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Section 1: 10-Q (QUARTERLY REPORT ON FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 2019)


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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, Indiana 47374
(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   [X]
   
Emerging growth company   [X]
 

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.



RICHMOND MUTUAL BANCORPORATION, INC. AND SUBSIDIARY
10-Q
TABLE OF CONTENTS
     
Page
Number
PART I     FINANCIAL INFORMATION
 1
     
Item 1.
Financial Statements
 1
       
   
Condensed Consolidated Balance Sheets at September 30, 2019 (Unaudited) and December 31, 2018
 1
       
   
Condensed Consolidated Statements of Operation (Unaudited) for the Three and Nine Months Ended September 30, 2019 and 2018
 2
       
   
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months
   Ended September 30, 2019 and 2018
 3
       
   
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the Three and Nine Months
   Ended September 30, 2019 and 2018
 4
       
   
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2019 and 2018
 5
       
   
Notes to Condensed Consolidated Financial Statements
 6
       
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 25
       
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 38
       
Item 4.
Controls and Procedures
 38
       
PART II     OTHER INFORMATION
 39
       
Item 1.
Legal Proceedings
 39
       
Item 1A.
Risk Factors
 39
       
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 39
       
Item 3.
Defaults Upon Senior Securities
 39
       
Item 4.
Mine Safety Disclosures
 39
       
Item 5
Other Information
 39
       
Item 6.
Exhibits
 40
       
SIGNATURES
 41





PART I.  FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

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
 

See accompanying notes.


1




Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Statements of Operation
(Unaudited)

   
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
 


See accompanying notes.
2



Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)



   
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
 



See accompanying notes.

















3



Richmond Mutual Bancorporation, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)


                                 
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
 



See accompanying notes.
4



Richmond Mutual Bancorporation, Inc.
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
 

See accompanying notes.
5


Richmond Mutual Bancorporation, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Table Dollar Amounts in Thousands)


Note 1:  Basis of Presentation

In 1998, First Bank Richmond's mutual predecessor reorganized into the mutual holding company form of organization by forming First Mutual of Richmond, Inc. ("First Mutual of Richmond-MHC"), a mutual holding company that had no stockholders and was controlled by its members.  First Mutual of Richmond-MHC 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.

On July 1, 2019, pursuant to the terms of our plan of reorganization and stock offering, First Mutual of Richmond-MHC converted from a mutual holding company to the stock holding company corporate structure.  Upon the completion of the transaction, First Mutual of Richmond-MHC and RMB-Delaware ceased to exist, and First Bank Richmond became a wholly-owned subsidiary of Richmond Mutual Bancorporation, Inc., a newly formed Maryland corporation (the "Company").

The reorganization of First Mutual of Richmond-MHC to a stock holding company and dissolution of First Mutual of Richmond-MHC was treated as a transfer as assets and liabilities under common control and accounted for prospectively on July 1, 2019, the date of reorganization and stock offering, resulting in the acquisition of First Bank Richmond by the Company and the dissolution of RMB-Delaware.  The net assets and liabilities transferred of $6,035,398 resulted in a deemed distribution as part of the reorganization which is included in the condensed consolidated statement of changes in stockholders' equity for the three and nine months ended September 30, 2019.

Simultaneously with the reorganization and stock offering, the common stock and additional paid in capital of RMB-Delaware totaling $12,751,000 was reclassified to retained earnings.  The dissolution of First Mutual of Richmond-MHC included a repayment of trust preferred securities of $5,207,000 using the net proceeds from the stock offering which is included in the financing activities of the condensed consolidated statement of cash flows for the nine months ended September 30, 2019.  All of the outstanding common stock of First Bank Richmond is owned by Richmond Mutual Bancorporation-Maryland, and all of the outstanding common stock of Richmond Mutual Bancorporation-Maryland is owned by public shareholders.

The costs of corporate reorganization and the issuance of common stock have been deducted from the sales proceeds of the offering.

In conjunction with the corporate reorganization, the Company contributed 500,000 shares and $1.25 million of cash to a newly formed charitable foundation, First Bank Richmond, Inc. Community Foundation (the "Foundation").

The accompanying unaudited 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 for RMB-Delaware’s year ended December 31, 2018 included in the prospectus filed with the Securities and Exchange Commission (“SEC”) pursuant to Rule 424(b) of the Securities Act of 1933, as amended, on May 16, 2019 (SEC File No. 333-230184). 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.

The interim consolidated financial statements at September 30, 2019 and for the three and nine months ended September 30, 2019 and 2018, have not been audited by independent accountants, but in the opinion of management, reflect all adjustments necessary to present fairly the financial position, results of operations and cash flows for such periods. The results of operations for the period are not necessarily indicative of the results to be expected for the full year.

The Consolidated Balance Sheet of RMB-Delaware as of December 31, 2018 has been derived from the audited Consolidated Balance Sheet of RMB-Delaware as of that date.
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 occur post-corporate reorganization, in each case unless the context indicates another meaning.

Note 2:  Accounting Pronouncements

Richmond Mutual Bancorporation - Maryland is an emerging growth company and as such will be subject to the effective dates noted for the private companies if they differ from the effective dates noted for public companies.

Revenue Recognition — Accounting Standards Codification 606, “Revenue from Contracts with Customers” (ASC 606) provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance enumerates five steps that entities should follow in achieving this core principle. Revenue generated from financial instruments, including loans and investment securities, are not included in the scope of ASC 606. The Company elected early adoption of ASC 606 in 2018. The adoption of ASC 606 did not result in a change to the accounting of any of the Company’s revenue streams that are within the scope of the amendments. Revenue-gathering activities that are within the scope of ASC 606 and that are presented as non-interest income in the Company’s consolidated statements of income include:
6



- Service charges on deposit accounts – these include general service fees charged for deposit account maintenance and activity and transaction-based fees charged for certain services, such as debit card, wire transfer and overdraft activities. Revenue is recognized when the performance obligation is completed, which is generally after a transaction is completed or monthly for account maintenance services.

- Card fee income – this includes debit card fees charged based on the volume and number of debit card transactions. Revenue is recognized when the performance obligation is completed, which is generally after a transaction is completed or monthly for account maintenance services.

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 form 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 Instruments-Credit Losses (Topic 326): Targeted Transition Relief” (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 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 are effective 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. 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.

The FASB has issued ASU No. 2016-02, Leases (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. Based on leases outstanding as of December 31, 2018, the new standard will not have a material impact on the Company’s balance sheet or income statement.

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements, which provide entities with an additional (and optional) transition method to adopt the new lease standard. Under this new transition method, an entity initially applies the new lease standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (Topic 842, Leases). The amendments in ASU 2018-11 also provide lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue guidance (Topic 606) and certain criteria are met.
7




Note 3:  Investment Securities

The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities are as follows:

   
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
 

8




The amortized cost and fair value of securities at September 30, 2019, 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
 

Securities with a carrying value of $69,475,000 and $86,267,000 were pledged at September 30, 2019 and December 31, 2018, 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 nine months ended September 30, 2019 were $35,246,933 and $57,703,608, respectively.  For the three and nine months ended September 30, 2018, proceeds from sales of securities available for sale were $0 and $1,507,529, respectively.  Gross gains were recognized on the sale of securities available for sale for the three and nine months ended September 30, 2019 of $104,000 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, respectively.  Gross losses were recognized on the sale of securities available for sale for the three and nine months ended September 30, 2019 of $82,000 and $87,000, respectively.  There were no gross losses realized from sales of securities available for sale for the three and nine months ended September 30, 2018.

Certain investments in debt securities are reported in the consolidated financial statements and notes at an amount less than their historical cost.  Total fair value of these investments at September 30, 2019 and December 31, 2018 was $109,059,000 and $126,736,000, which is approximately 58% and 88%, respectively, of the Company’s available-for-sale and held-to-maturity investment portfolio.  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.

9




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 September 30, 2019 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
 

Federal Agencies and U.S. Treasury Securities.  The unrealized losses on the Company’s investments in direct obligations of U.S. federal agencies and treasury securities were caused by interest rate changes.  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 at September 30, 2019.

SBA Pools and Mortgage-Backed Securities - GSE Residential.  The unrealized losses on the Company’s investment in SBA pools and mortgage-backed securities were caused by interest rate changes and illiquidity.  The Company expects to recover the amortized cost basis over the term of the securities.  Because the decline in market value is attributable to changes in interest rates and not credit quality, and 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 at September 30, 2019.
10




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 at September 30, 2019.


Note 4:  Loans, Leases and Allowance

Categories of loans at September 30, 2019 and December 31, 2018 include:



   
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 losses for three and nine months ended September 30, 2019 and 2018.


         
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
 

11




         
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 losses and the recorded investment in loans based on portfolio segment and impairment method as of September 30, 2019 and December 31, 2018:



   
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
 

12




   
December 31, 2018
 
         
Commercial
                         
   
Commercial
   
and
   
Residential
                   
   
Mortgage
   
Industrial
   
Mortgage
   
Leases
   
Consumer
   
Total