 | ||||||||||||||||
Available-for-sale securities | ||||||||||||||||
U.S. Treasury securities | $ | 4,995 | $ | - | $ | 4,995 | $ | - | ||||||||
SBA Pools | 11,896 | - | 11,896 | - | ||||||||||||
Federal agencies | 26,129 | - | 26,129 | - | ||||||||||||
State and municipal obligations | 33,891 | - | 33,891 | - | ||||||||||||
Mortgage-backed securities -GSE residential | 91,366 | - | 91,366 | - | ||||||||||||
Equity securities | 13 | 13 | - | - | ||||||||||||
$ | 168,290 | $ | 13 | $ | 168,277 | $ | - |
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Fair | Assets | Inputs | Inputs | |||||||||||||
Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
December 31, 2018 | ||||||||||||||||
Available-for-sale securities | ||||||||||||||||
Federal agencies | $ | 38,010 | $ | - | $ | 38,010 | $ | - | ||||||||
State and municipal obligations | 29,789 | - | 29,789 | - | ||||||||||||
Mortgage-backed securities -GSE residential | 54,670 | - | 54,670 | - | ||||||||||||
Equity securities | 13 | 13 | - | - | ||||||||||||
$ | 122,482 | $ | 13 | $ | 122,469 | $ | - |
|
|
| Fair Value Measurements Using | ||||||||
|
|
| Quoted Prices |
|
|
|
| ||||
|
|
| in Active |
| Significant |
|
| ||||
|
|
| Markets for |
| Other |
| Significant | ||||
|
|
| Identical |
| Observable |
| Unobservable | ||||
| Fair |
| Assets |
| Inputs |
| Inputs | ||||
| Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
|
|
| |||||||||
December 31, 2019 |
|
|
|
|
|
|
| ||||
Available-for-sale securities |
|
|
|
|
|
|
| ||||
U.S. Treasury securities | $ | 2,991 |
| $ | - |
| $ | 2,991 |
| $ | - |
SBA Pools | 14,383 |
| - |
| 14,383 |
| - | ||||
Federal agencies | 21,646 |
| - |
| 21,646 |
| - | ||||
State and municipal obligations | 45,840 |
| - |
| 45,840 |
| - | ||||
Mortgage-backed securities - |
|
|
|
|
|
|
| ||||
GSE residential | 116,911 |
| - |
| 116,911 |
| - | ||||
Equity securities | 13 |
| 13 |
| - |
| - | ||||
|
|
|
|
|
|
|
| ||||
$ | 201,784 |
| $ | 13 |
| $ | 201,771 |
| $ | - |
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the three and ninesix months ended SeptemberJune 30, 2019.
Available-for-Sale Securities
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy, which includes equity securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include agency securities, obligations of state and political subdivisions, and mortgage-backed securities. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.
Nonrecurring Measurements
The following table presents the fair value measurement of assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at SeptemberJune 30, 20192020 and December 31, 2018:
|
|
| Fair Value Measurements Using | ||||||||
|
|
| Quoted Prices |
|
|
|
| ||||
|
|
| in Active |
| Significant |
|
| ||||
|
|
| Markets for |
| Other |
| Significant | ||||
|
|
| Identical |
| Observable |
| Unobservable | ||||
| Fair |
| Assets |
| Inputs |
| Inputs | ||||
| Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
|
|
| |||||||||
June 30, 2020 |
|
|
|
|
|
|
| ||||
Impaired loans, collateral dependent | $ | 483 |
| $ | - |
| $ | - |
| $ | 483 |
Mortgage-servicing rights | 1,405 |
| - |
| - |
| 1,405 | ||||
|
|
|
|
|
|
|
| ||||
December 31, 2019 |
|
|
|
|
|
|
| ||||
Impaired loans, collateral dependent | $ | 57 |
| $ | - |
| $ | - |
| $ | 57 |
Mortgage-servicing rights | 1,033 |
| - |
| - |
| 1,033 |
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Fair | Assets | Inputs | Inputs | |||||||||||||
Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
September 30, 2019 | ||||||||||||||||
Impaired loans, collateral dependent | $ | 257 | $ | - | $ | - | $ | 257 | ||||||||
December 31, 2018 | ||||||||||||||||
Impaired loans, collateral dependent | $ | 344 | $ | - | $ | - | $ | 344 | ||||||||
Mortgage-servicing rights | 1,227 | - | - | 1,227 |
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.
Collateral-Dependent Impaired Loans, Net of ALLL
The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.
The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by management. Appraisals are reviewed for accuracy and consistency by management. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by management by comparison to historical results.
Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.
Mortgage-Servicing Rights
Mortgage-servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models having significant inputs of discount rate, prepayment speed and default rate. Due to the nature of the valuation inputs, mortgage-servicing rights are classified within Level 3 of the hierarchy.
Mortgage-servicing rights are tested for impairment on a quarterly basis based on an independent valuation. The valuation is reviewed by management for accuracy and for potential impairment.
Unobservable (Level 3) Inputs
The following tables present the fair value measurement of assets recognized in the accompanying consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at SeptemberJune 30, 20192020 and December 31, 2018:
| Fair Value at |
|
|
|
|
|
| |
| June 30, |
| Valuation |
| Unobservable |
|
| |
| 2020 |
| Technique |
| Inputs |
| Range | |
|
|
| ||||||
Collateral-dependent | $ | 483 |
| Appraisal |
| Marketability |
| 0% - 11% |
impaired loans |
|
|
|
| discount |
|
| |
|
|
|
|
|
|
|
| |
Mortgage-servicing rights | $ | 1,405 |
| Discounted |
| Discount rate |
| 10% |
|
|
| cash flow |
|
|
|
|
| Fair Value at |
|
|
|
|
|
| |
| December 31, |
| Valuation |
| Unobservable |
|
| |
| 2019 |
| Technique |
| Inputs |
| Range | |
|
|
| ||||||
Collateral-dependent | $ | 57 |
| Appraisal |
| Marketability |
| 0% - 75% |
impaired loans |
|
|
|
| discount |
|
| |
|
|
|
|
|
|
|
| |
Mortgage-servicing rights | $ | 1,033 |
| Discounted |
| Discount rate |
| 10% |
|
|
| cash flow |
|
|
|
| |
|
|
|
|
|
|
|
|
Fair Value at | |||||||||||
September 30, | Valuation | Unobservable | |||||||||
2019 | Technique | Inputs | Range | ||||||||
Collateral-dependent | $ | 257 | Appraisal | Marketability | 0% - 14 | % | |||||
impaired loans | discount | ||||||||||
Fair Value at | |||||||||||
December 31, | Valuation | Unobservable | |||||||||
2018 | Technique | Inputs | Range | ||||||||
Collateral-dependent | $ | 344 | Appraisal | Marketability | 0% - 70 | % | |||||
impaired loans | discount | ||||||||||
Mortgage-servicing rights | $ | 1,227 | Discounted | Discount rate | 10 | % | |||||
cash flow | Prepayment Speed | 1% - 56 | % | ||||||||
Fair Value of Financial Instruments
The following tables present estimated fair values of the Company’s financial instruments at SeptemberJune 30, 20192020 and December 31, 2018.
|
|
| Fair Value Measurements Using | ||||||||
|
|
| Quoted Prices |
|
|
|
| ||||
|
|
| in Active |
| Significant |
|
| ||||
|
|
| Markets for |
| Other |
| Significant | ||||
|
|
| Identical |
| Observable |
| Unobservable | ||||
| Carrying |
| Assets |
| Inputs |
| Inputs | ||||
| Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
June 30, 2020 |
|
|
| ||||||||
Financial assets |
|
|
|
|
|
|
| ||||
Cash and cash equivalents | $ | 110,606 |
| $ | 110,606 |
| $ | - |
| $ | - |
Available-for-sale securities | 221,204 |
| 13 |
| 221,191 |
| - | ||||
Held-to-maturity securities | 13,320 |
| - |
| 13,664 |
| - | ||||
Loans and leases receivable, net | 752,923 |
| - |
| - |
| 762,060 | ||||
Federal Reserve and FHLB stock | 9,080 |
| - |
| 9,080 |
| - | ||||
Interest receivable | 4,721 |
| - |
| 4,721 |
| - | ||||
|
|
|
|
|
|
|
| ||||
Financial liabilities |
|
|
|
|
|
|
| ||||
Deposits | 739,131 |
| - |
| 742,215 |
| - | ||||
FHLB advances | 180,000 |
| - |
| 187,403 |
| - | ||||
Interest payable | 348 |
| - |
| 348 |
| - |
|
|
| Fair Value Measurements Using | ||||||||
|
|
| Quoted Prices |
|
|
|
| ||||
|
|
| in Active |
| Significant |
|
| ||||
|
|
| Markets for |
| Other |
| Significant | ||||
|
|
| Identical |
| Observable |
| Unobservable | ||||
| Carrying |
| Assets |
| Inputs |
| Inputs | ||||
| Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
December 31, 2019 |
|
|
| ||||||||
Financial assets |
|
|
|
|
|
|
| ||||
Cash and cash equivalents | $ | 40,597 |
| $ | 40,597 |
| $ | - |
| $ | - |
Available-for-sale securities | 201,784 |
| 13 |
| 201,771 |
| - | ||||
Held-to-maturity securities | 15,917 |
| - |
| 16,156 |
| - | ||||
Loans and leases receivable, net | 687,258 |
| - |
| - |
| 687,789 | ||||
Federal Reserve and FHLB stock | 7,600 |
| - |
| 7,600 |
| - | ||||
Interest receivable | 3,052 |
| - |
| 3,052 |
| - | ||||
|
|
|
|
|
|
|
| ||||
Financial liabilities |
|
|
|
|
|
|
| ||||
Deposits | 617,219 |
| - |
| 619,635 |
| - | ||||
FHLB advances | 154,000 |
| - |
| 155,304 |
| - | ||||
Interest payable | 297 |
| - |
| 297 |
| - | ||||
|
|
|
|
|
|
|
|
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Carrying | Assets | Inputs | Inputs | |||||||||||||
Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
September 30, 2019 | ||||||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | 41,377 | $ | 41,377 | $ | - | $ | - | ||||||||
Available-for-sale securities | 168,290 | 13 | 168,277 | - | ||||||||||||
Held-to-maturity securities | 16,729 | - | 16,957 | - | ||||||||||||
Loans and leases receivable, net | 694,745 | - | - | 689,087 | ||||||||||||
Federal Reserve and FHLB stock | 7,600 | - | 7,600 | - | ||||||||||||
Interest receivable | 2,800 | - | 2,800 | - | ||||||||||||
Financial liabilities | ||||||||||||||||
Deposits | 607,808 | - | 609,754 | - | ||||||||||||
FHLB advances | 141,000 | - | 140,495 | - | ||||||||||||
Interest payable | 554 | - | 554 | - |
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Carrying | Assets | Inputs | Inputs | |||||||||||||
Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
December 31, 2018 | ||||||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | 14,971 | $ | 14,971 | $ | - | $ | - | ||||||||
Available-for-sale securities | 122,482 | 13 | 122,469 | - | ||||||||||||
Held-to-maturity securities | 21,080 | - | 23,653 | - | ||||||||||||
Loans and leases receivable, net | 654,755 | - | - | 643,572 | ||||||||||||
Federal Reserve and FHLB stock | 6,561 | - | 6,561 | - | ||||||||||||
Interest receivable | 2,686 | - | 2,686 | - | ||||||||||||
Financial liabilities | ||||||||||||||||
Deposits | 620,637 | - | 620,380 | - | ||||||||||||
FHLB advances | 136,100 | - | 133,141 | - | ||||||||||||
Interest payable | 551 | - | 551 | - |
Note 6: Earnings per Share
Basic EPS is computed by dividing net income allocated to common stock by the weighted average number of common shares outstanding during the period which excludes the participating securities. Diluted EPS includes the dilutive effect of additional potential common shares from stock compensation awards, but excludes awards considered participating securities. ESOP shares are not considered outstanding for EPS until they are earned. The following table presents the computation of basic and diluted EPS for the periods indicated (in thousands, except for share and per share data):
For the Period | ||||
July 2, 2019 to | ||||
September 30, 2019 | ||||
Net income (loss) | $ | (3,250,335 | ) | |
Shares outstanding for Basic EPS: | ||||
Average shares outstanding | 13,526,625 | |||
Less: average unearned ESOP Shares | 1,052,804 | |||
Shares outstanding for Basic EPS | 12,473,821 | |||
Additional Dilutive Shares | - | |||
Shares outstanding for Diluted EPS | 12,473,821 | |||
Basic Earnings (Loss) Per Share | $ | (0.26 | ) | |
Diluted Earnings (Loss) Per Share | $ | (0.26 | ) |
| Three Months Ended |
| Six Months Ended | ||
| June 30, 2020 |
| June 30, 2020 | ||
| |||||
Net income | $ | 2,506 |
| $ | 4,958 |
Shares outstanding for Basic EPS: |
|
|
| ||
Average shares outstanding | 13,526,625 |
| 13,526,625 | ||
Less: average unearned ESOP Shares | 1,045,892 |
| 1,052,656 | ||
Shares outstanding for Basic EPS | 12,480,733 |
| 12,473,969 | ||
|
|
|
| ||
Additional Dilutive Shares | - |
| - | ||
|
|
|
| ||
Shares outstanding for Diluted EPS | 12,480,733 |
| 12,473,969 | ||
|
|
|
| ||
|
|
|
| ||
Basic Earnings Per Share | $ | 0.20 |
| $ | 0.40 |
Diluted Earnings Per Share | $ | 0.20 |
| $ | 0.40 |
Note 7: Employee Stock Ownership Plan
As part of the corporate reorganization and related stock offering, the Company established an Employee Stock Ownership Plan (ESOP) covering substantially all employees. The ESOP acquired 1,082,130 shares of Company common stock at an average of $13.59 per share on the open market with funds provided by a loan from the Company. Accordingly, $14,706,000 of common stock acquired by the ESOP was shown as a reduction of stockholders’ equity. Shares are released to participants proportionately as the loan is repaid.
ESOP expense for the three and six months ended SeptemberJune 30, 20192020 was $121,000.
| June 30, 2020 | |
Earned ESOP shares | 49,598 | |
Unearned ESOP shares | 1,032,532 | |
Total ESOP shares | 1,082,130 | |
|
| |
Quoted per share price | $ | 11.24 |
Fair value of earned shares | $ | 557 |
Fair value of unearned shares | $ | 11,606 |
Note 8: Subsequent Event
On July 8, 2020, the Company announced that its Board of Directors authorized a stock repurchase program for up to 676,331 shares, or approximately 5% of its currently outstanding shares.
September 30, 2019 | ||||
Earned ESOP shares | 9,018 | |||
Unearned ESOP shares | 1,073,112 | |||
Total ESOP shares | 1,082,130 | |||
Quoted per share price | $ | 13.99 | ||
Fair value of earned shares | $ | 126,162 | ||
Fair value of unearned shares | $ | 15,012,837 |
General
Management’s discussion and analysis of financial condition of the Richmond Mutual Bancorporation, Inc. (the “Company”) at June 30, 2020, and the consolidated results of operations at September 30, 2019 and for the three and nine monthssix month periods ended SeptemberJune 30, 2020, compared to the same periods in 2019 and 2018 is intended to assist in understanding ourthe financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto appearing in Part I, Item 1, of this Form 10-Q.
The terms “we,” “our,” “us,” or the “Company” refer to Richmond Mutual Bancorporation, Inc. and its consolidated subsidiary, First Bank Richmond, which we sometimes refer to as the “Bank,” unless the context otherwise requires.
Certain matters in this Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and are generally identified by use of words such as “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would,” and “could.” These forward-looking statements include, but are not limited to:
·statements of our goals, intentions and expectations;
·statements regarding our business plans, prospects, growth and operating strategies;
·statements regarding the quality of our loan and investment portfolios; and
·estimates of our risks and future costs and benefits.
You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These forward-looking statements are based on our current beliefs and expectations and, by their nature, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
Important factors that could cause our actual results to differ materially from the results anticipated or projected, include, but are not limited to, the following:
·the effect of the novel coronavirus disease of 2019 (“COVID-19”), including on the Company’ credit quality and business operations, as well as its impact on general economic and financial market conditions and other uncertainties resulting from the COVID-19 pandemic, such as the extent and duration of the impact on public health, the U.S. and global economies, and consumer and corporate clients, including economic activity, employment levels and market liquidity;
·general economic conditions, either nationally or in our market areas, that are worse than expected;
·changes in the level and direction of loan or lease delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan and lease losses;
·our ability to access cost-effective funding;
·fluctuations in real estate values and both residential and commercial real estate market conditions;
·risks associated with the relatively unseasoned nature of a significant portion of our loan portfolio;
·demand for loans and deposits in our market area;
·our ability to implement and change our business strategies;
·competition among depository and other financial institutions and equipment financing companies;
·the impact of the proposed termination of our defined benefit plan;
·the deductibility of our contribution to the charitable foundation for tax purposes;
·inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans and leases we have made and make;
·adverse changes in the securities or secondary mortgage markets;
·changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements, including as a result of Basel III;
·changes in the quality or composition of our loan, lease or investment portfolios;
·technological changes that may be more difficult or expensive than expected;
·the inability of third-party providers to perform as expected;
·our ability to manage market risk, credit risk and operational risk in the current economic environment;
·our ability to enter new markets successfully and capitalize on growth opportunities;
·our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;
·changes in consumer spending, borrowing and savings habits;
·changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
·our ability to retain key employees;
·our compensation expense associated with equity allocated or awarded to our employees;
·changes in the financial condition, results of operations or future prospects of issuers of securities that we own.
·other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services including the Coronavirus Aid, Relief, and Economic Security Act of 2020 ("CARES Act") ; and
·the other risks detailed in this report and from time to time in our other filings with the Securities and Exchange Commission ("SEC"), including our Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Form 10-K”).
We undertake no obligation to publicly update or revise any forward-looking statements included in this report or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed in this report might not occur and you should not put undue reliance on any forward-looking statements.
Overview
On February 6, 2019, the Board of Directors of First Mutual of Richmond, Inc. (the “MHC”), the parent mutual holding company of Richmond Mutual Bancorporation-Delaware, adopted a Plan of Reorganization and Stock Offering (the “Plan”). The Plan was approved by the Board of Governors of the Federal Reserve System (the “FRB”) and by the Indiana Department of Financial Institutions (the “IDFI”), as well as the voting members of the MHC at a special meeting of members held on June 19, 2019. Pursuant to the Plan, upon completion of the transaction, the MHC would convert from a mutual holding company to the stock holding company corporate structure, the MHC and Richmond Mutual Bancorporation-Delaware would cease to exist, and First Bank Richmond would become a wholly owned subsidiary of Richmond Mutual Bancorporation-Maryland,the Company, a newly formed Maryland corporation. The transaction was completed on July 1, 2019. In connection with the related stock offering, which was also completed on July 1, 2019, Richmond Mutual Bancorporation-Marylandthe Company sold 13,026,625 shares of common stock at $10.00 per share, for gross offering proceeds of approximately $130.3 million in its subscription offering and contributed 500,000 shares and $1.25 million to a newly formed charitable foundation, First Bank Richmond, Inc. Community Foundation (the “Foundation”).
In certain circumstances, where appropriate, the terms “we”, “us”, “our” and the “Company” refer collectively to (i) RMB-Delaware and First Bank Richmond with respect to discussions in this document involving matters occurring prior to completion of the corporate reorganization and (ii) the Company and First Bank Richmond with respect to discussions in this document involving matters occurring post-corporate reorganization, in each case unless the context indicates another meaning.
The Company is regulated by the FRB and the IDFI. Our corporate office is located at 31 North 9th Street, Richmond, Indiana, and our telephone number is (765) 962-2581.
First Bank Richmond is an Indiana state-chartered commercial bank headquartered in Richmond, Indiana. The bankBank was originally established in 1887 as an Indiana state-chartered mutual savings and loan association and in 1935 converted to a federal mutual savings and loan association, operating under the name First Federal Savings and Loan Association of Richmond. In 1993, the bankBank converted to a state-chartered mutual savings bank and changed its name to First Bank Richmond, S.B. In 1998, the bank,Bank, in connection with its non-stock mutual holding company reorganization, converted to a national bank charter operating as First Bank Richmond, National Association. In July 2007, Richmond Mutual Bancorporation-Delaware, the bank’sBank’s then current holding company, acquired Mutual Federal Savings Bank headquartered in Sidney, Ohio. Mutual Federal Savings Bank was operated independently as a separately chartered, wholly owned subsidiary of Richmond Mutual Bancorporation-Delaware until 2016 when it was combined with the bank through an internal merger transaction that consolidated both banks into a single, more efficient commercial bank charter. In 2017, the bankBank converted to an Indiana state-chartered commercial bank and changed its name to First Bank Richmond. Mutual Federal Savings Bank continues to operate in Ohio under the name Mutual Federal, a division of First Bank Richmond.
First Bank Richmond provides full banking services through its seven full- and one limited-service offices located in Cambridge City (1), Centerville (1), Richmond (5) and Shelbyville (1), Indiana, its five full service offices located in Piqua (2), Sidney (2) and Troy (1), Ohio, and its loan production office in Columbus, Ohio. Administrative, trust and wealth management services are conducted through First Bank Richmond’s Corporate Office/Financial Center located in Richmond, Indiana. As an Indiana-chartered commercial bank, First Bank Richmond is subject to regulation by the IDFI and the Federal Deposit Insurance Corporation (“FDIC”).
Our principal business consists of attracting deposits from the general public, as well as brokered deposits, and investing those funds primarily in loans secured by commercial and multi-family real estate, first mortgages on owner-occupied, one- to four-family residences, a variety of consumer loans, direct financing leases and commercial and industrial loans. We also obtain funds by utilizing Federal Home Loan Bank (“FHLB”) advances. Funds not invested in loans generally are invested in investment securities, including mortgage-backed and mortgage-related securities and agency and municipal bonds.
First Bank Richmond generates commercial, mortgage and consumer loans and leases and receives deposits from customers located primarily in Wayne and Shelby Counties, in Indiana and Shelby, Miami and Franklin (no deposits) Counties, in Ohio. We sometimes refer to these counties as our primary market area. First Bank Richmond’s loans are generally secured by specific items of collateral including real property, consumer assets and business assets. Our leasing operation consists of direct investments in equipment that we lease (referred to as direct finance leases) to small businesses located throughout the United States. Our lease portfolio consists of various kinds of equipment, generally technology-related, such as computer systems, medical equipment and general manufacturing, industrial, construction and transportation equipment. We seek leasing transactions where we believe the equipment leased is integral to the lessee's business. We also provide trust and wealth management services, including serving as executor and trustee under wills and deeds and as guardian and custodian of employee benefits, and manage private investment accounts for individuals and institutions. Total wealth management assets under management and administration were $138.2$167.0 million at SeptemberJune 30, 2019.
Our results of operations are primarily dependent on net interest income. Net interest income is the difference between interest income, which is the income that is earned on loans and investments, and interest expense, which is the interest that is paid on deposits and borrowings. Other significant sources of pre-tax income are service charges (mostly from service charges on deposit accounts and loan servicing fees), and fees from sale of residential mortgage loans originated for sale in the secondary market. We also recognize income from the sale of investment securities.
Changes in market interest rates, the slope of the yield curve, and interest we earn on interest earning assets or pay on interest bearing liabilities, as well as the volume and types of interest earning assets, interest bearing and noninterest bearing liabilities and shareholders’ equity, usually have the largest impact on changes in our net interest spread, net interest margin and net interest income during a reporting period. Because the length of the COVID-19 pandemic and the efficacy of the extraordinary measures being put in place to address its economic consequences are unknown, including the recent 150 basis point reduction in the targeted federal funds rate, until the pandemic subsides, the Company expects its net interest income and net interest margin will be adversely affected in 2020 and possibly longer.
At SeptemberJune 30, 2019,2020, on a consolidated basis, we had $956.2 million$1.1 billion in assets, $694.7$752.9 million in loans and leases, net of allowance, $607.8$739.1 million in deposits and $200.4$196.1 million in stockholders’ equity. At SeptemberJune 30, 2019,2020, First Bank Richmond’s total risk-based capital ratio was 21.5%13.4%, exceeding the 10.0% requirement for a well-capitalized institution. For the three and ninesix months ended SeptemberJune 30, 2019, we incurred a2020, net loss of $3.3 million and $1.5income was $5.0 million, compared with net income of $1.6 million and $4.2$1.7 million for the three and ninesix months ended SeptemberJune 30, 2018, respectively. Our earnings for the three months ended September 31, 2019 were impacted by a one-time $6.25 million contribution to our Foundation created as part of our reorganization to a public company. Our earnings for the nine months ended September 31, 2019 were impacted by the $6.25 million contribution to the Foundation discussed in the previous sentence as well as the adoption of a nonqualified deferred compensation plan in the second quarter of 2019 at a cost of $1.7 million.
Critical Accounting Policies
Certain accounting policies are important to the portrayal of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Management believes that its critical accounting policies include determining the allowance for loan and lease losses, the valuation of foreclosed assets, mortgage servicing rights, valuation of intangible assets and securities, deferred tax asset and income tax accounting.
Allowance for Loan and Lease Losses.
We maintain an allowance for loan and lease losses to cover probable incurred credit losses at the balance sheet date. Loan and lease losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged-off. A provision for loan and lease losses is charged to operations based on our periodic evaluation of the necessary allowance balance.We have an established process to determine the adequacy of the allowance for loan and lease losses. The determination of the allowance is inherently subjective, as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on other classified loans and pools of homogeneous loans, and consideration of past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors, all of which may be susceptible to significant change.
Foreclosed Assets.
Foreclosed assets are carried at the lower of cost or fair value less estimated selling costs. Management estimates the fair value of the properties based on current appraisal information. Fair value estimates are particularly susceptible to significant changes in the economic environment, market conditions and real estate market. A worsening or protracted economic decline would increase the likelihood of a decline in property values and could create the need to write down the properties through current operations.Mortgage Servicing Rights (“MSRs”).
MSRs associated with loans originated and sold, where servicing is retained, are capitalized and included in the consolidated balance sheet. The value of the capitalized servicing rights represents the fair value of the right to service loans in the portfolio. Critical accounting policies for MSRs relate to the initial valuation and subsequent impairment tests. The methodology used to determine the valuation of MSRs requires the development and use of a number of estimates, including anticipated principal amortization and prepayments of that principal balance. Events that may significantly affect the estimates used are changes in interest rates, mortgage loan prepayment speeds and the payment performance of the underlying loans. The carrying value of the MSRs is periodically reviewed for impairment based on a determination of fair value. For purposes of measuring impairment, the servicing rights are compared to a valuation prepared based on a discounted cash flow methodology, utilizing current prepayment speeds and discount rates. Impairment, if any, is recognized through a valuation allowance and is recorded as a reduction in loan servicing fee income.Securities.
Under Financial Accounting Standards Board (“FASB”) Codification Topic 320 (ASC 320), Investments-Debt, investment securities must be classified as held to maturity, available for sale or trading. Management determines the appropriate classification at the time of purchase. The classification of securities is significant since it directly impacts the accounting for unrealized gains and losses on securities. Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and we have the ability to hold the securities to maturity. Securities not classified as held to maturity are classified as available for sale and are carried at fair value, with the unrealized holding gains and losses, net of tax, reported in other comprehensive income and which do not affect earnings until realized.The fair values of our securities are generally determined by reference to quoted prices from reliable independent sources utilizing observable inputs. Certain of our fair values of securities are determined using models whose significant value drivers or assumptions are unobservable and are significant to the fair value of the securities. These models are utilized when quoted prices are not available for certain securities or in markets where trading activity has slowed or ceased. When quoted prices are not available and are not provided by third party pricing services, management judgment is necessary to determine fair value. As such, fair value is determined using discounted cash flow analysis models, incorporating default rates, estimation of prepayment characteristics and implied volatilities.
We evaluate all securities on a quarterly basis, and more frequently when economic conditions warrant additional evaluations, for determining if any other-than-temporary-impairments (“OTTI”) exist pursuant to guidelines established in ASC 320. In evaluating the possible impairment of securities, consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and our ability and intent to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s financial condition, we may consider whether the securities are issued by the federal government or its agencies or government sponsored agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.
If management determines that an investment experienced an OTTI, we must then determine the amount of the OTTI to be recognized in earnings. If we do not intend to sell the security and it is more likely than not that we will not be required to sell the security before recovery of its amortized cost basis less any current period loss, the OTTI will be separated into the amount representing the credit loss and the amount related to all other factors. The amount of OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the OTTI related to other factors will be recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings will become the new amortized cost basis of the investment. If management intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current period credit loss, the OTTI will be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. Any recoveries related to the value of these securities are recorded as an unrealized gain (as accumulated other comprehensive income (loss) in stockholders’ equity) and not recognized in income until the security is ultimately sold.
From time to time we may dispose of an impaired security in response to asset/liability management decisions, future market movements, business plan changes, or if the net proceeds can be reinvested at a rate of return that is expected to recover the loss within a reasonable period of time.
Deferred Tax Asset.
We have evaluated our deferred tax asset to determine if it is more likely than not that the asset will be utilized in the future. Our most recent evaluation has determined that we will more likely than not be able to utilize our remaining deferred tax asset.Income Tax Accounting.
We file a consolidated federal income tax return. The provision for income taxes is based upon income in our consolidated financial statements, rather than amounts reported on our income tax return. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on our deferred tax assets and liabilities is recognized as income or expense in the period that includes the enactment date.COVID 19 Response
In response to the COVID-19 pandemic, the Company is offering a number of options designed to support our customers and the communities that we serve.
Paycheck Protection Program ("PPP"). The Coronavirus Aid, Relief and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new loan program called the Paycheck Protection Program, or PPP. The goal of the PPP is to avoid as many layoffs as possible, and to encourage small businesses to maintain payrolls. As a qualified SBA lender, the Company was automatically authorized to originate PPP loans upon commencement of the program in April 2020. PPP loans have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be forgiven and repaid by the SBA. The deadline for PPP loan applications to the SBA has been extended to August 8, 2020. The Bank continued to accept new PPP applications based on this extended
deadline and is assisting small businesses with other borrowing options as they become available, including SBA and other government sponsored lending programs, as appropriate.
As of June 30, 2020, we have processed 465 PPP loans totaling $64.3 million. There were $72,000 PPP loans approved awaiting funding as of June 30, 2020. Many of the PPP applications have been from our existing clients but we are also serving those who have not had a banking relationship with us in the past. In addition to the 1% interest earned on these loans, the SBA pays us fees for processing PPP loans in the following amounts: (i) five (5) percent for loans of not more than $350,000; (ii) three (3) percent for loans of more than $350,000 and less than $2,000,000; and one (1) percent for loans of at least $2,000,000. We may not collect any fees from the loan applicants.
We may utilize the FRB's Paycheck Protection Program Liquidity Facility (“PPPLF”), pursuant to which the Company would pledge its PPP loans as collateral to obtain FRB non-recourse loans. The PPPLF will take the PPP loans as collateral at face value. As of June 30,2020, we had not utilized the PPPLF.
Loan Modifications.Beginning in March 2020 we started receiving requests from our borrowers for loan and lease deferrals related to the effects of the COVID-19 pandemic. At June 30, 2020, 752 loans aggregating $175.1 million, or 22.9% of total loans and leases, were modified. Modifications include payment deferrals, interest only or principal and interest, of up to primarily 90 days, fee waivers, extensions of repayment terms of up to six months, or other delays in payment that are considered insignificant. These modifications were not classified as TDRs at June 30, 2020 in accordance with the guidance of the CARES Act and related regulatory banking guidance. The CARES Act provides that the short-term modification of loans as a result of the COVID-19 pandemic, made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers are considered current under the CARES Act and related regulatory banking guidance if they are less than 30 days past due on their contractual payments at the time a modification program is implemented. All loans modified due to COVID-19 will be separately monitored and any request for continuation of relief beyond the initial modification will be reassessed at that time to determine if a further modification should be granted and if a downgrade in risk rating is appropriate. We believe the steps we are taking are necessary to effectively manage our portfolio and assist our clients through the ongoing uncertainty surrounding the duration, impact and government response to the COVID-19 pandemic.
The following table summarizes information relating to forbearance requests granted at June 30, 2020 and March 31, 2020:
|
| June 30, 2020 |
| March 31, 2020 | ||||||
($ in thousands) |
| Number of Loans |
| Balance |
| Number of Loans |
| Balance | ||
Commercial mortgage |
| 70 |
| $ | 98,010 |
| 21 |
| $ | 27,050 |
Commercial and industrial |
| 27 |
| 12,692 |
| 10 |
| 1,730 | ||
Construction and development |
| 3 |
| 10,098 |
| — |
| — | ||
Multi-Family |
| 13 |
| 21,197 |
| 5 |
| 4,465 | ||
Residential mortgage |
| 88 |
| 11,198 |
| 8 |
| 1,379 | ||
Home equity |
| 7 |
| 215 |
| — |
| — | ||
Direct financing leases |
| 507 |
| 21,080 |
| 176 |
| 8,058 | ||
Consumer |
| 37 |
| 597 |
| — |
| — | ||
Total Loans |
| 752 |
| $ | 175,087 |
| 220 |
| $ | 42,682 |
|
|
|
|
|
|
|
|
|
|
|
Branch Operations and Additional Client Support
Many of our employees continue to work remotely or have flexible work schedules, and we have established protective measures within our offices to help ensure the safety of those employees who must work on-site. We have also taken steps to resume more normal branch activities with specific guidelines in place to ensure the safety of our clients and our personnel. This includes the installation of counter shields and hand sanitizing stations, limiting the number of clients in a branch at any one time, requiring social distancing and the wearing of masks within the branch, diligent disinfecting of common area high touchpoints and encouraging the use of our digital and electronic banking channels. We continuously monitor and conform our practices based on updates from the Center for Disease Control, World Health Organization, Financial Regulatory Agencies, and local and state health departments.
In addition, certain late fees are being waived for those customers experiencing a hardship as a result of the COVID 19 pandemic.
Comparison of Financial Condition at SeptemberJune 30, 20192020 and December 31, 2018
General.
Total assets increasedLoans and Leases.
Our loan and lease portfolio, net of allowance for loan and lease losses, increasedNonperforming loans and leases, consisting of nonaccrual loans and leases and accruing loans and leases more than 90 days past due, totaled $4.3 million or 0.57% of total loans and leases at June 30, 2020, compared to $4.3 million or 0.61% of total loans at March 31, 2020, and $3.8 million or 0.55% of total loans and leases at December 31, 2019. Accruing loans past due more than 90 days at June 30, 2020, totaled $3.3 million, compared to $3.1 million at March 31, 2020, and $2.6 million at December 31, 2019.
At June 30, 2020, TDRs totaled $569,000, compared to $598,000 at December 31, 2019. At June 30, 2020 and December 31, 2019, the Company had TDRs that were accruing and performing in our constructionaccordance with their modified terms of $569,000 and development loan portfolio$598,000, respectively. Performing TDRs are not considered nonperforming assets as they continue to accrue interest despite being considered impaired due to customers obtaining long term fixed ratethe restructured status. The CARES Act amended generally accepted accounting principles with respect to the modification of loans from alternate sources.
Allowance for Loan and Lease Losses.
The allowance for loan and lease losses increasedManagement regularly analyzes conditions within its geographic markets and evaluates its loan and lease portfolio. The Company evaluated its exposure to potential loan and lease losses as of June 30, 2020, which evaluation included consideration of potential credit losses due to the deteriorating economic conditions driven by the impact of the COVID-19 pandemic. The full impact of the pandemic on the Company’s deposit and loan and lease customers is still unknown. The Company has increased its qualitative factors when determining the adequacy of its allowance for loan and lease losses. Credit metrics are being reviewed and stress testing is being performed on the loan portfolio. Potentially higher risk segments of the portfolio, such as hotels and restaurants, are being closely monitored as are loan payment deferrals.
Deposits.
Total depositsBorrowings.
Total borrowings, consisting solely of FHLB advances, increasedStockholders’ Equity.
Stockholders’ equity totaledComparison of Results of Operations for the Three Months Ended SeptemberJune 30, 20192020 and 2018.
General.
NetInterest Income. Interest income increased $100,000, or 1.0%, to $10.5 million during the quarter ended June 30, 2020, compared to $10.4 million during the quarter ended June 30, 2019. Interest income on loans and leases increased $145,000, or 1.6%, to $9.3 million for the quarter ended SeptemberJune 30, 2020, from $9.2 million for the comparable quarter in 2019, due to higher average loan and lease balances. The average outstanding loan and lease balance was $747.9 million for the quarter ended June 30, 2020, compared to $687.0 million for the quarter ended June 30, 2019. The one-time expenses associated withaverage yield on loans and leases was 4.98% for the Foundation reduced basicquarter ended June 30, 2020, compared to 5.33% for the comparable quarter in 2019. The yield on the loan and diluted earnings per sharelease portfolio was impacted by $0.40 per share.
Interest income on investment securities, including FHLB stock, increased $222,000, or 23.2%, to $9.0$1.2 million forduring the same three month periodquarter ended June 30, 2020, from $957,000 during the comparable quarter in 2018.2019. The increase was primarily attributable to a $75.7 million increase in the average balance of loans and leases outstanding and a 15 basis point increase in the yield on loans and leases for the three months ended September 30, 2019, compared to the three months ended September 30, 2018, which resulted in a $1.3 million increase in interest income.income on investment securities from the comparable period in 2019 was due to higher average balances, partially offset by a lower weighted average yield. The average balance of investment securities, increased $19.7including FHLB stock, was $256.6 million for the three monthsquarter ended SeptemberJune 30, 20192020, compared to $157.8 million for the three monthsquarter ended SeptemberJune 30, 2018, and the2019. The average yield on investment securities, including FHLB stock, was 1.84% for the second quarter of 2020, compared to 2.45% for the second quarter of 2019. Interest income earned on cash and cash equivalents decreased 41 basis points, which resultedto $11,000 in a $50,000 decreasethe second quarter of 2020 compared to $278,000 in interest income. The average balancethe comparable quarter of “Other”, primarily2019. This was due to the significantly lower yield earned on funds withat the Federal Reserve Bank, increased $84.3after the rate reductions experienced in the second half of 2019 and in March 2020.
Interest Expense. Interest expense decreased $441,000, or 15.1%, to $2.5 million for the three monthsquarter ended SeptemberJune 30, 2019 compared to the three months ended September 30, 2018 due to funds received by the Company in its initial public offering, with the average yield on such funds increasing 78 basis points, resulting in a $600,000 increase in interest income.
Net Interest Income.
Net interest income before the provision for loan and lease losses increasedAverage Balances, Interest and Average Yields/Cost
Three Months Ended September 30, | ||||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Average Balance Outstanding | Interest Earned/ Paid | Yield/ Rate | Average Balance Outstanding | Interest Earned/ Paid | Yield/ Rate | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans and leases receivable | $ | 698,924 | $ | 9,318 | 5.33 | % | $ | 623,232 | $ | 8,068 | 5.18 | % | ||||||||||||
Securities | 158,701 | 750 | 1.89 | % | 138,964 | 800 | 2.30 | % | ||||||||||||||||
Federal Reserve and FHLB stock | 7,580 | 112 | 5.91 | % | 6,716 | 77 | 4.59 | % | ||||||||||||||||
Other | 89,550 | 627 | 2.80 | % | 5,349 | 27 | 2.02 | % | ||||||||||||||||
Total interest-earning assets | 954,755 | 10,807 | 4.53 | % | 774,261 | 8,972 | 4.64 | % | ||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Savings and money market accounts | 163,660 | 286 | 0.70 | % | 154,720 | 208 | 0.54 | % | ||||||||||||||||
Interest-bearing checking accounts | 104,951 | 115 | 0.44 | % | 100,558 | 51 | 0.20 | % | ||||||||||||||||
Certificate accounts | 297,848 | 1,632 | 2.19 | % | 287,065 | 1,216 | 1.69 | % | ||||||||||||||||
Borrowings | 147,302 | 865 | 2.35 | % | 115,164 | 557 | 1.93 | % | ||||||||||||||||
Total interest-bearing liabilities | 713,761 | 2,898 | 1.62 | % | 657,507 | 2,032 | 1.24 | % | ||||||||||||||||
Net interest income | $ | 7,909 | $ | 6,940 | ||||||||||||||||||||
Net earning assets | $ | 240,994 | $ | 116,754 | ||||||||||||||||||||
Net interest rate spread(1) | 2.91 | % | 3.40 | % | ||||||||||||||||||||
Net interest margin(2) | 3.31 | % | 3.59 | % | ||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 133.76 | % | 117.76 | % | ||||||||||||||||||||
|
|
| Three Months Ended June 30, | |||||||||||||||||||||
|
|
| 2020 |
| 2019 | |||||||||||||||||||
|
|
|
| Average Balance Outstanding |
|
|
| Interest Earned/ Paid |
| Yield/ Rate |
|
|
| Average Balance Outstanding |
|
|
|
| Interest Earned/ Paid |
| Yield/ Rate |
|
| |
|
|
|
| (Dollars in thousands) |
| |||||||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loans and leases receivable |
|
| $ | 747,865 |
|
| $ | 9,308 |
| 4.98 | % |
| $ | 687,023 |
|
| $ |
| 9,163 |
| 5.33 | % |
| |
Securities |
|
|
| 247,594 |
|
|
| 1,120 |
| 1.81 | % |
|
| 150,640 |
|
|
|
| 867 |
| 2.30 | % |
| |
FHLB stock |
|
|
| 9,035 |
|
|
| 58 |
| 2.57 | % |
|
| 7,143 |
|
|
|
| 91 |
| 5.10 | % |
| |
Cash and cash equivalents and other |
|
|
| 54,806 |
|
|
| 11 |
| 0.08 | % |
|
| 70,744 |
|
|
|
| 278 |
| 1.57 | % |
| |
Total interest-earning assets |
|
|
| 1,059,300 |
|
|
| 10,497 |
| 3.96 | % |
|
| 915,550 |
|
|
|
| 10,399 |
| 4.54 | % |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Savings and money market accounts |
|
|
| 183,415 |
|
|
| 253 |
| 0.55 | % |
|
| 180,514 |
|
|
|
| 346 |
| 0.77 | % |
| |
Interest-bearing checking accounts |
|
|
| 115,091 |
|
|
| 66 |
| 0.23 | % |
|
| 102,280 |
|
|
|
| 98 |
| 0.38 | % |
| |
Certificate accounts |
|
|
| 303,805 |
|
|
| 1,385 |
| 1.82 | % |
|
| 317,299 |
|
|
|
| 1,663 |
| 2.10 | % |
| |
Borrowings |
|
|
| 181,824 |
|
|
| 770 |
| 1.69 | % |
|
| 147,375 |
|
|
|
| 809 |
| 2.20 | % |
| |
Total interest-bearing liabilities |
|
|
| 784,135 |
|
|
| 2,474 |
| 1.26 | % |
|
| 747,468 |
|
|
|
| 2,916 |
| 1.56 | % |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net interest income |
|
|
|
|
|
| $ | 8,023 |
|
|
|
|
|
|
|
| $ |
| 7,483 |
|
|
|
| |
Net earning assets |
|
| $ | 275,165 |
|
|
|
|
|
|
|
| $ | 168,082 |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net interest rate spread(1) |
|
|
|
|
|
|
|
|
| 2.70 | % |
|
|
|
|
|
|
|
|
| 2.98 | % |
| |
Net interest margin(2) |
|
|
|
|
|
|
|
|
| 3.03 | % |
|
|
|
|
|
|
|
|
| 3.27 | % |
| |
Average interest-earning assets to average interest-bearing liabilities |
|
|
| 135.09 | % |
|
|
|
|
|
|
|
| 122.49 | % |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
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|
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|
_____________
(1) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
(2) Net interest margin represents net interest income divided by average total interest-earning assets.
Provision for Loan and Lease Losses.
Non-Interest Income.
Non-interest income increasedNon-Interest Expense. Non-interest expense decreased $2.0 million, or 25.7%, to $5.6 million for the three months ended SeptemberJune 30, 2019, compared to $1.02020, from $7.6 million for the same period in 2018. A gain on sale of securities of $22,000 was recorded for the three months ended September 30, 2019, compared to no gain recognized in the same period in 2018. Gain on sale of loans and leases increased $77,000, or 49.7%, to $232,000 for the three months ended September 30, 2019 compared to $155,000 for the three months ended September 30, 2018 as a result of an increase in mortgage banking activity during the period. Other loan fees increased $108,000 during the third quarter of 2019 compared to the third quarter of 2018. Other income decreased $85,000, or 39.7%, to $129,000 for the three months ended September 30, 2019 compared to $214,000 for the three months ended September 30, 2018.
Income Tax Expense.
Comparison of Results of Operations for the Six Months Ended June 30, 2020 and 2019.
General.Net income for the six months ended June 30, 2020 totaled $5.0 million, a $3.3 million or 190.4% increase from net income of $1.7 million for the comparable period in 2019. The $5.0 million in earnings equaled $0.40 diluted earnings per share for the first half of 2020. There is no comparison of earnings per share to the first half of 2019, as the Company’s reorganization from the mutual to stock form of ownership and related stock offering was not completed until July 1, 2019.
Interest Income. Interest income increased $795,000, or 3.9%, to $20.9 million during the six months ended June 30, 2020, compared to $20.2 million for the comparable period in 2019. Interest income on loans and leases increased $443,000, or 2.5%, to $18.4 million for the first six months of 2020, compared to $17.9 million for the comparable period in 2019, due to higher average loan and lease balances and a slightly higher average yield. The average outstanding loan and lease balance was $692.1 million for the first half of the year of 2020, compared to $677.7 million for the first half of 2019. The average yield on loans and leases was 5.31% for the first six months of 2020, compared to 5.29% for the first six months of 2019. The yield on the loan and lease portfolio was impacted by the PPP loan activity which occurred during the second quarter of 2020 as PPP loans are originated at an interest rate of 1%, although the effective yield is slightly higher as a result of the origination fees paid to us by the SBA. The average yield on PPP loans was 3.22% in the first half of 2020, including the recognition of the net deferred fees, reducing average yield on loans and leases by eight basis points during the six months ended June 30, 2020.
Interest income on investment securities, including FHLB stock, increased $543,000, or 28.6%, to $2.4 million during the six months ended June 30, 2020, compared to $1.9 million during the comparable period in 2019. The increase in the interest income on investment securities was due to higher average balances, partially offset by a lower weighted average yield. The average balance of investment securities, including FHLB stock, was $244.4 million for the first six months of 2020, compared to $153.6 million for the first six months of 2019. The average yield on investment securities, including FHLB stock, was 2.00% for the first half of 2020, compared to 2.47% for the first half of 2019. Interest income earned on cash and cash equivalents decreased to $136,000 in the first half of 2020 compared to $328,000 in the first half of 2019. This was due to the significantly lower yield earned on funds at the Federal Reserve after the rate reductions experienced in the second half of 2019 and in March 2020.
Interest Expense. Interest expense decreased $514,000, or 9.3%, to $5.0 million for the six months ended June 30, 2020, compared to $5.6 million for the six months ended June 30, 2019. Interest expense on deposits decreased $465,000, or 11.6%, to $3.5 million for the first half of 2020, compared to $4.0 million in the first half of 2019. This decrease in interest expense on deposits was primarily attributable to the lower weighted average rate paid on interest-bearing deposits, as well as a decline in average balances of interest-bearing deposits. The weighted average rate paid on interest-bearing deposits was 1.23% for the six months ended June 30, 2020, compared to 1.37% for the six months ended June 30, 2019. Average balances of interest-bearing deposits declined $12.5 million, or 2.1%, to $574.4 million in the first six months of 2020 compared to the first six months of 2019. Interest expense on FHLB borrowings decreased $49,000, or 3.2%, to $1.5 million in the first half of 2020 compared to the first half of 2019. The average balance of FHLB borrowings totaled $172.9 million during the first six months of 2020, compared to $141.7 million for the first six months of 2019. The weighted average rate paid on FHLB borrowings was 1.75% for the first half of 2020, a 45 basis point decline from 2.20% for the first half of 2019.
Net Interest Income.
Net interest income before the provision for loan and lease losses increasedAverage Balances, Interest and Average Yields/Cost.
The following tables set forth for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities. Average balances have been calculated using quarterly balances. Non-accruing loans have been included in the table as loans carrying a zero yield. Loan fees are included in interest income on loans and are not material.Nine Months Ended September 30, | ||||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Average Balance Outstanding | Interest Earned/ Paid | Yield/ Rate | Average Balance Outstanding | Interest Earned/ Paid | Yield/ Rate | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||
Loans and leases receivable | $ | 684,844 | $ | 27,247 | 5.30 | % | $ | 605,475 | $ | 23,048 | 5.08 | % | ||||||||||||
Securities | 149,064 | 2,465 | 2.20 | % | 137,323 | 2,309 | 2.24 | % | ||||||||||||||||
Federal Reserve and FHLB stock | 7,140 | 296 | 5.53 | % | 6,716 | 263 | 5.22 | % | ||||||||||||||||
Other | 56,949 | 954 | 2.23 | % | 9,445 | 109 | 1.54 | % | ||||||||||||||||
Total interest-earning assets | 897,997 | 30,962 | 4.60 | % | 758,959 | 25,729 | 4.52 | % | ||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||
Savings and money market accounts | 168,800 | 914 | 0.72 | % | 160,578 | 631 | 0.52 | % | ||||||||||||||||
Interest-bearing checking accounts | 102,221 | 278 | 0.36 | % | 101,198 | 153 | 0.20 | % | ||||||||||||||||
Certificate accounts | 308,976 | 4,835 | 2.09 | % | 273,310 | 3,200 | 1.56 | % | ||||||||||||||||
Borrowings | 143,597 | 2,424 | 2.25 | % | 108,290 | 1,444 | 1.78 | % | ||||||||||||||||
Total interest-bearing liabilities | 723,594 | 8,451 | 1.56 | % | 643,376 | 5,428 | 1.12 | % | ||||||||||||||||
Net interest income | $ | 22,511 | $ | 20,301 | ||||||||||||||||||||
Net earning assets | $ | 174,403 | $ | 115,583 | ||||||||||||||||||||
Net interest rate spread(1) | 3.04 | % | 3.40 | % | ||||||||||||||||||||
Net interest margin(2) | 3.34 | % | 3.57 | % | ||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 124.10 | % | 117.97 | % | ||||||||||||||||||||
|
|
| Six Months Ended June 30, | |||||||||||||||||||||
|
|
| 2020 |
| 2019 | |||||||||||||||||||
|
|
|
| Average Balance Outstanding |
|
|
| Interest Earned/ Paid |
| Yield/ Rate |
|
|
| Average Balance Outstanding |
|
|
|
| Interest Earned/ Paid |
| Yield/ Rate |
|
| |
|
|
|
| (Dollars in thousands) |
| |||||||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loans and leases receivable |
|
| $ | 692,055 |
|
| $ | 18,372 |
| 5.31 | % |
| $ | 677,688 |
|
| $ |
| 17,929 |
| 5.29 | % |
| |
Securities |
|
|
| 235,947 |
|
|
| 2,302 |
| 1.95 | % |
|
| 146,667 |
|
|
|
| 1,715 |
| 2.34 | % |
| |
FHLB stock |
|
|
| 8,479 |
|
|
| 139 |
| 3.28 | % |
|
| 6,916 |
|
|
|
| 183 |
| 5.29 | % |
| |
Cash and cash equivalents and other |
|
|
| 43,541 |
|
|
| 136 |
| 0.62 | % |
|
| 40,379 |
|
|
|
| 328 |
| 1.62 | % |
| |
Total interest-earning assets |
|
|
| 980,022 |
|
|
| 20,949 |
| 4.28 | % |
|
| 871,650 |
|
|
|
| 20,155 |
| 4.62 | % |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Savings and money market accounts |
|
|
| 173,352 |
|
|
| 545 |
| 0.63 | % |
|
| 171,736 |
|
|
|
| 628 |
| 0.73 | % |
| |
Interest-bearing checking accounts |
|
|
| 109,622 |
|
|
| 148 |
| 0.27 | % |
|
| 100,834 |
|
|
|
| 163 |
| 0.32 | % |
| |
Certificate accounts |
|
|
| 291,449 |
|
|
| 2,836 |
| 1.95 | % |
|
| 314,309 |
|
|
|
| 3,203 |
| 2.04 | % |
| |
Borrowings |
|
|
| 172,945 |
|
|
| 1,510 |
| 1.75 | % |
|
| 141,713 |
|
|
|
| 1,559 |
| 2.20 | % |
| |
Total interest-bearing liabilities |
|
|
| 747,368 |
|
|
| 5,039 |
| 1.35 | % |
|
| 728,592 |
|
|
|
| 5,553 |
| 1.52 | % |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net interest income |
|
|
|
|
|
| $ | 15,910 |
|
|
|
|
|
|
|
| $ |
| 14,602 |
|
|
|
| |
Net earning assets |
|
| $ | 232,654 |
|
|
|
|
|
|
|
| $ | 143,058 |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net interest rate spread(1) |
|
|
|
|
|
|
|
|
| 2.93 | % |
|
|
|
|
|
|
|
|
| 3.10 | % |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net interest margin(2) |
|
|
|
|
|
|
|
|
| 3.25 | % |
|
|
|
|
|
|
|
|
| 3.35 | % |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Average interest-earning assets to average interest-bearing liabilities |
|
|
| 131.13 | % |
|
|
|
|
|
|
|
| 119.63 | % |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
___________________
(1) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
(2) Net interest margin represents net interest income divided by average total interest-earning assets.
Provision for Loan and Lease Losses.
The provision for loan and lease losses for theNon-Interest Income.
Non-Interest Expense. Non-interest expense decreased $2.2 million, or 16.7%, to $11.2 million during the first six months of 2020 compared to $13.4 million during the same period in 2018. Data processing fees increased $191,000, while FDIC assessments decreased $117,000,2019. Salaries and employee benefits declined $2.2 million, or 27.0%24.5%, during the nine months ended September 30, 2019 compared to September 30, 2018. The increase in data processing fees was a result of higher transaction volume and services while the decrease in FDIC assessments was attributable to the credit received in the third quarter of 2019. Legal and professional fees also increased $388,000 in the first nine monthshalf of 2019 compared to the same period in 2018 for the reasons discussed above. Loan tax and insurance expense increased by $28,000 during the nine months ended September 30, 2019 compared to the same period in 2018 due to a recovery of $84,000 in property taxes in 2018.
Income Tax Expense. Income tax expense increased $1.0 million during the first half of 2020, compared to the first half of 2019, primarily due to a $4.3 million increase in pre-tax income. The effective tax rate for the first half of 2020 was 20.6% compared to 14.1% in the first half of 2019.
Liquidity
We are required to have enough cash and investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure safe and sound operations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. Historically, liquid assets have been maintained above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained.
Liquidity management involves the matching of cash flow requirements of customers, who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs and our ability to manage those requirements. We strive to maintain an adequate liquidity position by managing the balances and maturities of interest-earning assets and interest-bearing liabilities so that the balance in short-term investments at any given time will cover adequately any reasonably anticipated immediate need for funds. Additionally, First Bank Richmond maintains a relationship with the FHLB of Indianapolis which could provide funds on short-term notice if needed.
Liquidity management is both a daily and long-term function of the management of our business. It is overseen by the Asset and Liability Management Committee. Excess liquidity is generally invested in short-term investments, such as overnight deposits and holding excess funds at the Federal Reserve Bank. On a long termlong-term basis, we maintain a strategy of investing in various lending products and investment securities, including mortgage-backed and municipal securities. First Bank Richmond uses its sources of funds primarily to meet its ongoing commitments, pay maturing deposits, fund deposit withdrawals and fund loan commitments.
First Bank Richmond uses its sources of funds primarily to meet its ongoing commitments, pay maturing deposits, fund deposit withdrawals and fund loan and lease commitments. At June 30, 2020, outstanding loan and lease commitments, including unused lines and letters of credit, totaled $133.9 million, including $55.6 million of undisbursed construction and land loans. Certificates of deposit scheduled to mature in one year or less at June 30, 2020, totaled $265.2 million. It is management’s policy to offer deposit rates that are competitive with other local financial institutions. Based on this management strategy, we believe that a majority of maturing deposits will remain with the Bank.
Liquidity, represented by cash, cash equivalents, and investment securities, is a product of our operating, investing and financing activities. Primary sources of funds are deposits, amortization, prepayments and maturities of outstanding loans and mortgage-backed securities, maturities of investment securities and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. In addition, excess funds are invested in short-term interest-earning assets, which provide liquidity to meet lending requirements. Cash is also generated through borrowings. FHLB advances are utilized to leverage our capital base and provide funds for lending and investment activities, as well as to enhance interest rate risk management.
Cash and cash equivalents increased $70.0 million to $110.6 million as of June 30, 2020, from $40.6 million as of December 31, 2019. Net cash provided by operating activities was $7.2 million for the six months ended June 30, 2020. Net cash used in investing activities totaled $84.5 million during the six months ended June 30, 2020 and consisted primarily of increases in net loans and available-for-sale securities. The $147.2 million of net cash provided by financing activities during the six months ended June 30, 2020 was primarily the result of a $121.9 million net increase in deposits and $26.0 million net increase in FHLB advances.
As a separate legal entity from the Bank, the Company must provide for its own liquidity. At June 30, 2020, the Company, on an unconsolidated basis, had $42.5 million in cash, noninterest-bearing deposits and liquid investments generally available for its cash needs. The Company’s principal source of liquidity is dividends and ESOP loan repayments from the Bank.
Management believes that its primary liquidity sources of loan repayments, maturing investment securities, available FHLB borrowing, possible utilization of the PPPLF facility, and access to the brokered CD market are used primarily to meet ongoing commitments, pay maturing deposits, fund withdrawals, and to fund loan commitments. It is management’s policy to offer deposit rates that are competitive with other local financial institutions. Based on this management strategy, we believe that a majority of maturing deposits will remain with us.
Except as set forth above, management is not aware of any trends, events, or uncertainties that will have, or that are reasonably likely to have a material impact on liquidity, capital resources or operations. Further, management is not aware of any current recommendations by regulatory agencies, which, if they were to be implemented, would have this effect.
Off-Balance Sheet Activities
In the normal course of operations, we engage in a variety of financial transactions that are not recorded in our financial statements, including commitments to extend credit and unused lines of credit. These transactions involve varying degrees of off-balance sheet risks. While these commitments are contractual obligations and represent our potential future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At SeptemberJune 30, 2019,2020, we had $96.9$133.9 million in loan and lease commitments and unused lines of credit.
Capital Resources
First Bank Richmond is subject to minimum capital requirements imposed by the FDIC. The FDIC may require us to have additional capital above the specific regulatory levels if it believes we are subject to increased risk due to asset problems, high interest rate risk and other risks. At SeptemberJune 30, 2019,2020 First Bank Richmond’s regulatory capital exceeded the FDIC regulatory requirements, and First Bank Richmond was well-capitalized under regulatory prompt corrective action standards. Consistent with our goals to operate a sound and profitable organization, our policy is for First Bank Richmond to maintain well-capitalized status.
Required for | To Be Well | |||||||||||||||||||||||
Actual | Adequate Capital | Capitalized | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
At September 30, 2019 | (Dollars in thousands) | |||||||||||||||||||||||
Total risk-based capital (to risk weighted assets) | $ | 161,392 | 21.5 | % | $ | 59,972 | 8.0 | % | $ | 74,964 | 10.0 | % | ||||||||||||
Tier 1 risk-based capital (to risk weighted assets) | 154,496 | 20.6 | 44,979 | 6.0 | 59,972 | 8.0 | ||||||||||||||||||
Common equity tier 1 capital (to risk weighted assets) | 154,496 | 20.6 | 33,734 | 4.5 | 48,727 | 6.5 | ||||||||||||||||||
Tier 1 leverage (core) capital (to adjusted tangible assets) | 154,496 | 15.7 | 39,335 | 4.0 | 49,168 | 5.0 | ||||||||||||||||||
As of December 31, 2018 | ||||||||||||||||||||||||
Total risk-based capital (to risk weighted assets) | $ | 89,850 | 12.3 | % | $ | 58,640 | 8.0 | % | $ | 73,300 | 10.0 | % | ||||||||||||
Tier 1 risk-based capital (to risk weighted assets) | 84,250 | 11.5 | 43,980 | 6.0 | 58,640 | 8.0 | ||||||||||||||||||
Common equity tier 1 capital (to risk weighted assets) | 84,250 | 11.5 | 32,985 | 4.5 | 47,645 | 6.5 | ||||||||||||||||||
Tier 1 leverage (core) capital (to adjusted tangible assets) | 84,250 | 10.1 | 33,511 | 4.0 | 41,888 | 5.0 |
|
|
|
|
|
|
|
| Required for |
|
| To Be Well |
| ||||||||||||
|
| Actual |
|
|
|
|
| Adequate Capital |
|
| Capitalized |
| ||||||||||||
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
As of June 30, 2020 |
| (Dollars in thousands) |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital (to risk weighted assets) |
| $ | 115,769 |
|
|
| 20.1 | % |
| $ | 62,079 |
|
|
| 8.0 | % |
| $ | 77,599 |
|
|
| 10.0 | % |
Tier 1 risk-based capital (to risk weighted assets) |
|
| 147,248 |
|
|
| 19.0 |
|
|
| 46,559 |
|
|
| 6.0 |
|
|
| 62,079 |
|
|
| 8.0 |
|
Common equity tier 1 capital (to risk weighted assets) |
|
| 147,248 |
|
|
| 19.0 |
|
|
| 34,920 |
|
|
| 4.5 |
|
|
| 50,439 |
|
|
| 6.5 |
|
Tier 1 leverage (core) capital (to adjusted tangible assets) |
|
| 147,248 |
|
|
| 13.4 |
|
|
| 43,860 |
|
|
| 4.0 |
|
|
| 54,824 |
|
|
| 5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital (to risk weighted assets) |
| $ | 149,137 |
|
|
| 19.5 | % |
| $ | 61,304 |
|
|
| 8.0 | % |
| $ | 76,629 |
|
|
| 10.0 | % |
Tier 1 risk-based capital (to risk weighted assets) |
|
| 142,048 |
|
|
| 18.5 |
|
|
| 45,978 |
|
|
| 6.0 |
|
|
| 61,304 |
|
|
| 8.0 |
|
Common equity tier 1 capital (to risk weighted assets) |
|
| 142,048 |
|
|
| 18.5 |
|
|
| 34,483 |
|
|
| 4.5 |
|
|
| 49,809 |
|
|
| 6.5 |
|
Tier 1 leverage (core) capital (to adjusted tangible assets) |
|
| 142,048 |
|
|
| 14.6 |
|
|
| 39,027 |
|
|
| 4.0 |
|
|
| 48,784 |
|
|
| 5.0 |
|
Pursuant to the capital regulations of the FDIC and the other federal banking agencies, First Bank Richmond must maintain a capital conservation buffer consisting of additional common equity tier 1 (“CET1”) capital greater than 2.5% of risk-weighted assets above the required minimum levels of risk-based CET1 capital, tier 1 capital and total capital in order to avoid limitations on paying dividends, repurchasing shares, and paying discretionary bonuses. At SeptemberJune 30, 2019,2020 the Bank’s CET1 capital exceeded the required capital conservation buffer.
For a bank holding company with less than $3.0 billion in assets, the capital guidelines apply on a bank only basis and the FRB expects the holding company’s subsidiary banks to be well capitalized under the prompt corrective action regulations. If Richmond Mutual Bancorporation-DelawareBancorporation was subject to regulatory guidelines for bank holding companies with $3.0 billion or more in assets, at SeptemberJune 30, 2019,2020, it would have exceeded all regulatory capital requirements.
Impact of Inflation
The effects of price changes and inflation can vary substantially for most financial institutions. While management believes that inflation affects the economic value of total assets, it believes that it is difficult to assess the overall impact. Management believes this to be the case due to the fact that generally neither the timing nor the magnitude of inflationary changes in the economy coincides with changes in interest rates. Since virtually all of our assets and liabilities are monetary in nature, interest rates generally have a more significant impact on our performance than does inflation.
There has not been any material change in the market risk disclosures contained in our Prospectus.
An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Act”)) as of SeptemberJune 30, 2019,2020, was carried out under the supervision and with the
participation of our Chief Executive Officer, Chief Financial Officerand several other members of our senior management. Our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures in effect as of SeptemberJune 30, 2019,2020, were effective.In addition, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended SeptemberJune 30, 2019,2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We do not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all errors and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.
We are not involved in any pending legal proceedings as a plaintiff or defendant other than routine legal proceedings occurring in the ordinary course of business, and at SeptemberJune 30, 2019,2020, we were not involved in any legal proceedings the outcome of which would be material to our financial condition or results of operations.
In light of recent developments relating to COVID-19, the Company is supplementing its risk factors contained in Item 1A of its 2019 Form 10-K. The following risk factor should be read in conjunction with the risk factors described in the 2019 Form 10-K.
The COVID-19 pandemic has impacted the way we conduct business which may adversely impact our financial results and those of our customers. The ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.
The COVID-19 pandemic has significantly affected the way we provide banking services to businesses which may adversely affect our operations. As an essential business, we continue to provide banking and financial services to our customers through our drive-up facilities and in-person services available by appointment. In addition, we continue to provide access to banking and financial services through online banking, ATMs and by telephone. If the COVID-19 pandemic worsens it could limit or disrupt our ability to provide banking and financial services to our customers.
Although the stay-at-home orders in Indiana and Oho have terminated and phased re-opening of businesses has commenced, the majority of our employees with the ability to work remotely have been encouraged to continue doing so while continuing to provide banking services to our customers. Heightened cybersecurity, information security and operational risks may result from these remote work-from-home arrangements. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of the COVID-19 pandemic. We also rely upon our third-party vendors to conduct business and to process, record and monitor transactions. If any of these vendors are unable to continue to provide us with these services, it could negatively impact our ability to serve our customers. Although we have business continuity plans and other information set forthsafeguards in this Quarterly Report on Form 10-Q, you should carefully considerplace, there is no assurance that such plans and safeguards will be effective.
There is pervasive uncertainty surrounding the factors discussed under the heading “Risk Factors” containedfuture economic conditions that will emerge in the Prospectus. Ourmonths and years following the start of the pandemic. As a result, management is confronted with a significant and unfamiliar degree of uncertainty in estimating the impact of the pandemic on credit quality, revenues and asset values. To date, the COVID-19 pandemic has resulted in declines in loan demand and loan originations, other than through government sponsored programs such as the Payroll Protection Program, deposit availability, market interest rates and negatively impacted many of our business and consumer borrower’s ability to make their loan payments. Because the length of the pandemic and the efficacy of the extraordinary measures being put in place to address its economic consequences are unknown, including a continued low targeted federal funds rate, until the pandemic subsides, we expect our net interest income and net interest margin will be adversely affected in the near term, if not longer. Many of our borrowers have become unemployed or may face unemployment, and certain businesses are at risk of insolvency as their revenues decline precipitously, especially in businesses related to travel, hospitality, leisure and physical personal services. Businesses may ultimately not reopen as there is a significant level of uncertainty regarding the level of economic activity that will return to our markets over time, the impact of governmental assistance, the speed of economic recovery, the resurgence of COVID-19 in subsequent seasons and changes to demographic and social norms that will take place.
The impact of the pandemic is expected to continue to adversely affect us during 2020 and possibly longer as the ability of many of our customers to make loan payments has been significantly affected. Although the Company makes estimates of loan losses related to the pandemic as part of its evaluation of the risk factors applicable to us has not changed materially from those disclosedallowance for loan losses, such estimates involve significant judgment and are made in the Prospectus.
As of June 30, 2020, we hold and service a portfolio of approximately 752 PPP loans with a balance of $75.1 million. The PPP loans are subject to the provisions of the CARES Act and to complex and evolving rules and guidance issued by the SBA and other government agencies. We expect that the vast majority of our PPP borrowers will seek full or partial forgiveness of their loan obligations. We could face additional risks in our administrative capabilities to service our PPP loans and risk with respect to the determination of loan forgiveness depending on the final procedures for determining loan forgiveness. Further, since the commencement of the PPP, several larger banks have been subject to litigation regarding their processing of PPP loan applications. The Bank may be exposed to the risk of similar litigation, from both customers and non-customers that approached the Bank seeking PPP loans. PPP lenders, including the Bank, may also be subject to the risk of litigation in connection with other aspects of the PPP, including but not limited to borrowers seeking forgiveness of their loans and PPP agents seeking fees from PPP lenders for assisting borrowers in securing PPP loans. If any such litigation is filed against the Bank, it may result in significant financial or reputational harm to us.
Even after the COVID-19 pandemic subsides, the U.S. economy will likely require some time to recover from its effects, the length of which is unknown. and during which we may experience a recession. As a result, we anticipate our business may be materially and adversely affected during this recovery. To the extent the effects of the COVID-19 pandemic adversely impact our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in the section entitled "Risk Factors" in our 2019 Form 10-K.
(a)Not applicable
(b)Not applicable
(c)The Company completed its initial public offering on July 1, 2019 throughdid not make any stock repurchases during the salequarter ended June 30, 2020, and as of shares of its commonthat date did not have any publicly announced stock par value $0.01 per share, pursuant to a Registration Statement on Form S-1, as amended (Commission File No. 333- 230184), as declared effective on May 6, 2019. A total of 13,526,625 shares of common stock for an aggregate price of $135,266,250 were registered with the SEC. The Company sold 13,026,625 shares of common stock at $10.00 per share in its subscription offering for gross proceeds of approximately $130.3 million and issued 500,000 shares of common stock to First Bank Richmond, Inc. Community Foundation. Keefe, Bruyette & Wood, Inc. (“KBW”) acted as marketing agent for the offering. The net proceeds resulting from the offering after deducting all expenses related to the offering, including $1.5 million paid to KBW, were $127.7 million. Consistent with the disclosure in the Company’s prospectus dated May 6, 2019, we invested approximately $63.9 million of the net proceeds in First Bank Richmond, our wholly owned operating subsidiary, contributed $1.25 million to First Bank Richmond, Inc. Community Foundation and used approximately $5.2 million to redeem our outstanding subordinated debentures and related trust preferred securities. Our Employee Stock Ownership Plan (“ESOP”) was unable to purchase any shares in the offering as a result of an oversubscription in the offering. As a result, approximately $14.7 million of the net proceeds of the offering were used to fund a loan to our ESOP to purchase 1,082,130 shares of Company common stock in the aftermarket. The remaining net proceeds were invested in securities and cash and cash equivalents.
Nothing to report.
Not applicable.
Nothing to report.
Exhibit
Plan of Reorganization and Stock Offering of First Mutual of Richmond, Inc. | |
Charter of Richmond Mutual Bancorporation, Inc. | |
Bylaws of Richmond Mutual Bancorporation, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1 (Commission File No. 333-230184)) | |
Form of Common Stock Certificate of Richmond Mutual Bancorporation, Inc. (incorporated by reference to Exhibit 4.0 of the Company’s Registration Statement on Form S-1 (Commission File No. 333-230184)) | |
Rule 13a-14(a) Certifications (Chief Executive Officer) | |
Rule 13a-14(a) Certifications (Chief Financial Officer) | |
Section 1350 Certifications | |
101.0 | The following materials for the quarter ended |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
RICHMOND MUTUAL BANCORPORATION, INC. | ||
Date: | By: | /s/ Garry D. Kleer |
Garry D. Kleer | ||
Chairman, President and CEO | ||
(Duly Authorized Officer) | ||
Date: | By: | /s/ Donald A. Benziger |
Donald A. Benziger | ||
Executive Vice President and CFO | ||
(Principal Financial and Accounting Officer) | ||
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